Key Post Bitcoin is a clearly identifiable economic bubble

[LosLobos]

New in this space, but when I see Paypal and the giant merchant banks investing strongly in crypto, I begin to wonder.

 

[tecate]

New in this space, but when I see Paypal and the giant merchant banks investing strongly in crypto, I begin to wonder.

What do you begin to wonder?

I'm open to correction but I don't think that Paypal has invested too much in crypto (as in pure investment in startups, etc). It has enabled/facilitated the purchase and use of crypto on its platform though.

 

[tecate]

In your case, given that you have no background in algorithmic stablecoin design, I also know that when you speak in absolutes and say in no way is this possible that you have no notion whether it is or it isn't.

The Duke's claim that synthetic dollars can't be achieved stably within crypto sounds like an argument that's going to fall by the wayside eventually.

Galoy Brings U.S. Dollars To Bitcoin’s Lightning Network

In addition to its new bitcoin-backed U.S. dollar balance on Lightning, Galoy also announced a $4 million raise.

bitcoinmagazine.com

This approach is not that of an algorithmic stablecoin per se - it involves inverse perpetual swaps behind the scenes. Even better still, the backing is purely in BTC. So now someone who wants to operate within a bitcoin economy can do so while still addressing short term commitments in USD - accounting for any short term volatility in BTC.

As far as the user is concerned, within the wallet there's a USD balance and a BTC balance - all achieved on Bitcoin network rails, without the user having to go near a bank or the fiat system.

 

[Duke of Marmalade]

This approach is not that of an algorithmic stablecoin per se - it involves inverse perpetual swaps behind the scenes.

Please, please! I have stated that a perfect algorithmic stablecoin is impossible. It means that the programmer could "print" digital US$ at will, just like the FED. It is impossible as a technological achievement as well as being impossible as a political reality.
The alchemists aimed to convert base metal into gold. This Galoy stable coin aims to convert bitcoin into U$ at the going rate. It may be a slick way of achieving that but is is not at all near the algo's fantasy of printing digital US$.

 

[tecate]

I have stated that a perfect algorithmic stablecoin is impossible.

In your unqualified opinion. How on earth would you know? Do you have a background in algo stablecoin design? . Can you tell me the technical reason as to why it will fail?

It means that the programmer could "print" digital US$ at will, just like the FED. It is impossible as a technological achievement as well as being impossible as a political reality.

On the technical claim, see above. On the political reality, why are algorithmic stablecoins not outlawed right now if that's the case?

This Galoy stable coin aims to convert bitcoin into U$ at the going rate. It may be a slick way of achieving that but is is not at all near the algo's fantasy of printing digital US$.

In terms of outcome, it's the same. The objective is to achieve a synthetic/digital dollar without having to touch the fiat system.

Algorithmic stablecoins are very different by design, yes (even if the ultimate objective is the same). What you're getting animated about is who gets to profit from seigniorage. Maths is all that backs an algo - so yes, the project potentially benefits from seigniorage. However, they only really get to do that if they design an innovative product that people want and use - and exchange fiat money (or other digital assets) for.

 

[Duke of Marmalade]

In your unqualified opinion. How on earth would you know? Do you have a background in algo stablecoin design?

I don't have a background in alchemy either, but I don't see how that prevents me stating that there can be no commercial way to turn base metal into gold.

. Can you tell me the technical reason as to why it will fail?

It will fail to be a perfect forever proxy to the US$. It is the aspiration of some of these algo merchants to be able to create the perfect digital US$. You have expressed an open mind on this ludicrous possibility. The concept of an algo is that by somehow kickstarting a demand for a UWMB digital entry, the supply can be subsequently managed to keep supply/demand balance at BTC/US$ = 1. It can be crudely approximated for a while but as that one (whose name I forget) proved, this cannot be guaranteed. Note that if demand falls the supply is reduced to try and maintain the parity. What that means is that existing holders get their holdings reduced so whilst the price of each unit may be maintained the overall value reduces in line with demand. What good is that?

On the technical claim, see above. On the political reality, why are algorithmic stablecoins not outlawed right now if that's the case?

For the same reason that magic wands that turn people into dust are not outlawed. Now you can be sure that if people could print immutable digital US$ there would certainly be a law against it. The fact there isn't a law either against it or maybe more realistically attempting to achieve this only proves how totally nonsensical it is.

Algorithmic stablecoins are very different by design, yes (even if the ultimate objective is the same). What you're getting animated about is who gets to profit from seigniorage. Maths is all that backs an algo - so yes, the project potentially benefits from seigniorage.

Oh that old trick! Complex mathematical solutions are the basis of bitcoin. Maths will back algo. Wise up, son.

 

[tecate]

I don't have a background in alchemy either, but I don't see how that prevents me stating that there can be no commercial way to turn base metal into gold.

A couple of things Duke. Your alchemy analogy is wayward and doesn't belong here in any way, shape or form.

Other than that, you've been saying up until this point that there is no technical way to produce a stable algorithmic stablecoin.
NOW you're saying something different (and please, come back to us and tell us whether we've now settled that at the very least, you have NO way of determining with certainty that a stable algorithmic stablecoin can't be designed). Now you're saying that it can't be done in a "commercial way". Firstly, what does that even mean? If i'm a geek and I've spent an age designing an algorithmic stablecoin and I get to a point where my product is stable and serves the purpose otherwise of a stablecoin, what's the issue? Where is that not a commercial asset? If I have a gazillion people who now want to both buy and use that asset, how has it not been delivered to the world as a commercial asset?

I believe that there's a knowledge deficit in your thinking here. You understand that when we're talking about algorithmic stablecoins we're talking about self executing code that NO-ONE can control?

It will fail to be a perfect forever proxy to the US$.

Ok. Explain to me your rationale for that statement given what I've set out above and in the previous post? Also, you talk about 'perfect' - and I wonder if there's some misunderstanding in your thinking here. UST/Terra wasn't perfect - and it failed. If a stablecoin simply achieves stability and can't be unhinged, then that's it - objective achieved. Is that what you mean by 'perfect'?

It is the aspiration of some of these algo merchants to be able to create the perfect digital US$.

Again, I don't know what your thinking is in terms of the mention of the word 'perfect' in this context? I don't think perfect belongs here - but simply an algorithmic stablecoin that tracks the dollar and can't be de-pegged = objective achieved.

You have expressed an open mind on this ludicrous possibility.

Explain to me how it is 'ludicrous' to be open to developers designing an algorithmic stablecoin such that it can't be de-pegged? You are saying that is 'ludicrous' yet you have no experience in stablecoin design - so how can you present that as an absolute???

The concept of an algo is that by somehow kickstarting a demand for a UWMB digital entry, the supply can be subsequently managed to keep supply/demand balance at BTC/US$ = 1.

You're confusing two different things. I provided an example of innovation from banking platform Galoy where they're using inverse perpetual swaps to represent underlying BTC as USD.
I then mentioned an actual algo stablecoin - that doesn't have BTC backing. It's backed by maths.

Note that if demand falls the supply is reduced to try and maintain the parity. What that means is that existing holders get their holdings reduced so whilst the price of each unit may be maintained the overall value reduces in line with demand. What good is that?

So you want to use a model that is proven to not work as an illustration as to why someone coming along and improving on that won't work? How does that make sense? You can suggest that they won't be able to solve the problem - and I won't have any problem with that. However, you are maintaining that there is NO WAY (professed as an absolute) they will solve the problem - and with that, I aint going to accept that nonsense. You don't have any experience in algorithmic stablecoin design on which to make that big phat claim. You have no earthly idea. There's no doubt in my mind that you wish that they won't solve the problem - but that's as far as it goes.

For the same reason that magic wands that turn people into dust are not outlawed.

BS - again, you are going waaay beyond your paygrade by suggesting that a stable aglorithmic stablecoin can't be designed. You have no idea - although I don't doubt that you are willing it to not become reality.

Now you can be sure that if people could print immutable digital US$ there would certainly be a law against it.

Maybe you have not noticed but in the case of algorithmic stables, we're talking about self executing code. Are you going to put a piece of code in Mountjoy?
Developers related to such projects could potentially be targeted. However, if we're ultimately talking about self executing code, then there will be nothing to stop it.

The fact there isn't a law either against it or maybe more realistically attempting to achieve this only proves how totally nonsensical it is.

lol I've news for you - it doesn't.

Oh that old trick! Complex mathematical solutions are the basis of bitcoin. Maths will back algo. Wise up, son.

lol - there's every chance that you can expect this statement right here to be re-quoted back to you in the next couple of years.,

 

[Duke of Marmalade]

A couple of things Duke. You're alchemy analogy is wayward and doesn't belong here in any way, shape or form.

Other than that, you've been saying up until this point that there is no technical way to produce a stable algorithmic stablecoin.
NOW you're saying something different (and please, come back to us and tell us whether we've now settled that at the very least, you have NO way of determining with certainty that a stable algorithmic stablecoin can't be designed). Now you're saying that it can't be done in a "commercial way". Firstly, what does that even mean?

You have totally misinterpreted, possibly deliberately, the alchemist qualification. I was referring to turning base metal into gold. I understand that it is theoretically possible by changing the former's nuclear arrangement. There is no way whatsoever of creating digital entries which are immutably US$ without some real US$ backing like perpetual swaps (you were fooled by that one weren't you?, talk about above your paygrade!). In the same way there is no way to perfectly digitally reproduce the Mona Lisa, though I understand some are trying.
As to making this illegal being akin to putting code in jail (is that what the Chinese are doing?). Are counterfeit dollars serving time in Sing Sing? Such arrant nonsense shows that you have completely lost the plot and it's time to get out of yet another rabbit hole.

 

[tecate]

You have totally misinterpreted, possibly deliberately, the alchemist qualification. I was referring to turning base metal into gold. I understand that it is theoretically possible by changing the former's nuclear arrangement.

I've misinterpreted nothing. The alchemy analogy is completely ill-fitting in this instance - it's just yet another attempt to misdirect and tar and feather.

There is no way whatsoever of creating digital entries which are immutably US$ without some real US$ backing like perpetual swaps (you were fooled by that one weren't you?, talk about above your paygrade!).

Firstly , you're conflating the two distinct means of getting to a decentralized digital representation of USD. An algorithmic stablecoin doesn't implicate USD backing in any way, shape or form.
When it comes to Galoy's Stablesats product, the underlying swaps do NOT implicate the 'backing' of USD either. They're settled in BTC. The product is BTC backed. Users have no knowledge of the underlying swaps and have no contact with fiat money in acquiring that synthetic USD.

In the same way there is no way to perfectly digitally reproduce the Mona Lisa, though I understand some are trying.

This is just misdirection. I'll say it again - you have NO background in algorithmic stablecoin design and development. Your claim that this design can't be improved upon to the point where the algo stablecoin is robust/stable regardless of market conditions is completely and utterly baseless.

As to making this illegal being akin to putting code in jail (is that what the Chinese are doing?). Are counterfeit dollars serving time in Sing Sing? Such arrant nonsense shows that you have completely lost the plot and it's time to get out of yet another rabbit hole.

I don't think you've given this much thought. Let's say a development team work over a number of years to improve algorithmic stablecoin design such that it's fully robust and let's say they get there. The code is self executing. Following robust testing, they remove any centralised control that may exist and let the protocol do its own thing. A government might find the development team has broken some law or other - but if the protocol is self executing at that point, any action that is taken against the Devs isn't going to stop that protocol. If it's truly decentralised, they won't be able to stop it if (when) the government puts a gun to their heads.

So in that context, whether you or they find it lawful or unlawful will have little consequence. What will exist at that point is digital hard money ( bitcoin) along with a digital/synthetic version of USD. Users are free to hold both as they see fit. Users who have shorter term commitments in USD can hold a proportion of funds in synthetic USD.

All of that can be achieved without going through a bank, with a greater level of privacy and for the most part, without KYC. There is some question in terms of the Stablesats product as to whether KYC would be required - it depends on jurisdiction. In the case of a robust algo stablecoin, there would be zero requirement for KYC.

 

[Duke of Marmalade]

When it comes to Galoy's Stablesats product, the underlying swaps do NOT implicate the 'backing' of USD either. They're settled in BTC. The product is BTC backed. Users have no knowledge of the underlying swaps and have no contact with fiat money in acquiring that synthetic USD.

Swapped into what? Users have no knowledge Heavens and the Crypto Gods forbid that the faithful should become aware that behind the scenes there are swaps going on into the infidel fiat.

Let's say a development team work over a number of years to improve algorithmic stablecoin design such that it's fully robust and let's say they get there. The code is self executing. Following robust testing, they remove any centralised control that may exist and let the protocol do its own thing. A government might find the development team has broken some law or other - but if the protocol is self executing at that point, any action that is taken against the Devs isn't going to stop that protocol. If it's truly decentralised, they won't be able to stop it if (when) the government puts a gun to their heads.

Considering this nonsensical impossibility is like asking oneself what would the world be like if we could do that Trekkie thing and beam ourselves to wherever we want. So let us imagine, purely as a thought experiment, that code has been developed which can create digital "fully robust" US$ at will and let us further imagine that society is powerless to do anything about it. You know the Germans tried dropping counterfeit sterling over Scotland in WWII, but I think it was detectable unlike your putative fully robust algorithmic US$. A source of unassailable creation at will of fully robust digital US$ would actually totally undermine our civilisation. But hey, dream on!

 

[tecate]

Swapped into what? Users have no knowledge Heavens and the Crypto Gods forbid that the faithful should become aware that behind the scenes there are swaps going on into the infidel fiat.

Firstly, your suggestion that information is being held back from anyone is nonsense. You use this discussion board. Do you - as a user - need to or want to know every intimate detail about the coding that has gone into this XenForo-based platform? Most users don't.
Secondly, my understanding is that those swaps are settled in BTC. If my understanding is correct, then your claim that perpetual swaps = USD backing is inaccurate.

Considering this nonsensical impossibility is like asking oneself what would the world be like if we could do that Trekkie thing and beam ourselves to wherever we want.

Again, you are in no way qualified to make that absolute claim. If you were an expert in algorithmic stablecoin design and development, that would at least add some credibility if you were to claim the design of a robust algorithmic stablecoin isn't possible. Even then, it would be an opinion. But you have no knowledge on the subject and here you are persistently talking in absolutes.
Beyond that, we already have algorithmic stablecoins in the wild - the very thing that you claim isn't a possibility. It just remains to be seen if they can remain stable in all real world trading conditions.

So let us imagine, purely as a thought experiment, that code has been developed which can create digital immutable US$ at will and let us further imagine that society is powerless to do anything about it. You know the Germans tried dropping counterfeit sterling over Scotland in WWII. A source of unassailable creation at will of immutable digital US$ would actually totally undermine our civilisation.

And with that, you need to rethink the whole thing. The use of algorithmic stablecoins is not akin to the example you provided i.e. simply printing off cash. Lets take the example of - the hybrid algorithmic stablecoin that I mentioned a few posts ago. You're saying that it can be issued into infinity - without an exchange of value. That is not the case. You won't be able to buy 1 FRAX token (which is equal to 1 USD) without exchanging either 1 USD or a digital asset to that value for it. There is no rampant printing press.

Now you'll probably say that they (the development team behind FRAX) can do that. While its still in development they could - but the moment that they do, what they have built will have zero value - it will be pointless. USD will have value - and FRAX in that instance would no longer have a cent of value.
Secondly, if the protocol is already decentralized and the rules relative to the protocol are already baked in, who can take that action you're talking about?

So the point that this would "undermine civilisation" is completely wayward. There are reports from various central banks - who have researched the topic and none of them have reached the conclusion that an algorithmic stablecoin would "undermine civilisation". In fact, from the point of view of the United States, strategically, the development of USD stablecoins (regardless of the type) has the potential to extend the reach of the USD in the world.

But hey! Dream on!

The 'dreaming' here is being done by yourself. You don't like the notion of it (in fairness, why wouldn't you come to that conclusion anyway given that you've misunderstood the topic to the extent that you believe it would "undermine civilisation"). So with that, you won't allow the thought of algorithmic stablecoin design being improved to the point of it being robust. That claim that this is impossible is a hope/dream on your part - it's not anything more than that.

 

[Duke of Marmalade]

Firstly, your suggestion that information is being held back from anyone is nonsense.

It was you who made a virtue of the "user having no knowledge (of fiat's role in the inner workings)".

 

[Duke of Marmalade]

@tecate
It was a thought experiment around your belief that fully robust digital US$ can be created out of nothing. It is good to see there are limits to your imagination - I am not one to believe that a fully untrammelled imagination is necessarily a good thing.
Would you like to tell us the frontier of your imagination. Is it 1 trillion fully robust US$ out of thin air?

 

[tecate]

It was you who made a virtue of the "user having no knowledge (of fiat's role in the inner workings)".

Indeed I did - and there was no reason to respond in the way that you did ( by suggesting that users are deliberately being kept in the dark as regards the mechanism that makes Galoy's synthetic dollars possible). Anyone is free to delve into that if they wish. However, there is no need for a user to know the intricate workings of derivative products, etc. in order to use those synthetic dollars.

 

[tecate]

@tecate
It was a thought experiment around your belief that fully robust digital US$ can be created out of nothing. It is good to see there are limits to your imagination - I am not one to believe that a fully untrammeled imagination is necessarily a good thing.

And approaching the subject by declaring in absolute form - without ANY basis or qualification - that developers won't be able to achieve a robust stablecoin design is definitely not a good thing.

Would you like to tell us the frontier of your imagination. Is it 1 trillion fully robust US$ out of thin air?

If a fully robust algorithmic stablecoin is developed, then I believe it will be used. I don't think either of us speculating on the market capitalization that product reaches is in any way essential to this discussion. But it's general availability and utility as an option to people in those circumstances is what's important.

 

[Duke of Marmalade]

Ah! So it is like you think the Trekkie thing is possible but only sparingly and over short distances.

 

[tecate]

Ah! So it is like you think the Trekkie thing is possible but only sparingly and over short distances.

You want to continue to use wayward analogies? Then I'll continue to respond in the same way. You have no notion whether algorithmic stablecoin design can or cannot be improved upon even though you continue to make baseless, unqualified absolute claims that it's a technical impossibility.

As regards the extent to which a robust algorithmic stablecoin will be used in the future and whether it will be 'used sparingly', I think you're following this up because in your miscomprehension of the subject, to your mind, you've decided to be truly horrified at the prospect of the prolific use of such a thing.

You'll recall an earlier exchange in which I suggested that rather than on/off ramps being an issue for crypto - that conventional finance could possibly be the one that increasingly moves to on-ramping itself into the digital assets world.

Given that you are such a proponent of a central bank model that implicates these central banking Gods that you revere so much, you should have a look at the FRAX whitepaper. That's where the true horror awaits you (in terms of the ambition of what they're looking to achieve).

 

[Duke of Marmalade]

@tecate I am completely ignorant on "beam me up" technology. Still I feel confident in stating that it won't happen.

 

[tecate]

@tecate I am completely ignorant on "beam me up" technology. Still I feel confident in stating that it won't happen.

What would be reasonable Duke is the suggestion that you think such a thing is unlikely. To state in absolute terms that it can't be accomplished isn't reasonable. To then take that a step further and start making continuous analogies with alchemy and the likes is completely unreasonable (and a deliberate attempt to lead people astray).
You "feel confident" in stating that it won't happen - whilst admitting that you have no notion and nothing substantive to base those absolute claims on. Sounds very familiar - similar to your take on what lies ahead for Bitcoin - no acceptance that there is more than a non-negligible possibility that it continues to develop....but you do you Duke.

 

[Duke of Marmalade]

@tecate I see you think that beam me up technology should not be entirely dismissed. I think I missed the day at school when they preached the merits of an open mind. So you see a day when we have competing headlines:
A laboratory in El Salvador has produced the world's first fully robust US$ without any link whatsoever to fiat assets. Creators stand to make 1 trillion dollars from their marvellous invention
A laboratory in Dublin has successfully beamed Michael D from the Aras to the zoo. A sad footnote is that the program mistakenly beamed him into the lion's cage.