Every gain against a dollar by Basis was erased, either by paying off previous bets, or by paying “dividends”, and would not count for future price resiliency. If the market cap was 3 trillion and basis was used by 500 million people, and it needed to issue “bonds” to hold the peg, then the doom clock would start ticking again afresh.
In order for Basis to hold the price, you placed bets, not only that that the price would go back, but that the market cap would grow enough beyond a parity price to pay off every bet ahead of you in line. If the price just returned to parity, you still got nothing. So the more outstanding bets, the bigger the risk of placing a new bet. And this risk grew at a power ratio the farther behind the currency got.
Basis could do nothing but explode.
“The critical insight is that as long as traders expect Basis price to correct [and grow] in the long-term...” which makes a prerequisite out of what they need to demonstrate.
And then there’s the part where they prove that their algorithm works by pretending that their currency behaves like USD does. Of course if your currency behaves like one of the most successful fiat currencies of all time, backed by the most powerful government in the world, then everything will be okay. If my hypothetical elderly Chihuahua dog had the driving ability and limbs of Micheal Schumacher in his prime, then my Chihuahua could turn in some nice lap times at the Nurburgring.
Whitepaper is still up for now. Enjoy. https://www.basis.io/basis_whitepaper_en.pdf
How is that a "stable" coin then?
They either pay you 1 basis when called or they expire worthless, if Basis economy will stagnate/contract for 5 years in the row.
Additionally they rely on unregulated crypto “exchanges” to make secondary markets in these futures.
I think the reason they’re calling them “bonds” is because binary futures and prediction markets are illegal in US (falling under CFTC jurisdiction).
Similar problem will apply if they were real bonds - then they're falling under the jurisdiction of the SEC and will have to be registered with them or get an exemption from registration.
For those who think that MakerDAO is better than Basis protocol, it's not that Maker got CFTC license to operate a Swap Execution Facility (SEF).
This Christmas, buy everyone in your family and all of your friends $100 worth of BTC. I'd bet my hat that you'd have to explain how it works, in a practical-how-to-trade-this sense, to virtually all of them, save for those in STEM. And even if they learned how it works, what's your aunt going to spent the BTC on? Can't take it to Applebee's, or Wal-Mart, or Bed Bath & Beyond, or pay a mortgage or a parking fine.
Default should be an unusual or unexpected outcome, not part of the contract. You don't take a loan from somebody and then saying them: "you know what, if I will not return you money in 5 years, even if my company still operating - write it off."
If the expiration is part of the contract, then it's a derivative contract. In this case you have only 2 outcomes: either you get paid 1 basiscoin, or your "bond" expires worthless after 5 years and you get nothing. That's why it's a binary future. Binary futures/options and prediction markets are illegal in US since they resemble gambling.
Sounds like credit default swaps ... you pay a premium until expiration (you get nothing) or some credit event happens (e.g. default; you get a payout). Difference seems to be the conditions for a payout.
Even if basis "bonds" were credit default swaps, and then listed on crypto "exchanges", they're still falling under the regulation of CFTC. Those exchanges need to be licensed as Swap Execution Facilities (SEFs). And if basis doing on the protocol level like MakerDAO - they need to get SEF license by themselves.
That’s why a peg is never 100% certain.
That’s how George Soros broke the bank of England. But unlike England, an autonomous network would simply continue to lose money and go bankrupt. Right? Any ways around it?
The old unforked version of the coin will continue to drop to 0, and will try algorithmically desperately to sell worthless bonds to try to raise the price, but nobody sane would buy them.
I'm not sure if this is legal or moral, but I would not be surprised if something similar appears in the future.
So exactly how counties do/did with their foreign currency reserves. Hint - it can and did end up blowing up in spectacular way.
Very true. See George Soros and the Bank of England for a famous example.
"Unfortunately, having to apply US securities regulation to the system had a serious negative impact on our ability to launch Basis."
* Due to their status as unregistered securities, bond and share tokens would be subject to transfer restrictions, with Intangible Labs responsible for limiting token ownership to accredited investors in the US for the first year after issuance and for performing eligibility checks on international users.
* Enforcing transfer restrictions would require a centralized whitelist, meaning our system would not only lose its censorship resistance, but also that on-chain auctions would have significantly less liquidity.
* Having fewer participants in the on-chain auctions adversely affects the stability of Basis, making Basis intrinsically less attractive to users. Additionally, imposing transfer restrictions on bond and share token auctions materially hurts our ability to build the Basis ecosystem.
Your snarky comment adds nothing constructive to this discussion, and lowers the quality of discussion on hackernews.
I'm sorry we can't scam you, apparently there is a law against that.
It will eventually fail too. When ETH collapses they won't be able to hold the stability for long.
I was skeptical of Maker at first, and they are backed by ETH, but they've stayed within 1% of their target price while ETH dropped 94%, so it seems to be working pretty well so far. They're working on a multi-collateral version.
I'm not sure which charts you are following, but as recently as yesterday they were 5% off target: https://coinmarketcap.com/currencies/dai/#charts
I don't think you can call DAI purely algorithmic because it needs oracles to work.
- Ones backed by fiat, or allegedly backed by fiat.
- Ones backed by commodities, e.g. the organisation that issues the UK's coinage (The Royal Mint) was looking at issuing RMG tokens backed by their gold reserves (they've since stopped work on this even though it is still listed on their web site).
- Ones backed by other crypto assets, e.g. Maker DAO's DAI depends on ETH as its collateral.
- Ones not backed by any external asset outside of its own system, e.g. Basis.
The algorithms for the last class are particularly interesting in that they essentially have to model what a central bank does. I'd be interested to find out why Basis has failed. Is it just that they were unable to comply with US regulations? Or is it that the algorithm itself wasn't viable?
Point is that DAI has economic incentives in code to keep its price in check.
Many exchanges, especially those that offer any type of contracts trading, are not under normal financial regulation and to the extent they even offer fiat denominated orderbooks there is a risk premium attached to it. When withdrawals are not guaranteed by by any type of regulatory body people could just as well trade pretend-dollars, and that's basically what stablecoins are.
Be cautious out there. At least these holders got their money back.
People who want to invest/speculate in cryptocurrency will often want some proportion of their portfolio value to be as stable as USD. But, actually holding true USD at exchanges/banks could be more complicated, requiring interfacing with legacy banking systems & regulations. A stablecoin allows USD value to be handled at exchanges (and transferred) in manners almost wholly analogous to other cryptocurrencies.
This simplifies, eg, a dApp hiring staff: you hire them for stable coins, which they cash out at various certified brokers.
1. A base "asset" to hold with nearly instant ability to move, ideally without changing value relative to the reporting currency.
2. Moving assets around between exchanges/markets/wallets outside banking hours (9a-5p M-F).
3. Banking one-self (no intermediary ever required), the owner can determine the appropriate security procedures for their assets (granted this may well be not on target of the use-case...)
The worst idea in cryptocurrency.
Two issues: 1) This scheme would only work with a PoS algorithm for block creation, because in a PoW system the security depends on the block reward (which would be low in this system). 2) There's not really a lower bound for the price of this token - the intrinsic value depends on it's usability for payments.
That's correct. The idea would be to make the supply stable wrt. to the hashing costs. Meaning supply would increase with increasing computational efficiency and stay constant relative to it (ie. the inflation of this currency would be tied to improvements in chips).
Anyway, the point is that from the beginning bitcoin was set up to promise massive gains to early adopters, which helped gain traction. Your suggestion has nothing similar, so it's not clear why anyone would adopt it.
Really, it seems like you're promising hyper inflation (because of Moores law), which is something a lot of people flock to crypto to get away from, and nobody (even those who like a little inflation) thinks is a good idea.
Incentivizing spending rather than hoarding just means you hit the lower bound (probably zero, unless receiving units of your coin is really, really technically interesting to some people) earlier...
The general lack of awareness of how traditional currencies are established and maintained is just shocking.
Also, make sure you understand scalability. As much as the crypto community likes to poo poo the Visa network; the Visa network handles an order of magnitude more transactions per second than the current cryptocurrencies can handle.
It isn't shocking. The point of 99.9999% of all cryptocurrencies aren't to make anything useful. They exist to get the creators rich. All of the rubes that buy into these scams will simply be sending their former wealth through a massively inefficient rube goldberg contraption that lines the pockets of those at the top of the pyramid.
The creators don't need to understand monetary policy, economics or scalability. The creators just need to understand enough deceptive marketing to get some suckers lining up to buy. The smart ones also know just enough ways to pocket their newly acquired fiat wealth and escape without getting caught by jonny law.
Visa network is centralized and owned a company. Bitcoin is a protocol with no central ownership. Additionally, visa network is currency-agnostic and enables payments in any currency they want to support. Centralized services like Visa can work with Bitcoin in various ways, for example the settlement transactions can be done with Bitcoin.
Additionally Bitcoin has been developed from the start with various centralized services built around it - without those services it wouldn't be popular at all. Any centralized service can scale as well as Visa. Though where Bitcoin provides value is not near retail payments, and while there have been bitcoin-reloadable visa cards I think that is not very interesting use-case.
Where does it provide value? If it's bad as currency, what's the use case? It certainly fails store of value test (unstable, high volatility).
Now, if instead of using some uninteresting hashing, you did genuinely useful work to create the coins, perhaps like gridcoin, then your system might make sense - since it's representative of an amount of computation performed.
Nobody in their right mind would hold it though - I presume you'd use it to pay for other computation, and there'd be a market of companies wanting to buy it in order to get their workloads computed.
It's true that the SEC is very strict on regulating securities (especially given recent history with e.g. mortage companies, enron, and other financial scandals). This has made the crypto ecosystem hard to navigate for people operating outside of the traditional financial system. This has not been helped by them evolving their interpretations and thinking over time. Call it progressive learning. So, it's hard but not impossible, and certainly not illegal.
This is why some of crypto companies with unicorn style valuations are operating in the US with money from US investors. I'm talking about companies like Coinbase and Stellar.
Stellar is a blockchain platform backed by US companies like IBM. The main use case for that platform seems to be stable coins. There are actually several companies offering USD backed stable coins. The point of these coins is not speculative trading as a security but value exchange via p2p transactions between trusted parties on the network. This is also the main use case for Ripple.
So, stable coins are very much legal and practical; and somewhat of an early success story for utility tokens. If you don't believe me, the top trading compant on stellarx.com (today) is a token by a company called stronghold.co: a USD stablecoin. There are five such coins on stellar currently. Stronghold.co are hiring in SFO and presumably operating there under US law and working within the rules set by the SEC.
The reason that Stellar is popular for this stuff is that the people behind it designed it such that it supports the use case well. E.g. it has a lot of built in stuff for dealing with AML that companies like stronghold.co can use to clear transactions or that others can use to clear transactions with them. AML is indeed not optional.
Also, the Securities Exchange Act of 1934 covers selling stuff. Using a computer to sell stuff does not matter.
“It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange,
(a) To employ any device, scheme, or artifice to defraud,
(b) To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or
(c) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person,
in connection with the purchase or sale of any security."
In this case you are interpreting the text of the law against a changed context (computers now exist) and making a judgement that "using a computer to sell stuff does not matter". There are a lot of not quite experts making similar value judgments about crypto stuff lately.
So, this stuff is anything but black and white. Hence there are perfectly legal business operating in the US doing stuff with blockchains, crypto currencies, etc. that are so far not ending up in trouble over what they are doing and seemingly complying with however today's SEC chooses to interpret what they are doing. They might change their mind of course over time.
If you are running a business doing this kind of stuff, the SEC is just one of many authorities you have to deal with. We've had some fun navigating the legal jungle that is the EU where each state has its own regulatory bodies, rules, practices, and politicians. The thinking on how to apply their laws is highly fluid. Right now, if you talk to two lawyers about anything crypto, you can get two completely different interpretations. Mostly they have a hard time understanding this stuff period.
But, sure that is just the common interpretation of those words and could in theory change. Though, good luck convincing a judge of such.
I think you just proved that cash is illegal
With Bitcoin, you can squish around as to whether it’s a commodity or currency and argue as to the actual dollar amount transmitted. With a stable coin, you’re explicitly transmitting U.S. dollars in kind. That’s the AML difference
My bad! It depends:
"An administrator or exchanger of convertible virtual currencies that (1) accepts and transmits a convertible virtual currency or (2) buys or sells convertible virtual currency in exchange for currency of legal tender or another convertible virtual currency for any reason (including when intermediating between a user and a seller of goods or services the user is purchasing on the user’s behalf) is a money transmitter under FinCEN's regulations, unless a limitation to or exemption from the definition applies to the person.
To the extent that a user mines Bitcoin and uses the Bitcoin solely for the user’s own purposes and not for the benefit of another, the user is not an MSB under FinCEN’s regulations, because these activities involve neither 'acceptance' nor 'transmission' of the convertible virtual currency and are not the transmission of funds within the meaning of the Rule" .
TL; DR Because "virtual currency does not have legal tender status in any jurisdiction," FinCEN does not consider it a "real currency" for purposes of its money transmission rules. Volatility is not taken into account in their analyses.
Disclaimer: I am not a lawyer. This is not legal advice. Consult with legal counsel before engaging in money transmission services.
Congratulations! You've just described cash.
(Also, cryptocurrency is more powerful and thus more dangerous than cash because it can be transmitted electronically and it has no volume or mass. These differences are relevant if you consider that organized crime incurs nontrivial costs in handling large amounts of cash.)
See what happened to bearer bonds.
Stablecoins are inherently doomed. First, they’re trying to solve the impossible trinity. And second, their untraceabiliry and explicit hard currency link makes them non-compliant AML-wise.
My main gripe with today's electronic transactions is that they are not private and too much information is shared between people who I don't know and don't need to know (banks, marketers, hackers). The government doesn't need to know that I bought a car brand y for x, they just need to know that the funds were clean, the bank doesn't need to know any of this info, just that the funds are clean, how much, the 'to' and 'from', that's all. So there's a lot of room for improvement in the existing system.
In the future, crypto-currency stable-coins will offer both privacy and also the ability to prove that the funds are clean, without exposing private details, maybe using things like zero-knowledge proofs.
What, you're making no sense, the government absolutely needs to know the make, model, and purchase price of any vehicle you buy. This is a standard part of various title and registration forms.
>Sure, businesses that use stable-coins with "high degree of usefulness in criminal matters" can register and file reports who whoever they need to, just like their cash counterparts - I don't see a problem with that.
One of these reports is a written plan that documents the efforts you're going through to prevent money laundering. If this plan isn't good enough, surprise, you get shut down.
Is cash against the law now?
What am I missing?
Another theory could be that the regulation issue is a pretext. Those big investors that bet heavily on crypto and are now in the red could have insisted to get their money back.
Given how low the sentiment about crypto presently is, these investors are in a far better position to make lucrative plays now, than keeping their money in a project that raised near the top of the bubble.
But you're right, maybe they expected a different level of regulation than they were ultimately going to be subjected to, and maybe they just didn't communicate that.
Come to think of it, if I were a big bank, skilled in handling regulation, I might absolutely give a bunch of $ to a startup in this space, knowing I'd, at worst, own a big chunk of them, and, at best, prove out the market with someone else's time, then get to launch myself, with my own giant regulations team behind everything.
But that's probably paranoid.
Plowing $133m into a bad idea based off a white paper, when anybody could have told you it'd inevitably implode based on common logic outlined by others in the comments here....