Topic: A coin with a floating supply. Is it possible? (Read 676 times)

Still, I don't think it would play out good in a bear market. It can work somehow in a sideways market when people are mostly sitting on the fence. But when the prices start to go down, they go down and you simply can't support them from inside economically. If you really could, they wouldn't go down in the first place. It is like trying to pull yourself out of the swamp by your hair.

In other words, you are simply assuming that there will be some demand surge when demand goes down because some people want to "buy the dip". There are always such people but this doesn't prevent prices from crashing massively until the market sentiment changes. But then you don't need these "bonds".

indeed this is a discussion that has long been discussed but there has never been a way out, when the first time bitcoin launched hoping to simplify a transaction it turns out hope so high so many are looking for it, and other alternatives when we want to enter the world crypto must be good at picking coins, see the best-selling bitcoin hunted many people with fantastic coin prices that others began to emerge and could be other alternatives indeed from the price is very different but there is still hope.

You are right, but the external effects (consumer preferences, seasonal prices etc.) should only have a limited - and mostly short-term - impact on the general price level. In an initial state of a "floating currency", as the trading volume is still low, the impact of these "external" price movements may be significant, but once the usage increases they probably can be ignored.

For this reason I think the best option is to try to adjust supply according to the demand for the currency itself - so it can work as a "currency" with relatively stable prices, as an "unit of account". And demand impacts in the price level (=more demand for the currency, lower prices/higher exchange rate).

I don't see another way of measuring the "state of the economy". In earlier discussions about "stablecoins" some mentioned the transaction rate, but this indicator can be manipulated very easy.

Because of two effects:
- first, in almost all dumps that start a bear market there are market participants that think that they can "buy cheap" and "buy the dip". These will be most likely the first buyers of the bond. The only exception may be a dump for catastrophic fundamental reasons (e.g. an ongoing attack) where demand can fall almost to zero.
- second, in the Basis protocol the first buyers are the first being paid out when currency supply expands again, so they have the lowest risk that their bonds expire - the more people already bought bonds, the higher that risk. Once the first "chunk" of bonds have expired, demand can increase again as I explained in the earlier post.

Well, I expected you to say these things, but the main issue hare is that there is no viable and consistent theory or working approach on how to distinguish between changes in prices caused by the change in the value of things/goods themselves due to a change in consumer preferences, production, whatever, and changes caused by the monetary supply, either due to it being constant, shrinking, or expanding. In real economy, changes in the economy (which are the driving force) translate automatically into changes in monetary supply via credit. In other words, this mechanism is built in with credit money and thus fits in naturally.


The anchor is the state of the economy. The problem is how to translate it into the respective changes in the supply of coins.


This doesn't sound very plausible to me. If the demand for the bonds goes almost to zero as the bear market progresses, why should it be there at all in the first place when the bear market just starts? Bear means people dump the coin, so why should they buy its derivatives, bonds or whatever?

I think the supply should be limited as it is with Bitcoin. So we have a guarantee when using the currency, especially if you are a long term investor and supporter. It's an universal immutable rule, a confidence pact between the currency and its users, no one will influence the currency and its price for personal reasons by changing the supply at some point. No manipulations will happen this way, it's a natural system on its totality.

If it wasn't a good characteristic people would be happy with their local currencies or any other Crypto-Currency following this model and Bitcoin wouldn't be the success it is today... The truth is that these manipulated currencies (fiat) are "fail".

It is true bitcoin have limited supply and its should be like that. If we floating the supply, thats means there is authorities control bitcoin and thats no good for bitcoin development. As we know, fiat money supply controlled by central bank and inflation always increasing because of that.

I think price stability is a virtue. In fact, if you "keep [the supply] balanced with the current state of the economy" what you want to achieve is exactly this, to limit supply when demand is low, and to expand supply when demand is high. As "demand" is reflected in the price, the mechanism you describe has a price-stabilizing effect.

Ideally a "stable"/"floating-supply" cryptocurrency should not be "hard-pegged" to another asset (like the US dollar). Instead, goods and services priced in the cryptocurrency should not have dramatically changing prices but be rather stable.

However, I understand it is a challenge to create a "stable" currency without any peg. RadixDLT/eMunie is trying to create a currency based on this principle. The problem is that if you don't have an "anchor" for the currency price, nobody knows what it should be really worth (as there is no valid "price theory"), and speculators can drive the market price to the upside or downside trying to profit "gaming" the stability mechanism.

Proof of Burn is a mechanism where the supply could be controlled in a decentralized way but it was never tested in a mature market, so we don't know if the "floating mechanism" would really react on the state of the "economy".

Regarding Basis:
I have also thought about this problem, and I still have not concluded my analysis (I would like to see it working "in the wild"). However, as bonds have an expire date, we could see the following pattern:
- at the start of the bear market, there is a run on the bonds because people think it won't last very long and they would get fastly their money back.
- As the bear market progresses, the bond demand dwindles and goes almost to zero, so less bonds are created.
- Eventually, the bonds of the "first bond boom" expire and get burned. The investors lost their money.
- Now the game starts again: Because of the first-come-first-served principle, as the coin supply and the bond supply now both are reduced, people can start to expect to get coins again buying bonds, and so there will be a "second wave" of bond buys. The coin supply is reduced again.
- If the bear market still continues, then this pattern can be repeated infinite times, and in some moment maybe the sentiment can turn because the supply is reduced in a sufficient way.

I don't think this is a good reason. And which price are you talking about exactly, exchange rates like in a currency pegged to the US dollar? Any such efforts are set to fail in the long run as history shows. The goal of a floating money supply is to keep it balanced with the current state of the economy (expansion/contraction phase of an economic cycle)


I heard such stories too a couple of years ago. But I don't think these efforts could be of any interest apart from purely academic or out of curiosity. If a currency turns into a shitcoin, lowering mining reward to zero will simply halt its circulation. And even if it doesn't, it won't mend matters. In other words, in cases like these artificially lowering supply won't prevent prices from plummeting.


That's exactly what I'm talking about. Death spiral. Then you die.


I will think over this new approach tomorrow, but for now I don't see how real supply is diminished in the bear market. Why would anyone want to exchange their coins for bonds when everyone will in fact be trying to get rid of both the coins and bonds alike as soon as possible?

It is possible but you have to undergo sequence of paper work approval, the problem is to whom??? Hahaha

If you want to create such token then I think it will be best if the token price is fixed and it can be used for daily transaction like Fiat!  Now that question is if it work like Fiat with same value then Fiat for sure is their pick... Since they have function at all but money works everywhere than this token just in case...

I might merely subscribe to the fact that the needs of the Economy may be one of the factors that may determine the cryptocurrencies usage as Alternative to Fiat money, since its supply elasticity may be possibly increasing or decreasing that shall be caused by Floating effect, when at any point in time, human needs are unpredictable, while equally may effect the cryptocurrencies volatility. Though, consistent Mathematical Algo could also somehow have effect on at least Bitcoin Floating supply, for instance, when mined Virgin coins are for one reason or the other not used. So, in my conclusion, I feel a coin with floating supply may be made possible to reasonable extents which are inevitable.

You are got it all wrong , Who said that the amount of fiat get changed according to what every economy needs ! . The reality which I know most governments does not follow is fiat must be weighted with gold , we all knows that countries and governments abuse it and a lot of time print fiat without have the the gold for it . But my friend let me tell you that this economies should have been collapsed long time ago and what safes them is things not moral like wars ( USA ) every time USA economy about to collapse they choose a country to attack and go to war with it  .

people erroneously think it works the other way round but in reality when a bank issues a loan, it kind of "reserves" part of this loan with the central bank but it is still "virtual" money. We need it all.

I don't think we are on the sidetracks as it is perfectly relevant to the point in question. If we are to copy some useful features of fiat, we should understand how the fiat system works in practice. And it is a common misconception which even many economics graduates seem to enjoy. The reserves that the banks should keep with the banking authority aka central bank are the fraction of the loans they issue. In other words, it is loans that create these reserves. A lot of people erroneously think it works the other way round but in reality when a bank issues a loan, it kind of "reserves" part of this loan with the central bank but it is still "virtual" money. Yes, it is intended to restrict banks from excessive loaning but that has nothing to do with deposits anyway. And for the record, some countries don't have these reserve requirements.

The primary reason to have a "floating supply" is to maintain price stability even if the supply/demand ratio changes.

There were already some experiments in the cryptocurrency space trying to create a sort of "peg", where the value of the currency is meant to be stable but the supply is floating. Most of them feature a blockchain with two or more types of currency.

I want to present an older "stablecoin" called NuBits to explain the problems and challenges with this approach. NuBits works with two currencies, NuShares and NuBits. NuBits are meant to be stable, but with floating supplies, while NuShares have a deterministic supply but a free-floating price. In times of more demand, NuBits are created; while in times of less demand, NuBits can be "parked" (locked) so the freely circulating supply decreases, and the "parkers" are rewarded with NuShares.

BitBay, which was already mentioned, afaik uses a similar model.

The problem with these systems is that the supply does not really float but instead it increases all the time, because the "parked" coins are only temporarily locked away. In a long bear market the whole system can become caught in a "death spiral" where all assets depreciate and there is no longer an incentive to hold the peg.

A newer, interesting approach I just discovered today (and the primary reason why I'm answering here) is Basis (still in alpha, afaik). In this system an "oracle" monitors the price of the coin with respect to the USD. If the price goes below 1 USD, then a "bond" is created and auctioned. The coins given out for this bond are destroyed. When the price goes above 1 USD again, coins are created and the bond is converted into a coin (with an 1:1 ratio; that means if you bought a bond for less than 1 USD you can make profit).

Sounds quite similar to NuBits, or not? But there is a crucial difference: Bonds have an expiry time. If they expire they simply are destroyed.

This system seems better thought-out than NuBits because supply here really can decrease. However, its better incentive structure has a price: "Bonds" buyers can lose all their investment, if something goes wrong. (BitShares, afaik the only coin with a peg that really held it until today, has a similar characteristic, but it works differently - the post is already long enough, so I'll not expand here).

So the question DooMAD raised about "how to decrease supply" (in times of economy/demand contraction) has an answer: It can most likely only be decreased if some people are ready to risk to really lose something - for that to happen, they must get an interesting reward for it. I don't see that as a real problem: we have a financial system where margin trading is pretty popular, so the target audience for risky financial products exists and a Basis-like system could find its place there.

The discussion will get sidetracked if we are not on the same page about the basics I guess..LOL..It is not a common misconception regarding banks keeping reserves. Maybe not in their own cash vault but in any banking system, there is a certain reserve that banks maintain with their respective central banks. This is part of the checks and balances on the banking system. If the banks are only acting as a central point of trust and doling out huge amounts to corporates and businesses as loans (without underlying reserves like you claim) then it is a perfect recipe for never-ending disasters.

Those of us who are on the other side of this debate see this whole "growth driven, necessity of monetary controls" as the smokescreen behind which the "invisible hands" play out their script with ease. Keeping income disparities intact and increasing and telling everyone that running constantly is your only option.
The crisis weren't just triggered by the Gold standard. There were wars and instability to account for. I suggest you take a look at this discussion here to see it from the other side.

In today's world fiat currencies don't work this way. Indeed, the central bank still prints paper money and mints coins, but most money nowadays is non-cash anyway. And it is exactly this non-cash money which is created in a decentralized way via commercial banks is pushing the economy forward. Also, where did you get the idea that the "cryptocurrency mission is to eliminate poverty and make sure that the poor masses become rich not just the rich getting richer and the poor getting poorer"? So far it has been working in the opposite direction as with everything else. And I'm not sure if its mission has anything to do with enriching the poor and impoverishing the rich, or anything to that tune.

I agree to your point of view to some extent. If bitcoin was implemented to be used as a payment system, how can its supply be limited ? It is a big flaw in my opinion.

The printing of fiat currency have always being the duty of central bank of different countries. The central bank make sure that the printing of fiat currency does not cause inflation. The reason most government are agents cryptocurrency is that they are afraid of inflation. But cryptocurrency mission is to eliminate poverty and make sure that the poor masses become rich not just the rich getting richer and the poor getting poorer. If cryptocurrency is legally accepted  we will have a stable and high equality level in term of money circulation.

In my own opinion, if cryptocurrency will replace fiat money and it will be of steady supply, then there will be a tendency that it will become like the fiat, centralized.

A steady and predictable supply of coins doesn't necessarily mean that the coin will be centralized. Basically it depends on the centralization of coin creation (mining). If it is properly decentralized, there is no reason to think that the supply will be centralized. Then, there are quite a number of coins which don't have developers involved in the distribution of the coin. For example, dogecoin right now seems to be a dead coin in the sense there is no active development going on currently.