simple theory question for all SC proponents. so simple in fact what am i missing?
we have 13M BTC @ around $325. SC comes along and lets say 3M BTC --> scBTC (just for illustration). we know that the price of scBTC has to be lower given MM, newness, being unproven, risk of failure, etc. let's say price starts off @ $100.
why don't arb bots circle back around and drive BTC price down to say $250-270 or whatever the equilibrium is btwn BTC and scBTC, which we know is lower? multiply this by 1000 SC's.
we have 13M BTC @ around $325. SC comes along and lets say 3M BTC --> scBTC (just for illustration). we know that the price of scBTC has to be lower given MM, newness, being unproven, risk of failure, etc. let's say price starts off @ $100.
why don't arb bots circle back around and drive BTC price down to say $250-270 or whatever the equilibrium is btwn BTC and scBTC, which we know is lower? multiply this by 1000 SC's.
Btc price would go up first, because lower monetary base in the proven old bitcoin block chain (13m -> 10m)
no, the BTC have just been transformed to lower value units, scBTC, b/c they have been moved to a less secure, unproven ledger. this will drag down the BTC price to an equilibrium price btwn the two.
In order for the arb to work, the coins have to move back to the bitcoin blockchain.
its a 2 way peg, so both BTC and scBTC can move freely back and forth.
initially, scBTC are priced lower at $100 with BTC at $325. bots sell BTC for fiat, circle around and buys scBTC on the exchange, push scBTC back thru the peg to BTC, rinse and repeat.
Why would anyone sell scBTC for $100 when they can transfer them to BTC and sell them for $325?
look, we know that the SC is LESS SECURE. that means any scBTC riding on that less secure ledger is worth less. that has to be priced in and will feedback to BTC via the arb bots.
Yes SC is LESS SECURE, but SC allow you trade bitcoins or SC will add diferent feature e.g. fast confirmation. The key is 1 BTC on MC = 1 BTC on SC
Dream on. If it's a competing token there is an opportunity cost let's say laundering dirty coins or anonymity for the illegal activities. Then there is the SC needs an economic incentive to survive that erosion will degrade the 1:1 peg.
Bitcoin already does this? Unregulated exchanges already exist, say into alt coins or BTC-E. No rush out the door to alt coins so far.
