Topic: Goldcoin and Stablecoin proposals (Read 19096 times)

Further elaboration of the GoldCoin / {Insert Commodity}Coin idea in this thread: https://bitcointalksearch.org/topic/m.523685

Morpheus,

As you probably know, I've described something very similar to goldcoin/stablecoin targeting mechanism in my own thread. I give you some credit here: https://bitcointalksearch.org/topic/m.451254

I'd be very interested in your opinion if you have a moment to post in that thread.

Instead of that dynamic interest/demurrage you could just increase/decrease people's balances automatically and instantly.

In my proposal for using demurrage instead of destructive tx fees, the demurrage is reduced when the price drops and gets higher when the price rises, so it doesn't have this problem.

Good point.

The problem with demurrage is apparent with the thief scenario. If a thief steals a bunch of the coin and sells it for a very low price, the demurrage would take the coin from everyone based on how much they are holding. This gives the thief and incentive to dump their coin as fast as possible to avoid the demurrage. It also gives others hoarding coins an incentive to sell out before the higher demurrage kicks in. You could suddenly have a spiraling inflationary problem as everyone tries to dump their coins before demurrage.

The opposite could happen if someone buys a bunch of coin at once and a reverse demurrage kicks in. People would then try to buy as much coin as possible to get the most reverse demurrage fees, thus driving a deflationary spiral.

I agree high fees will discourage commerce, but I don't see any way around it. However, I don't think high fees will be all that common. The only way to find out is to create the coins and see what happens.


I don't see how you're going to avoid volatility entirely. Also, I don't get your shareholder proposition either. I think a certain amount of volatility will be necessary to live in a decentralized world. You could remove the volatility completely if you have an issuing authority, but then you have to rely on the issuing authority to do the right thing all of the time. If you're fine with that, just go with USD and the Fed.

I think people who clip coupons, at least - and they are imagined it seems to be normal soccer-mom types, aren't they? - should be able to understand things like "pay to the bearer upon demand one loaf of bread" and "pay to the bearer on 25th December 2016 one loaf of bread", and that is futures and options right there, isn't it?

-MarkM- (Admittedly I don't clip coupons - too complicated per dollar-per-hour that it pays...)

How about we create a very simple system wide program with the sole purpose of keep the price of these new coins stable.  For fun we could call it the "Feral Reserve Program".  If the value of the new coins is dropping because there are too many of them in circulation then this hypothetical program would sell some sort of AAA rated bond or debt instrument like US treasuries – oops those are not AAA anymore - in order to reduce the number of coins in circulation.  And when there are not enough coins in circulation the program would buy back the debt instruments in order to increase the number of coins in circulation.  Hmmm, this is all starting to sound vaguely familiar…

Quite true. However, I think the whole point is to bypass and/or hide the complexity of futures/options from the user. A client that tells you that "your goldcoins = 4.31 ounces" is very appealing if you can provide enough confidence that they will STAY worth that much.

Yeah. It was just a crazy thought that crossed my mind. I doubt it would be as useful as having shares.

There's one guy in particular who is really hot on demurrage. I don't think anybody will ever hold coins with demurrage though if there is another option available. It's a non-starter from a marketing perspective.

So people would have an option and mechanism to buy the bonds?  I kind of prefer a dynamic demurrage-like factor that just multiplies every coin's value by a number based on the linked commodity price/index.  People are already used to seeing their account balance go up and down by small amounts ("interest" and "fees" or perhaps "taxes").

Maybe such people are what futures and options are for?

If you want a loaf of bread in five years time, and are not sure how the price of bread might fluctuate by then, you buy a five year future loaf of bread.

If you want a loaf of bread anytime during the next five years but are not sure exactly when during that span of time you will want it, you buy a five year span open option on a loaf of bread.

Is that not how futures and options work?

-MarkM-

I realize I'm all over the place here, but here is another way to decrease they coin supply temporarily: have the protocol sell bonds. In this way, the protocol can borrow coins from users (reducing the coin supply), then make interest payments, and return the money at maturity. This would be a good way to handle a temporary oversupply of coins, but not a good way to handle a coin supply that needs to keep shrinking (since more coins are ultimately introduced by these bonds through the interest payments).

I think only a real-life experiment can determine if you are right. How high should the fees go, in your opinion?

One thing I don't like about high fees is that they discourage commerce if stablecoins happen to be priced too low rather than too high. If you want the ideal coin for commerce, this doesn't work as well, since 50% of the time there are fees and 50% of the time there are not once equilibrium is reached. I agree it might work pretty well if it is mostly seen as a store of value.

One other thing that bothers me is the user who just wants to store value, and access it later when they need it. If they happen to need the money while the coin-base is shrinking, you have effectively cut off access to their funds unless they want to surrender a big portion of the supposed value of the coins. I realize that is the point (to discourage people from cashing out when prices are too low), but from a marketing perspective adoption would be much more widespread if someone else (shareholders is my vote) was bearing most of the shrinkage risk.

You may be completely right that this will work with only tiny fees and gradual destruction of coins when necessary, but any violent price swings are going to make these coins less ideal for both commerce and store of value.

If that volatility risk can be transferred somehow as I described, these coins become much better behaved, both for commerce and for storing value. The "bankruptcy scenario" I described above could fail gracefully into the fee-based system you describe, but during any normal market, you would get nearly perfect stability without any fees.

Sure.  My proposal is about linking to prices outside the cryptocurrency world.  The bootstrap currency, if you will.  E.g., Goldcoin.

There is, I believe, a much simpler way to exchange between bitcoins and stablecoins.

If the stablecoin protocol has visibility into the bitcoin network, then stablecoin users can mark their coins as "for sale" in the network, along with a bitcoin address and price.

When the stablecoin network sees bitcoins go to the address, it releases the stablecoins to the buyer.

There are a couple issues to work out, but I believe it would work. One issue is what happens if two bitcoin users try to buy the same stablecoins at the same time (answer: a buyer could send a tiny amount of bitcoins to "lock" the coins before sending the bulk of the coins. The first person to lock the coins has the right to buy them for a set amount of time.)

I'm not sure what would happen in a total doomsday scenario, but I doubt the above would happen. I don't think a new "better" currency would cause everyone to suddenly jump all at once away from Stablecoin. Instead, it would be a gradual migration where the price of Stablecoin would be consistently under the target. The transfer fee would kick in to destroy the Stablecoins at a regular rate which is exactly what we would want.

A doomsday scenario which is very likely to occur would be like the Mt Gox hack. What happens if a bunch of Stablecoin was stolen and the thief doesn't care about the exchange rate and just dumps the coins on the market. Since something like that has already happened with bitcoin, we can assume this would happen with just about any digital coin.

This scenario will cause some issues, but I think Stablecoin would survive. Lets look at each step of the thief's sale to see how Stablecoin would react.

1. The thief initially tries to dump all of his stolen coins on the market. All of the bids are cleared from the market and the price of Stablecoin drops. If the thief is able to dump all of his coins, he gets away with the money, and a bunch of others buy really cheap Stable coins. If not, He has to wait for more bids.

2. The thief still has more coins to dump and some of those with cheap coins may want to sell at a slightly higher price than they bought them at. If the transaction fees haven't change yet, this is really step one with the addition of more people selling below the fair value. When the transaction fees change, the program will now calculate a very low value for Stablecoin and end up with really high transaction fees. If the thief tries to sell, he will lose much of his stolen coins to transaction fees. Also, anyone who purchased cheap Stablecoins and wants to sell out, or anyone panicking will also pay high transaction fees. Some people will choose to pay the transaction fees, others will not.

There's the important distinction, choice. Some people will choose to return some coins to the either because the coins didn't cost them anything to begin with or they have lost faith in Stablecoins. Either way, coins are destroyed. Hoarders can hoard their coins until the price comes back up. Of course, with so many coins being destroyed, the price will come back up.

Also, the transaction fees are a disincentive for the thief to dump his coins all at once. If he does, he won't make as much money as he would if he sold them slowly. There will likely be some level where he doesn't care about the transaction fee and just wants to dump the coins. But, that would just allow some people to buy cheap coins for a while and allow some of the stolen coins to disappear.

3. Finally, some coins are destroyed, others end up with some cheap coins. The big downside, Stablecoin isn't as stable as the name suggests. It will be influenced by the market, but the goal is to always go back to a specific price. I believe it will do that even in this doomsday scenario.

Edit: removed option expiration.
How about a very limited type of exchange within the main chain:

Every block contains a price inserted by the miner.  A block solution must contain a signature on a standard contract using the coinbase output keypair.  The contract is an option to:

    buy at the quoted price plus a standard spread (e.g., 1%)
    or
    sell at the quoted price minus a standard spread

an amount of the underlying commodity equal to the block reward.  The option can only be exercised by solving a block with this block as its parent.  To exercise such an option, a miner must set a special flag in the next block.  The two miners have to find each other and settle up (no need to specify how) before either can claim his block reward.  They must both sign something using their coinbase keypair and submit the signatures to the network before the network will recognize their block rewards.

Perhaps the spreads don't have to be standard, the contract can specify any prices straddling the quote.  Miners would be motivated to offer good terms in order to encourage the network to accept their blocks and thus validate their rewards.

The asset is a share in the stream of future coins that need to be distributed as the network grows. Miners would be paid in shares, which they could sell on the open market. When more stablecoins need to be issued to keep prices down, the shareholders would get them to keep or sell.

A share in a revenue stream does have value. The exact value I would leave up to speculators!

It sounds as if whatever it is that your coins are "shares" of has no assets.

If a corporation, for example maybe General Mining Corporation, actually owned assets, such as, for example, a bunch of mines, a bunch of mining rigs, or even a bunch of shares in various publicly traded sold, silver, platinum, paladium, iron, copper, etc etc etc mining corporations, and used a blockchain whose genesis block issued all coins ever to be issued of that blockchain, issuing them to GMC's treasury... then GM could use its actual assets to buy back any GMC coins it had issued at the same price it had issued them at or close to that price.

-MarkM-