Topic: Stablecoins on Bitcoin blockchain (Read 284 times)

This was only a piece of the puzzle. Of course, the shortened way I put it now, someone like you has to think it was meant to be a Ponzi, and maybe it was.


Website still works, yes, but I have no idea why. You know me a little from my interest in discussions about research and explorative approaches to unknown terrain. The fact that in the end we had to realize there was a scammer at work was quite saddening. We had some amazing discussions at Nubits about economic models that are not centralized or bank-controlled when it comes to value pegging. Some very insightful minds were at work there. I had a lot of fun going back and forth and it was a multitude of topics that was all thrown into a mixer and we tried to sort it out and see how we can find out via the experimental way what might work and what might not work.

The flash crashes - in my opinion - were the inside job of JordanLee, the founder of Nubits. He noticed how the criticism grew back then because of the centralized handling of reserves and voting (out of nowhere, dormant Nushares (CDD = Coin Days Destroyed) suddenly started voting and overruled what the most active and most convincing members had to say. Stuff like that. Then the first flash crash happened and I think back then JordanLee called it an attack from the outside or so.

But anyway, the discussions were really great and I think some of the conclusions we drew back then are still valid. For instance, when it comes to things like soulbound tokens, as proposed by Vitalik. The deliberate ignorance or inactivity of people in a network they hold a share in was quite confusing. But to not get too off-topic, this is another one we might get back to some other time. I still owe to deliver some progress on some other stuff

Does any one know the technical side of this implementation, how will it work?

I see some months ago how people try to create tokens with the bitcoin blockchain, and they sent an ordinal to set the token bases (name, total amount, etc...) but in the end to move and spend those tokens they used a smart chain like ETH or BSC. That's why i would like to know more information about this stablecoin on the bitcoin blockchain. Will they need a smart chain too? or will it work with the LN?

No, I followed it only superficially and never used it nor invested it. The model didn't convince me from the start - "centralized but pretending to be decentralized" is exactly the type of coin/service I'm most suspicious about. It also heavily seems to have depended on funds stored on one of the most intransparent exchanges of that time (BTC-E).

Thing is that it's just for this kind of "intransparent stablecoin" (="potential scam") this particular "advantage" I mentioned to Medusah works best. For an entity which is registered, has to obey regulations etc., probably the time between "the first doubts" and "insolvency" in most cases would be as thin as on a PayPal-style service.

A classic ponzi, some would say and if I remember right exactly the same model Terra/Luna tried and caused an enormous Bitcoin crash ...

Current algorithmic stablecoins like Dai work a bit different, interest rates are algorithmically determined and not voted as far as I'm aware, and also "wallet holders" would not be paid, but instead those creating Dai have to pay a fee (which is very low if Dai demand is high, so you practically get a loan "for free"). So perhaps the DAO and algorithm of Nubits had some inherent flaws. It's interesting by the way that their website still exists.

The initial goal of Nubits was to be decentralized. I was around with the project for several years and have a pretty good insight on why it failed. The biggest problem was that the founder drained investor money through various channels, like pretending to be several people providing services to Nubits. The idea was a great experiment as it gave insight into how a community is actually willing to interact with the network to their own benefit, or not.

There was NuShares, which was the equity backing up Nubits. NuShare holders were supposed to vote on various things like so called grants to service providers or the interest being paid on those who hold their Nubits in their wallets. One big finding was that most voters holders want to hold and speculate, but not even put in the effort to cast their votes. This led to the introduction of default voting and it quickly turned out that there was some guy holding a majority in the network, ensuring that there were grants given out to "developers" where nobody really knew whether all of them is one and the same person. That guy was called JordanLee.

It became obvious that once a ton of Nubits got issued, out of a sudden dormant Nushare holdings were activated to raise Nubits interest payments. On top of that, all reserve holdings were held by one person, at some point by two. If at first the person died in a car crash, all reserves would have been gone. Strangely, it took heated discussions and attacks for years until the reserves were finally held by two people in a 1 out of 2 multi wallet.

I have to say that there were a lot of interesting discussions about liquidity provision, rebalancing bots, economics in a more general sense, the will to participate of actual shareholders, but also the dark side of someone being able to set up an extremely clever project to then drain investor funds over several years and then disappear.

It mostly failed because the economic model was forced into distress due to a single actor that the whole project was regrettably dependent on to a large degree as it was set up like that from the get go.

But nice you are bringing this one up here @d5000. Did you use Nubits yourself and did you hold Nushares and voted? One interest parts of the model was that when Nubits dropped, voting on higher interest rates shortly incentivized people to speculate on Nubits as higher interest rates offset the broken peg, thereby bringing Nubits back up in price. The idea was to use incoming Bitcoin to buy back Nubits.

I wonder till this day how this experiment would have worked out at scale if it had a sufficiently decentralized administration. It was so interesting because it was quite complex and had many economic facets surrounding the Homo economicus. There is a lot to criticize about that model, but sadly we never got the answers to many of the fruitful discussions in the Nubits forum back then because one guy decided to mess it up for his own good/greed (Homo economicus ).

OMNI layer is where Tether stable coin USDT appeared a first time. Later because of 2017 and 2018 bull run, hype and congestion by Bitcoin Cash attacks that cause transaction fee on Bitcoin blockchain and OMNI layer very expensive, Tether company decide to deploy their stable coin on Ethereum blockchain.

Later and later, it is deployed on other blockchain like TRON to give Tether users more options to choose and get cheaper transaction fees.

Some information cross chains like ETH, BSC, Tron, Polygon, Ton & Solana can be checked there https://gasfeesnow.com/

Yeah I was just going to mentioned this. I first started to accumulate Tether when I traded it on Poloniex. It was the first exchange that supported stablecoins I think.

And back then it was only available on the bitcoin networking under the OMNI network. Only years later it was added under Tron and Ethereum.

After the competing chains started to show up, the volume quickly died on OMNI network. Many reasons. For one it took a long time for the transactions to confirm like Bitcoin transactions and another is that the transactions were large. And this was at a time of high fees and hence many found it easier to use ERC20 tokens on the Ethereum network.

This is what i remembered when i read the topic's title. That bitcoin was used before for USDT token and sending fees always matter. So it's always a no-no if fee is larger than what your amount to be sent is.

Now that it uses lightning network for sending i guess that will be much better than before or compared to other tokens that was created under the bitcoin blockchain.

Only one will decide if stable coin on btc network is good. The market. if people are willing to pay to use it and worth for them good, if not good again!

I'm not saying this information wouldn't go through eventually on a stablecoin.

Let's say something like the MtGox insolvency happens to USDT/C/whatever. MtGox first blocked withdrawals before it announced insolvency. This could also happen with other centralized e-money providers, that they first try to restrict your account. In the case of a stablecoin issuer this would not be that easy.

We had already the case of NuBits in 2015 or so, one of the first centralized stablecoins. It first depegged when rumours spread about a possible fractional reserve and then a trader group successfully attacked the peg. The issuers tried to re-peg it and first somewhat succeeded, but only after a second de-peg the "backing" mechanism was stopped completely. Actually very similar to what happened to Terra/Luna, however, in the case of NuBits there was a period where you could withdraw the funds still with relatively low losses.

It may thus be an advantage or a disadvantage, depending on the situation.

Regarding KYC: A stablecoin is still a crypto-asset / cryptocurrency and can be transacted between self-hosted wallets. Such transactions are not regulated in any country afaik, only related "service providers".

The most comprehensive and recent crypto regulation framework we have at the moment is MiCa in the European Union. MiCa does not mention stablecoin issuers as "crypto asset service providers", but instead as an own category. I've looked at the requirements and there's nothing said that they have to identify all users. They have however to be registered e-money institutions. This would probably mean that they have to identify users who use their own interface to exchange fiat into their stablecoins. This is only an example though, as iFinex (Tether issuer) is located in the British Virgin Islands, so the regulations of this jurisdiction apply.

This appears to be more of a disadvantage, if you ask me.  If the issuer goes bankrupt, shouldn't the users have that information at hand?   


It's surprising that Tether is legally okay with this.  Am I the only one who would anticipate authorities to force them impose KYC on all users?  It's akin to having a Paypal that allows registration without even requiring an email address. 

Trends trigger either bear or bull season, but always understand the market. Stablecoins are more considerable in the space, atleast we have good opportunities to explore within our reach and not staying dormant and missing out. There are good projects in the space, don't underestimate the essence for these projects to skyrocket to the moon. We should not make conclusions yet, rather we should be able to understand the system and also doing thorough findings towards these projects.

Of course that's a valid point, I have also mentioned it at the end of the last post. There is a minimal difference though. When a stablecoin issuer is about to go bankrupt, there may be a phase where you can still cash out while in a PayPal-like service your holdings could already be blocked or restricted. I think this advantage is more or less psychological only though, because when rumours spread about a possible bankruptcy it's likely that the coins are already depegged from 1:1.


Yes, it's possible. I use them very sparingly but I can confirm it from my own experience.

There was an accusation in 2019, but not because of KYC issues but because of intransparency in general, possible connected with money laundering. There is still a number of non-KYC crypto services which are perfectly legal in their jurisdictions, although the number is certainly decreasing.

Why bother holding onto a "promise" of fiat currency when they have the ability to freeze my accounts and create new promises out of nothing?  How is it any different from keeping my Paypal email and password on my computer?  


That's indeed useful, though I'm not certain if it's feasible since I haven't used a stablecoin before.  With stablecoins like USDC or USDT, you can transact anonymously, correct?  All you have to do is create a wallet, much like you would with a self-custodial Bitcoin wallet.  That's definitely not something you can do within a financial institution (due to legal constraints).  

If this holds true, I'm curious why authorities haven't tackled Tether regarding potential involvement in money laundering activities.  

To be honest, I did not understand from the text that the idea and tests only refer to the Lighting network. I removed this second part from the subject, so as not to spread further misconceptions.
Although I did not get the impression that they will insist on LN here, given that the wider implementation is quite slow

I get your point. But the title is wrong since it makes people perceive it as sending/receive the stablecoin on Bitcoin on-chain, where all TX is recorded on the blockchain.

My guess is that centralized stablecoins developed more or less to exploit the altcoin exchange market offering them an easy alternative to e-money (=fiat representations like PaypalUSD, for those who don't know). They were very easy to integrate into existing cryptocurrency exchanges, easier than traditional e-money because of their blockchain-based transparency, eliminating the risk of "chargeback fraud" (that's why those exchanges accepting PayPal usually charge high fees), and also easier than offering an on- and offramp via bank transfers. In addition, it allowed thousands of altcoin exchanges to offer a fiat-like product instantly, without having to maintain a huge fiat reserve, which would need other kinds of infrastructure.

So basically the main advantages are for exchanges, not so much for ordinary users.

Apart from what you already mentioned (which is also delivered by PayPal and similar e-wallet services), there are a few more advantages of stablecoins which also can appeal to some groups of ordinary users:

1) to store a fiat-like product with your own keys, not on an exchange;
2) to move a fiat-like product from one exchange to another one, for exampĺe for arbitrage purposes;
3) to integrate a fiat-like product into smart contracts, perhaps even into atomic swaps and Lightning;
4) to be able to store a fiat-like product without KYC in some cases.

Of course, the "not your keys not your stablecoins" principle is not the same as "not your keys not your bitcoin". First, stablecoin issuers can go bankrupt, and second, they can block your stablecoins even if you have a valid private key in most cases. So most stablecoins don't offer censorship protection.

I see bitcoin as the most traded coin, and the entire cryptocurrency space has a promising future. I believe the future of cryptocurrency is in tokens or coins as decentralized applications. Blockchain is not limited to bitcoin it can facilitate transactions involving any digital asset such as property rights currencies and more. Tether can use and has a lot more important information so don't use it as investment advice.

It's not necessary long term, but still better solution than dealing with bunch of altcoins, swaps and using exchanges when you need to use some alternative for fiat currencies.
I suspect that this project from Lightning Labs is going to be something centralized, like everything on Lightning Netwrork, but let's wait and see.

it can create more spam.. because although the "payments" and "transfers" occur on another network(a crap and buggy network). the initial utxo with junk added where it 'locks-in' certain things to a channel.. that is done onchain
even funnier the 'lock in' of what they call true value is not even a requirement on the other network. proving this other network(LN) lacks many features of "secure money/value"


as for the other network(LN) now having multiple junk units being borrowed and swapped in a unsettled manner.. makes that other network prove that its not a network just for bitcoin and never was.. but now proving it loudly.. thus should stop brand stealing the name bitcoin and instead admit its a junk network for multiple units of junk thats unsettled and borrowed and even created out of nothing..

Yep, definitely a 'Taproot Assets' thing (they apparently can't call it 'Taro' anymore due to some trademark dispute or something).  But the key takeaway is that it won't result in more blockchain spam.  I'm hoping all the so-called NFT trash will move over to that platform over time, as it is far more resource-efficient versus the Inscriptions / Ordinals / Runes / etc crap.