Thoughts on Price Stabilization Funds

[jjj0923]

A few coins have been released where a percentage of the pre-mine was reserved for a 'Price Stabilization Fund'.

I have been working on the details for a new coin and I wondered about people's opinions on these type of  'Funds' as part of a new coin.

My thoughts are mixed because I basically like the idea however what I think people fail to realize is that your can't BUY a Coin with the exact same coin on any of the exchanges (Unless it's Bitcoin, Litecoin or a scant few others).

The Stabilization fund must actually sell some of the coins in order to acquire BTC to buy the coin back. This is great for the exchange but in reality I think it's drives the value down in order to drop it back up - thus negating the intent of the fund itself.

Ideas?
Thoughts?
Observations?

thanks in advance.

Jeff

[exoton]

I love the idea , yes people are getting plaied however it rewards true holders , anyone just looking for a quick buck might get hurt however not too bad since ... there is a stabilisation fund to keep the price from dropping too hard , basically makes everything less risky but also makes potential profits less high.

However , the person handling the fund must be a VERY skilled trader , also it has to be a person whom everybody completely trusts 100%

[Emerald_Crypto]

There are a few ways to look at price stabilization funds. If you are trading in the currency you are trying to support the price of, there needs to be good buy support and a decent range between the buy and sell prices. If you have some sort of trade bot to facilitate these trades continuously, or at specific price points, you can support the currency price by trading against itself.

That being said... If there is a lot of downward pressure (bagholders/miners/multipools dumping) and little buy support, there is very little that can be done to support the price of a currency when trading it against itself.

The second alternative is to look for ways that the support structure can receive payments in BTC. If you have a constant influx of BTC and a way to distribute the currency you are buying up (investors, service providers, etc), you create a closed loop system. A system like this requires much more thought and time to pull off. If you can accomplish the feat, you should be able to keep the price fairly stable.

A similar system would be to create a multipool where you mine profitable coins, sell them for BTC then buy the currency you are supporting at current market sell prices. The supported currency is then used to payout the miners on the pool.

This system leaves you open to your multipool miners (and bagholders) dumping at artificially inflated prices or putting in outrageously high sell orders when they know the multipool has transferred its sell coins to the exchange and will soon be purchasing the supported coin.

[jjj0923]

Thanks these are all great observations.

My thoughts are to create a trading bot but to use a % of the proceeds raised in the ICO to generate BTC that will create the stabilization FUND and not use a percentage of the premined coins as the reserve for the fund because I'd prefer to place orders with BTC and not have to sell coins (that could create downward pressure on the coin price) to generate BTC to buy coins.

thanks again

[old fart]

However , the person handling the fund must be a VERY skilled trader , also it has to be a person whom everybody completely trusts 100%

+1

There have been too many devs who dumped their coin's premine and drove the price down to one sat before disappearing. Most of these devs claimed the premine was for "funding development". The mere fact any coin has a premine could put people off buying it.

[devphp]

This is not a free market idea. Short term it may work, long term it'll be a failure.

[jjj0923]

However , the person handling the fund must be a VERY skilled trader , also it has to be a person whom everybody completely trusts 100%

+1

There have been too many devs who dumped their coin's premine and drove the price down to one sat before disappearing. Most of these devs claimed the premine was for "funding development". The mere fact any coin has a premine could put people off buying it.

good point - how to you define the difference between premine and ICO ?

[jjj0923]

This is not a free market idea. Short term it may work, long term it'll be a failure.

you are correct - I guess we have to define what is a 'failure' - I see the fund as being used to prop up prices when people start to dump.... that's all.

which aint a bad idea because when the price is shored up those purchased coins can be resold at higher values in the future replentishing the fund.

[devphp]

This is not a free market idea. Short term it may work, long term it'll be a failure.

you are correct - I guess we have to define what is a 'failure' - I see the fund as being used to prop up prices when people start to dump.... that's all.

which aint a bad idea because when the price is shored up those purchased coins can be resold at higher values in the future replentishing the fund.

That's exactly what all stabilization funds try to do, and they fail long term, because artificial propping up only creates larger disbalances long term and when that hits, it hits big.

[jjj0923]

This is not a free market idea. Short term it may work, long term it'll be a failure.

you are correct - I guess we have to define what is a 'failure' - I see the fund as being used to prop up prices when people start to dump.... that's all.

which aint a bad idea because when the price is shored up those purchased coins can be resold at higher values in the future replentishing the fund.

That's exactly what all stabilization funds try to do, and they fail long term, because artificial propping up only creates larger disbalances long term and when that hits, it hits big.

so - what's the difference between a whale buying up at low prices and a stabilization fund buying up at low prices?

[devphp]

so - what's the difference between a whale buying up at low prices and a stabilization fund buying up at low prices?

The difference is where that money comes from. Where that money comes from defines whether the investment is a well thought out or not. A whale buys with their own money, and loses their own money if it fails. Stabilization funds in markets where assets are purchased with fiat (usually stock market), buy with money created out of thin air that taxpayers bear the burden to repay.

I don't even see how stabilization funds apply to crypto, where would the money come from?