MasterCoin: New Protocol Layer Starting From “The Exodus Address”

[Chang Hum]

An escrow fund will be operating at a loss at all times because the only time it will enter the market is when everyone else disagrees with the valuation and it will be making decisions that profit-seekers would not make!    The only way for the fund to raise capital is to sell above market rates and to convince some other investor to pay above market rates *knowing* that the fund will be working against their interest and that they will take a loss for paying above market rates.   The only way to keep the price from falling due to lack of backing is to purchase the coins at ABOVE MARKET RATES and thus at a loss.   

You have a deep seated assumption based upon circular logic... that assumption is that the price will maintain parity naturally without respect to the backing and that the fund would be able to profit on this natural market correction.   However, if this were a natural market response the fund would be unnecessary.  Every action taken by the fund will be at a loss.

Let's imagine that GoldCoins is launched and a bunch of people buy it, driving the price up above target. The escrow fund then creates GoldCoins to match supply to demand, and sells GoldCoins at a higher price than they will be worth in a few days once supply catches up. This is profit for the escrow fund, and the escrow fund is now over-funded as a result.

Later, a bunch of people decide there is a better way to store gold, and they sell their GoldCoins driving the price below target. The escrow fund then buys those cheap coins until supply again matches demand. Again the escrow fund profits by buying cheap coins which will be worth more in a few days!

There's not circular reasoning here. Sovereign governments do this all the time (although they get in trouble when they try to also control interest rates, as described earlier).

Why would the price go above target isn't that an escrow backed value people wont buy over? Why will coins be worth more in a few days if demand dropped out in the first place?

If the price doesn't go over target, that's great. The escrow fund doesn't have to do anything. But if a bunch of people decide they have to have GoldCoins even if they pay a slight premium for them, the escrow fund takes that premium.

This is supply and demand, folks.

Let me try your thought experiment, on the basis people only buy up to the value of backed assets for $1coin

Escrow fund $1000

market buys 1000 $1coin @ $1 each Q) Why are people buying $1 coins with no infrastructure supporting their use and no speculative value isn't this a bit of a chicken and egg situation?

$1coin trade at around $1 but with no practical use for them and no speculative value demand drops and people start to sell

Escrow fund buys 500 $1coin for $500

Q) by definition an escrow means the original purchaser handed that money to you on trust that it was backed so when you pick up "cheap coins" how much do people lose off there originally backed sum?

can you clarify the points above as can't really do a thought experiment without clarifying those points first!


 

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[dacoinminster]

Let me try your thought experiment, on the basis people only buy up to the value of backed assets for $1coin

Escrow fund $1000

market buys 1000 $1coin @ $1 each Q) Why are people buying $1 coins with no infrastructure supporting their use and no speculative value isn't this a bit of a chicken and egg situation?

$1coin trade at around $1 but with no practical use for them and no speculative value demand drops and people start to sell

Escrow fund buys 500 $1coin for $500

Q) by definition an escrow means the original purchaser handed that money to you on trust that it was backed so when you pick up "cheap coins" how much do people lose off there originally backed sum?

can you clarify the points above as can't really do a thought experiment without clarifying those points first!
 

Probably initial people buying a stabilized coin would be buying small amounts out of curiosity. If the currency holds the target value as promised, the infrastructure would definitely follow!

The primary question here assumes that people would be buying these currencies from me, which is not the case. Their money automatically goes straight to the escrow fund. The only trust at this point is in the protocol, not in a human being.

[Chang Hum]

Let me try your thought experiment, on the basis people only buy up to the value of backed assets for $1coin

Escrow fund $1000

market buys 1000 $1coin @ $1 each Q) Why are people buying $1 coins with no infrastructure supporting their use and no speculative value isn't this a bit of a chicken and egg situation?

$1coin trade at around $1 but with no practical use for them and no speculative value demand drops and people start to sell

Escrow fund buys 500 $1coin for $500

Q) by definition an escrow means the original purchaser handed that money to you on trust that it was backed so when you pick up "cheap coins" how much do people lose off there originally backed sum?

can you clarify the points above as can't really do a thought experiment without clarifying those points first!
 

Probably initial people buying a stabilized coin would be buying small amounts out of curiosity. If the currency holds the target value as promised, the infrastructure would definitely follow!

The primary question here assumes that people would be buying these currencies from me, which is not the case. Their money automatically goes straight to the escrow fund. The only trust at this point is in the protocol, not in a human being.

No it doesn't matter if it's you, what do you see as the escrow fund taking as a cut for buying and selling, or in other words what % can it drop by before it starts buying back given the point of the escrow is to pay buyers the value of the coin back

[dacoinminster]

No it doesn't matter if it's you, what do you see as the escrow fund taking as a cut for buying and selling, or in other words what % can it drop by before they start buying back given the point of the escrow is to pay buyers the value of the coin back

Take a look at the "aggression factor" described in the specification. How quickly the escrow fund reacts is defined by whoever launches the currency, using this parameter.

[vokain]

so likely end result is that Mastercoin, if the protocol does what it says it does perfectly, becomes what it's named—a sort of supracoin

[Chang Hum]

No it doesn't matter if it's you, what do you see as the escrow fund taking as a cut for buying and selling, or in other words what % can it drop by before they start buying back given the point of the escrow is to pay buyers the value of the coin back

Take a look at the "aggression factor" described in the specification. How quickly the escrow fund reacts is defined by whoever launches the currency, using this parameter.

OK I'll try again,

-I buy 5 master coins for $100

-I spend 5 master coins on 100 $1 coins, I suppose I have to pay slightly over a $1 from these perhaps $1.01 if I'm buying directly from the escrow fund with a 1% aggression factor.

Now Master coin value goes either up or down;

If it goes down in value 20% I gain 20% mastercoins but no extra value.

If it goes up in value 20% I lose 20%

Is that correct?

[dacoinminster]

OK I'll try again,

-I buy 5 master coins for $100

-I spend 5 master coins on 100 $1 coins, I suppose I have to pay slightly over a $1 from these perhaps $1.01 if I'm buying directly from the escrow fund with a 1% aggression factor.

Now Master coin value goes either up or down;

If it goes down in value 20% I gain 20% mastercoins but no extra value.

If it goes up in value 20% I lose 20%

Is that correct?

MasterCoins themselves do not have a target value, and do not have an escrow fund. Only currencies based on MasterCoin have these features. Please take a look at the spec for details.

[Chang Hum]

OK I'll try again,

-I buy 5 master coins for $100

-I spend 5 master coins on 100 $1 coins, I suppose I have to pay slightly over a $1 from these perhaps $1.01 if I'm buying directly from the escrow fund with a 1% aggression factor.

Now Master coin value goes either up or down;

If it goes down in value 20% I gain 20% mastercoins but no extra value.

If it goes up in value 20% I lose 20%

Is that correct?

MasterCoins themselves do not have a target value, and do not have an escrow fund. Only currencies based on MasterCoin have these features. Please take a look at the spec for details.

Yes I'm not suggesting they do, but don't all other currencies have to be purchased with MasterCoins?

[dacoinminster]

Yes I'm not suggesting they do, but don't all other currencies have to be purchased with MasterCoins?

A child currency could be purchased with MasterCoins or any other child currency. The actions of the escrow fund are determined by the price of the child currency in units of its parent currency, which could be MasterCoins or another MasterCoin-derived currency. At first, the parent currency will usually be MasterCoins, but technically it could be another child currency.

The parent currency is what is stored in escrow.

[dacoinminster]

so likely end result is that Mastercoin, if the protocol does what it says it does perfectly, becomes what it's named—a sort of supracoin

Yes, with bitcoin as the supracoin to MasterCoin

[Chang Hum]

Yes I'm not suggesting they do, but don't all other currencies have to be purchased with MasterCoins?

A child currency could be purchased with MasterCoins or any other child currency. The actions of the escrow fund are determined by the price of the child currency in units of its parent currency, which could be MasterCoins or another MasterCoin-derived currency. At first, the parent currency will usually be MasterCoins, but technically it could be another child currency.

The parent currency is what is stored in escrow.

OK so;

-I buy 5 master coins for $100

-I spend 5 master coins on 100 $1 coins, I suppose I have to pay slightly over a $1 from these perhaps $101 for the lot if I'm buying directly from the escrow fund with a 1% aggression factor.

Now Master coin value goes either up or down in value while the child currency stays relatively stable;

Please can you describe for me what happens to my investment in the child currency if;

a) Mastercoin rises in value 20%
b) Mastercoin decreases in value 20%

[vokain]

so likely end result is that Mastercoin, if the protocol does what it says it does perfectly, becomes what it's named—a sort of supracoin

Yes, with bitcoin as the supracoin to MasterCoin

ah, gotcha. price stabilization of bitcoin and by extension every other currency

[dacoinminster]

ah, gotcha. price stabilization of bitcoin and by extension every other currency

I actually have no idea if this will result in bitcoin price stabilization or not. Certainly, a successful MasterCoin would be good for bitcoin though.

[dacoinminster]

OK so;

-I buy 5 master coins for $100

-I spend 5 master coins on 100 $1 coins, I suppose I have to pay slightly over a $1 from these perhaps $101 for the lot if I'm buying directly from the escrow fund with a 1% aggression factor.

Now Master coin value goes either up or down in value while the child currency stays relatively stable;

Please can you describe for me what happens to my investment in the child currency if;

a) Mastercoin rises in value 20%
b) Mastercoin decreases in value 20%

I assume you are talking about something like USDCoins which would be intended to track the value of the U.S. Dollar?

If the escrow fund idea works (the question being debated endlessly here), small variations in MasterCoin values should not affect the price of USDCoins at all. The premium you would have to pay for USDCoins depends on supply and demand, not the aggression factor directly. The aggression factor just determines how quickly the escrow fund acts when the price of USDCoins diverges from target.

Now, if a competing idea gains traction and MasterCoin values head towards zero, your USDCoins will head towards zero too.

[Chang Hum]

You're confusing the question by adding other things in I'm not asking about, I'm asking very specifically what happens in Scenario 1) and 2) do you mind answering with your mathematical workings please?

[vokain]

ah, gotcha. price stabilization of bitcoin and by extension every other currency

I actually have no idea if this will result in bitcoin price stabilization or not. Certainly, a successful MasterCoin would be good for bitcoin though.

do i have this idea right that if this works, if everything distributes as planned, maybe say 1000 years down the road everything would trade at an equilibrium point?

[dacoinminster]

You're confusing the question by adding other things in I'm not asking about, I'm asking very specifically what happens in Scenario 1) and 2) do you mind answering with your mathematical workings please?

So, with USDCoin backed by MasterCoin, if the price of MasterCoin rises 20%, price of USDCoin stays at $1 each. If the price of MasterCoin falls 20%, the price of USDCoin stays at $1 each.

If the USDCoin does diverge, the escrow fund intervenes as described earlier.

Now, if MasterCoin drops 99.9%, it's pretty clear that the USDCoin holders are screwed.

[vokain]

You're confusing the question by adding other things in I'm not asking about, I'm asking very specifically what happens in Scenario 1) and 2) do you mind answering with your mathematical workings please?

So, with USDCoin backed by MasterCoin, if the price of MasterCoin rises 20%, price of USDCoin stays at $1 each. If the price of MasterCoin falls 20%, the price of USDCoin stays at $1 each.

If the USDCoin does diverge, the escrow fund intervenes as described earlier.

Now, if MasterCoin drops 99.9%, it's pretty clear that the USDCoin holders are screwed.

will mastercoin be initially worthless? I'm sorry, you probably explained this in other words but initially, what gives mastercoin that worth? its escrow, right? how do you put worth into this escrow?

[dacoinminster]

do i have this idea right that if this works, if everything distributes as planned, maybe say 1000 years down the road everything would trade at an equilibrium point?

That does seem likely, but it also seems likely that something will eventually replace the bitcoin/mastercoin/usercoin stack with something cooler. Hopefully a long time from now!

[dacoinminster]

will mastercoin be initially worthless? I'm sorry, you probably explained this in other words but initially, what gives mastercoin that worth? its escrow, right? how do you put worth into this escrow?

Well, currently 100 MasterCoins are a little cheaper than 1 BTC (because of the time-bonus), because that is the initial price I set. After September 1st, their value will float freely. Hopefully up