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Author Topic: MasterCoin: New Protocol Layer Starting From “The Exodus Address”  (Read 447563 times)
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vokain
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August 06, 2013, 06:59:12 PM
 #301

Sure, I'd support a bounty. Perhaps they'll come up with things the developer(s) have yet to, like thezerg has done, so definitely worth the cost in my book!


I'm sorry to disappear for 3 days and then dredge this up, but I can see that you and I have a difference of opinion on the time frame here, and on the idea of the value of the "black swan" events in a commodity speculator's portfolio.  But even if you continue with these attempts at a trustless representational currency, let me very respectfully ask you to also include the ability for people to create their own (trust-required) exchangeable entities, with a reference to a signed legal document describing the entity in its genesis block.  These new "currencies" could be a mortgage, stock in a company, a commodity with real backing, etc.  That is, add "native" support for colored coins within your system.  Whether or not your trustless representational currencies work, these trust-backed currencies will be very valuable, will utilize most of the same software infrastructure as your trustless and would make MasterCoin still useful if your trust-backed currency system does not work.  PM me if you need some impl help maybe I can find some time...


That's a very interesting idea. I suppose we might as well support currencies that work like colored coins. It doesn't really add any complexity to the design, and it seems likely that people would use it.

That would also give people one way to "invest" in the success of coins which work like colored coins - by buying MasterCoins. Previously there was no way to do this.

The built in decentralized exchange between MasterCoins and the other backed currencies would support something like this with almost no modifications.

Now, why didn't I think of that??

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August 06, 2013, 07:02:53 PM
 #302

Here is an economic principle that MasterCoin violates:

Law of conservation of Value.  - absent a change in perception of an individual, value can neither be created nor destroyed, it can only change hands.
    
      If you create 1 GC backed by 100 MC  when 100 MC is worth 1 Oz of Gold and the  100 MC are held in escrow (cannot be spent) then you have neither created nor destroyed value (only the purchasing power of 1 Oz of gold remains in circulation).

      Assume the value of MC falls by 50% such that 1 Oz of Gold is now worth 200 MC, the escrow fund is only holding 0.5 Oz of value but according to dacoin there is still 1 Oz of Gold worth of purchasing power that exists.  

      Now he is smart enough to realize that if the escrow fund is worth 0, the GoldCoin is worth 0.   He just doesn't compute the fact that the when the escrow fund is worth 0.50 the GoldCoin is worth 0.50 and when the fund is worth 1 GoldCoin is worth 1.

With BitShares I fully follow this law because when the price of Gold changes value is transferred between the short/long positions accordingly and never created nor destroyed.    BitShares get their value from the perception that they provide utility to the users.    All parties take risks and know the terms, but the market forces (not automated pegs) keep BitGold properly priced.

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August 06, 2013, 07:05:26 PM
 #303

No.   the main reason to buy bitcoins is because it will appreciate in value because other people will buy bitcoins to use them because they have extremely desirable properties as a currency.

Look, let's say we have 2 coins XxxCoin and YyyCoin.  X starts with 100 backing MasterCoins, Y starts with 1000 backing MasterCoins. Why would XxxCoin track the price of Silver and YyyCoin track the price of gold?

It'll only happen if the person (that you must trust) behind the escrow, issues and redeems xxx or yyy coins such that its supply vs demand creates a price that tracks gold and silver respectively.  First off, this requires you trust the escrow admin.  So its not a trustless coin.  Secondly, the escrow is gonna get drained or be so "full" it becomes more valuable than the commodity ... even just random walk math shows that eventually this will happen.  Deliberate speculator manipulation, profiting on the information asymmetry where they know how the other party (the escrow) will behave will make it happen sooner.

Sorry - just noticed that I haven't replied to this.

There is no escrow admin - it's all handled by the protocol. Speculators can reduce the escrow fund's trading profits, but cannot eliminate them entirely.

I think maybe I'll stop debating whether the escrow fund can work, and just point out that even if people are doubtful about the escrow-backed currencies, MasterCoins can be absurdly valuable without that feature. Distributed betting is going to be big. Thanks to your suggestion, the spec will also support user-issued coins without escrow backing (working like colored coins).

You assume that your escrow is going to profit by maintaining a peg. Basic supply and demand make the maintenance of an arbitrary peg always a money losing proposition. People are only ever going to buy from the fund when they can make money. They're also only going to sell to the fund when they can make money. Eventually any "escrow" you set up will run out of cash as the public treats it like a big money giveaway. How do you counter this?
He counters it by removing the feature from the spec and stoping all discussion on it.   Instead he is going to build MasterCoin for the betting system and issuer-based coins backed by trusted parties. 

He has yet to address the HUGE inefficiencies of storing data in bogus bitcoin address fields.


Over and over again I have described how the escrow fund makes a profit through its interventions. Simply claiming otherwise doesn't present any new data and does not give me something meaningful to respond to.

The escrow backed currencies are NOT being removed from the spec. I simply wonder if responding over and over again to the same misunderstandings of the escrow system is the best use of my time, when there are so many other less controversial ways for MasterCoin to succeed.

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August 06, 2013, 07:06:13 PM
 #304

He has yet to address the HUGE inefficiencies of storing data in bogus bitcoin address fields.


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August 06, 2013, 07:07:04 PM
 #305

Quote

Over and over again I have described how the escrow fund makes a profit through its interventions. Simply claiming otherwise doesn't present any new data and does not give me something meaningful to respond to.

The escrow backed currencies are NOT being removed from the spec. I simply wonder if responding over and over again to the same misunderstandings of the escrow system is the best use of my time, when there are so many other less controversial ways for MasterCoin to succeed.

Except you haven't answered this. You'd just denied that this is a problem every time or claimed you've already answered it.
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August 06, 2013, 07:09:50 PM
 #306

He has yet to address the HUGE inefficiencies of storing data in bogus bitcoin address fields.


I did address it the first time it came up. The footprint of MasterCoin is very small in the block chain, and consists mostly of transfers of value. However, it is true that MasterCoin transactions do contribute to block-chain bloat just like other bitcoin transactions do. The total cost per MasterCoin transaction is about 2 cents, which is obviously not going to interfere with adoption.

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August 06, 2013, 07:12:07 PM
 #307

Quote

Over and over again I have described how the escrow fund makes a profit through its interventions. Simply claiming otherwise doesn't present any new data and does not give me something meaningful to respond to.

The escrow backed currencies are NOT being removed from the spec. I simply wonder if responding over and over again to the same misunderstandings of the escrow system is the best use of my time, when there are so many other less controversial ways for MasterCoin to succeed.

Except you haven't answered this. You'd just denied that this is a problem every time or claimed you've already answered it.


The escrow fund buys coins below the target, and sells them above the target, making a profit. I haven't seen anybody post a convincing argument that this is not true (as long as the escrow fund is reasonably healthy).

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August 06, 2013, 07:13:08 PM
 #308

He has yet to address the HUGE inefficiencies of storing data in bogus bitcoin address fields.


I did address it the first time it came up. The footprint of MasterCoin is very small in the block chain, and consists mostly of transfers of value. However, it is true that MasterCoin transactions do contribute to block-chain bloat just like other bitcoin transactions do. The total cost per MasterCoin transaction is about 2 cents, which is obviously not going to interfere with adoption.

Have you factored in that your built in exchange will have an order of magnitude more trx volume than the Bitcoin block chain?   Looking at the size of one message is totally missing the point and assuming bitcoin-level trx volume when people are actively playing the market is also a very unsafe assumption.

A conservative guess is that there would be 10 market transactions for every traditional bitcoin transaction.  

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August 06, 2013, 07:14:38 PM
 #309

Quote

Over and over again I have described how the escrow fund makes a profit through its interventions. Simply claiming otherwise doesn't present any new data and does not give me something meaningful to respond to.

The escrow backed currencies are NOT being removed from the spec. I simply wonder if responding over and over again to the same misunderstandings of the escrow system is the best use of my time, when there are so many other less controversial ways for MasterCoin to succeed.

Except you haven't answered this. You'd just denied that this is a problem every time or claimed you've already answered it.


The escrow fund buys coins below the target, and sells them above the target, making a profit. I haven't seen anybody post a convincing argument that this is not true (as long as the escrow fund is reasonably healthy).

Right but people are inherently self interested in economics. They won't sell to the escrow unless they can make money from doing so. They won't buy from the escrow unless that also makes them money. So how does the escrow ever make any money unless people are willing to sell at a loss?

I certainly hope you aren't claiming to have changed the laws of economics and made people fundamentally not profit motivated?? Can you address this problem? How do you get people to sell at a loss (which is what is required for the escrow to gain money).
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August 06, 2013, 07:17:27 PM
 #310

Here is an economic principle that MasterCoin violates:

Law of conservation of Value.  - absent a change in perception of an individual, value can neither be created nor destroyed, it can only change hands.
    
      If you create 1 GC backed by 100 MC  when 100 MC is worth 1 Oz of Gold and the  100 MC are held in escrow (cannot be spent) then you have neither created nor destroyed value (only the purchasing power of 1 Oz of gold remains in circulation).

      Assume the value of MC falls by 50% such that 1 Oz of Gold is now worth 200 MC, the escrow fund is only holding 0.5 Oz of value but according to dacoin there is still 1 Oz of Gold worth of purchasing power that exists.  

      Now he is smart enough to realize that if the escrow fund is worth 0, the GoldCoin is worth 0.   He just doesn't compute the fact that the when the escrow fund is worth 0.50 the GoldCoin is worth 0.50 and when the fund is worth 1 GoldCoin is worth 1.

With BitShares I fully follow this law because when the price of Gold changes value is transferred between the short/long positions accordingly and never created nor destroyed.    BitShares get their value from the perception that they provide utility to the users.    All parties take risks and know the terms, but the market forces (not automated pegs) keep BitGold properly priced.

A good counter-example is fractional reserve banking. Like MasterCoin, banks which don't have enough money on hand to cover all deposits are inherently unstable and might crash. On the other hand, like MasterCoin they also have the potential to keep going for many years without crashing.

Banks fundamentally violate this law, and take on risk as a result. MasterCoin makes similar trade-offs.

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August 06, 2013, 07:20:05 PM
 #311

Right but people are inherently self interested in economics. They won't sell to the escrow unless they can make money from doing so. They won't buy from the escrow unless that also makes them money. So how does the escrow ever make any money unless people are willing to sell at a loss?

I certainly hope you aren't claiming to have changed the laws of economics and made people fundamentally not profit motivated?? Can you address this problem? How do you get people to sell at a loss (which is what is required for the escrow to gain money).

When a target currency is above target, that means that people want that currency so badly that they are willing to pay a small premium for it, which the escrow fund collects.

When a target currency is below target, that means that people want OUT of the currency so badly that they are willing to pay a small premium to get out, which the escrow fund also collects.

It would be irrational to give that premium to the escrow fund if there was another choice, but there is not.

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August 06, 2013, 07:21:52 PM
 #312

Right but people are inherently self interested in economics. They won't sell to the escrow unless they can make money from doing so. They won't buy from the escrow unless that also makes them money. So how does the escrow ever make any money unless people are willing to sell at a loss?

I certainly hope you aren't claiming to have changed the laws of economics and made people fundamentally not profit motivated?? Can you address this problem? How do you get people to sell at a loss (which is what is required for the escrow to gain money).

When a target currency is above target, that means that people want that currency so badly that they are willing to pay a small premium for it, which the escrow fund collects.

When a target currency is below target, that means that people want OUT of the currency so badly that they are willing to pay a small premium to get out, which the escrow fund also collects.

It would be irrational to give that premium to the escrow fund if there was another choice, but there is not.

I just realized that this very intelligent question came from SPIRAL_MIND!

I think maybe he's just messing with me now. Is this really the same spiral_mind?

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August 06, 2013, 07:34:56 PM
 #313

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Over and over again I have described how the escrow fund makes a profit through its interventions. Simply claiming otherwise doesn't present any new data and does not give me something meaningful to respond to.

The escrow backed currencies are NOT being removed from the spec. I simply wonder if responding over and over again to the same misunderstandings of the escrow system is the best use of my time, when there are so many other less controversial ways for MasterCoin to succeed.

Except you haven't answered this. You'd just denied that this is a problem every time or claimed you've already answered it.


The escrow fund buys coins below the target, and sells them above the target, making a profit. I haven't seen anybody post a convincing argument that this is not true (as long as the escrow fund is reasonably healthy).

You are only looking at the market from the perspective of the escrow fund, but not from other users.

Why should *I* buy above the target price?   If I do, the fund will push the price down and I have guaranteed losses.  Conclusion: no market participant with any sanity what-so-ever would ever bid above the target price and therefore your assumption that the escrow fund could raise money this way is wrong.  The only time the escrow fund could sell GoldCoin would be when the value of the escrow fund is over 100% and it wouldn't be selling at a profit.

The escrow fund socializes the losses and privatizes the profits.   If MC goes up the fund keeps the profits and prints new GoldCoin transferring the gain from the fund to those who buy the new GoldCoin.  After all they would be buying GC with 1.5 backing for the price of 1 until the backing fell back to 1:1.

If MC goes down then the fund is unable to make everyone whole and is left playing a confidence game / ponzi scheme of temporally propping up the price by stealing the backing from other GoldCoin holders.  As long as the current holders are ignorant to the fact that the only thing propping up the price is the backing of their own coins it will work.

How can you tell if the automated system is making or losing value?   If it makes decisions that no rational actor would make, it is losing money.  

Remove the 'magic' of your algorithm for a second and instead lets pretend I create a bank, the ByteMasterBank  BMB.

I tell people that I will issue a BMB IOU for $100 USD if you deposit 1 BTC into my bank and that I will always be willing to redeem that $100 USD IOU at face value, but you will have to accept $100 worth of BTC in place of actual USD when you redeem your IOU.   Assuming price stability I will always be able to meet my obligations.   If the price of BTC goes up then I can make a killing because my IOUs are denominated in USD.

So the price of USD goes up and I now have enough BTC in my fund to buy back all outstanding USD loans 2x over.   Great!  I can now print up additional USD loans and start buying things with them all while maintaining over 100% reserves!  

The next week the price of USD goes up and all of a sudden I am insolvent, I only have the ability to buy back 50% of the outstanding USD loans.   As long as no one catches on I can play the game of a fractional reserve bank and still honor withdraws (redemptions at face value).   How ever, once 50% of my depositors have withdrawn their money that game is over and everyone else loses everything because I am unable to pay.

Unlike traditional banks, I don't earn any interest on my loans and must cover all losses from depositor funds.  I also don't have the ability to hide the true state of my balance sheet nor do I have any ability to raise any additional capital on my own.   Everyone that continues to bank with me knows they are playing a game of musical chairs and they will only continue to trust it as long as everyone else does.   It will not last long, especially for a crypto-currency not backed by the full faith and credit of a big bank.

The problem you have is that you need the system to be workable on day one when MC is worth almost nothing and has no reputation.  The first 'panic' or 'market correction' it faces would entirely collapse all of MC because everyone with GoldCoin would lose and once that is revealed all other currencies (not backed by a public issuer violating bearer bonds laws) would also make a rush to safety.  


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August 06, 2013, 07:46:13 PM
 #314

Quote

Over and over again I have described how the escrow fund makes a profit through its interventions. Simply claiming otherwise doesn't present any new data and does not give me something meaningful to respond to.

The escrow backed currencies are NOT being removed from the spec. I simply wonder if responding over and over again to the same misunderstandings of the escrow system is the best use of my time, when there are so many other less controversial ways for MasterCoin to succeed.

Except you haven't answered this. You'd just denied that this is a problem every time or claimed you've already answered it.


The escrow fund buys coins below the target, and sells them above the target, making a profit. I haven't seen anybody post a convincing argument that this is not true (as long as the escrow fund is reasonably healthy).

You are only looking at the market from the perspective of the escrow fund, but not from other users.

Why should *I* buy above the target price?   If I do, the fund will push the price down and I have guaranteed losses.  Conclusion: no market participant with any sanity what-so-ever would ever bid above the target price and therefore your assumption that the escrow fund could raise money this way is wrong.  The only time the escrow fund could sell GoldCoin would be when the value of the escrow fund is over 100% and it wouldn't be selling at a profit.

The escrow fund socializes the losses and privatizes the profits.   If MC goes up the fund keeps the profits and prints new GoldCoin transferring the gain from the fund to those who buy the new GoldCoin.  After all they would be buying GC with 1.5 backing for the price of 1 until the backing fell back to 1:1.

If MC goes down then the fund is unable to make everyone whole and is left playing a confidence game / ponzi scheme of temporally propping up the price by stealing the backing from other GoldCoin holders.  As long as the current holders are ignorant to the fact that the only thing propping up the price is the backing of their own coins it will work.

How can you tell if the automated system is making or losing value?   If it makes decisions that no rational actor would make, it is losing money.  

Remove the 'magic' of your algorithm for a second and instead lets pretend I create a bank, the ByteMasterBank  BMB.

I tell people that I will issue a BMB IOU for $100 USD if you deposit 1 BTC into my bank and that I will always be willing to redeem that $100 USD IOU at face value, but you will have to accept $100 worth of BTC in place of actual USD when you redeem your IOU.   Assuming price stability I will always be able to meet my obligations.   If the price of BTC goes up then I can make a killing because my IOUs are denominated in USD.

So the price of USD goes up and I now have enough BTC in my fund to buy back all outstanding USD loans 2x over.   Great!  I can now print up additional USD loans and start buying things with them all while maintaining over 100% reserves!  

The next week the price of USD goes up and all of a sudden I am insolvent, I only have the ability to buy back 50% of the outstanding USD loans.   As long as no one catches on I can play the game of a fractional reserve bank and still honor withdraws (redemptions at face value).   How ever, once 50% of my depositors have withdrawn their money that game is over and everyone else loses everything because I am unable to pay.

Unlike traditional banks, I don't earn any interest on my loans and must cover all losses from depositor funds.  I also don't have the ability to hide the true state of my balance sheet nor do I have any ability to raise any additional capital on my own.   Everyone that continues to bank with me knows they are playing a game of musical chairs and they will only continue to trust it as long as everyone else does.   It will not last long, especially for a crypto-currency not backed by the full faith and credit of a big bank.

The problem you have is that you need the system to be workable on day one when MC is worth almost nothing and has no reputation.  The first 'panic' or 'market correction' it faces would entirely collapse all of MC because everyone with GoldCoin would lose and once that is revealed all other currencies (not backed by a public issuer violating bearer bonds laws) would also make a rush to safety.  


You are right about the possibility of collapse when the escrow fund is unhealthy. I think we are all agreed on that, although we probably have different ideas of how unhealthy it would have to be before it reached the tipping point.

Your examples (both here and previously) seem to assume that an over-funded escrow fund would cause investors to over-pay for a currency and take a loss when the escrow fund debases them. I can't think of why someone would do this, knowing they would take a loss. Consequently, it seems clear that the escrow fund would remain 150% over-funded indefinitely.

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August 06, 2013, 07:47:31 PM
 #315

Right but people are inherently self interested in economics. They won't sell to the escrow unless they can make money from doing so. They won't buy from the escrow unless that also makes them money. So how does the escrow ever make any money unless people are willing to sell at a loss?

I certainly hope you aren't claiming to have changed the laws of economics and made people fundamentally not profit motivated?? Can you address this problem? How do you get people to sell at a loss (which is what is required for the escrow to gain money).

When a target currency is above target, that means that people want that currency so badly that they are willing to pay a small premium for it, which the escrow fund collects.

When a target currency is below target, that means that people want OUT of the currency so badly that they are willing to pay a small premium to get out, which the escrow fund also collects.

It would be irrational to give that premium to the escrow fund if there was another choice, but there is not.

I just realized that this very intelligent question came from SPIRAL_MIND!

I think maybe he's just messing with me now. Is this really the same spiral_mind?

Is the fund really profiting by selling for $1.1 when the current ask price is $1.2?    Every other actor on the market believes a GC is worth $1.2 and yet the escrow fund is selling for $1.1....  when it does this value is neither created nor destroyed, only transferred.  It gets transferred from everyone who holds GoldCoin to the new owner.   In this case $0.1 is transferred and the average backing after the freshly printed GC is less than the average backing before and therefore even when selling for $1.1 the fund is de-capitalizing itself rather than capitalizing itself.   Profit or loss from the perspective of the fund must be measured in terms of   MC Held / Value Owed.   Show me once how your escrow agent is ever able to take an action that increases the MC Held / Value Owed?

When someone wants out they are willing to take a loss.   The normal loss would be at the price of MC Held / Value Owed, however, you are attempting to prop up the price and let them out for more than MC Held / Value Owed and as a result the fund makes a loss.  



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August 06, 2013, 07:51:27 PM
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Is the fund really profiting by selling for $1.1 when the current ask price is $1.2?    Every other actor on the market believes a GC is worth $1.2 and yet the escrow fund is selling for $1.1....  when it does this value is neither created nor destroyed, only transferred.  It gets transferred from everyone who holds GoldCoin to the new owner.   In this case $0.1 is transferred and the average backing after the freshly printed GC is less than the average backing before and therefore even when selling for $1.1 the fund is de-capitalizing itself rather than capitalizing itself.   Profit or loss from the perspective of the fund must be measured in terms of   MC Held / Value Owed.   Show me once how your escrow agent is ever able to take an action that increases the MC Held / Value Owed?

When someone wants out they are willing to take a loss.   The normal loss would be at the price of MC Held / Value Owed, however, you are attempting to prop up the price and let them out for more than MC Held / Value Owed and as a result the fund makes a loss.  


No, that would be the opposite of a premium - that would be a giveaway!

The escrow fund sells at $1.2 when the ask is $1.2. Consequently, the ask price is now less than $1.2 by some amount.

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August 06, 2013, 07:54:43 PM
 #317

Quote
Your examples (both here and previously) seem to assume that an over-funded escrow fund would cause investors to over-pay for a currency and take a loss when the escrow fund debases them. I can't think of why someone would do this, knowing they would take a loss. Consequently, it seems clear that the escrow fund would remain 150% over-funded indefinitely.

You are correct, the fund would never have an opportunity to act to push the price down because no one would bid it up until the margin was insane.  So your debasing algorithm could work assuming it never debased the fund below 150 to 200% margin.

Unfortunately, to get there everyone had to bet right initially.   People would probably be willing to pay above market rates proportional to their demand for margin and thus GoldCoin will always trade at a premium to Gold when the escrow fund is above 150% and the algorithm will not debase beyond 150%.

On the down side though, your algorithm cannot prop up the price because it will create a positive feedback loop devaluing GoldCoin to nothing by continually debasing it.


This means that your system only offers down-side protection *after* it has already profited to the upside.  The initial buyers of GoldCoin have no such protection and would be better off not owning GoldCoin because they are exposed to losses but not gains in MC.  

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August 06, 2013, 07:57:09 PM
 #318


Is the fund really profiting by selling for $1.1 when the current ask price is $1.2?    Every other actor on the market believes a GC is worth $1.2 and yet the escrow fund is selling for $1.1....  when it does this value is neither created nor destroyed, only transferred.  It gets transferred from everyone who holds GoldCoin to the new owner.   In this case $0.1 is transferred and the average backing after the freshly printed GC is less than the average backing before and therefore even when selling for $1.1 the fund is de-capitalizing itself rather than capitalizing itself.   Profit or loss from the perspective of the fund must be measured in terms of   MC Held / Value Owed.   Show me once how your escrow agent is ever able to take an action that increases the MC Held / Value Owed?

When someone wants out they are willing to take a loss.   The normal loss would be at the price of MC Held / Value Owed, however, you are attempting to prop up the price and let them out for more than MC Held / Value Owed and as a result the fund makes a loss.  


No, that would be the opposite of a premium - that would be a giveaway!

The escrow fund sells at $1.2 when the ask is $1.2. Consequently, the ask price is now less than $1.2 by some amount.

If the fund sells at the ask price of $1.2 then presumably it will not result in the price falling, but instead the MC Held / Value Owed ratio would be unchanged.

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August 06, 2013, 07:59:34 PM
 #319

Quote
Your examples (both here and previously) seem to assume that an over-funded escrow fund would cause investors to over-pay for a currency and take a loss when the escrow fund debases them. I can't think of why someone would do this, knowing they would take a loss. Consequently, it seems clear that the escrow fund would remain 150% over-funded indefinitely.

You are correct, the fund would never have an opportunity to act to push the price down because no one would bid it up until the margin was insane.  So your debasing algorithm could work assuming it never debased the fund below 150 to 200% margin.

Unfortunately, to get there everyone had to bet right initially.   People would probably be willing to pay above market rates proportional to their demand for margin and thus GoldCoin will always trade at a premium to Gold when the escrow fund is above 150% and the algorithm will not debase beyond 150%.

On the down side though, your algorithm cannot prop up the price because it will create a positive feedback loop devaluing GoldCoin to nothing be continually debasing it.


This means that your system only offers down-side protection *after* it has already profited to the upside.  The initial buyers of GoldCoin have no such protection and would be better off not owning GoldCoin because they are exposed to losses but not gains in MC.  

It seems we're finally getting somewhere after all these walls of text. I was starting to wonder if it would ever end, but I think I see the light at the end of the tunnel!

So, we've established that an over-funded escrow fund can provide downside protection. I argue that a break-even fund or even a modestly underfunded one can also provide protection. For instance, a 90% funded escrow fund can survive 80% of the GoldCoins being cashed out in a panic (and be healthier in the end!). Your instinct is correct that this fund is vulnerable, but only to a sufficiently large panic.

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August 06, 2013, 08:00:18 PM
 #320

If the fund sells at the ask price of $1.2 then presumably it will not result in the price falling, but instead the MC Held / Value Owed ratio would be unchanged.

Well, the escrow fund hits the bid or ask as appropriate. If you do that enough times, the price moves. It's logic would be "buy the cheapest 1% of coins for sale below the target" or "sell new coins to the 1% highest bids above the target"

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