Goldcoin and Stablecoin proposals

[John Tobey]

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).

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").

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[dacoinminster]

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).

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").

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.

[dacoinminster]

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-

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.

[BurtW]

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…

[markm]

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.

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...)

[morpheus]

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.

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.

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.

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.

[morpheus]

..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").

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.

[John Tobey]

The problem with demurrage [...]

Good point.

[jtimon]

The problem with demurrage [...]

Good point.

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.

[dacoinminster]

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://bitcointalk.org/index.php?topic=36453.msg451254#msg451254

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

[John Tobey]

Further elaboration of the GoldCoin / {Insert Commodity}Coin idea in this thread: https://bitcointalk.org/index.php?topic=24714.msg523685#msg523685