Proposal of a "stable" coin mechanism with no oracle or peg

[monsterer2]

There is no reliable way of controlling demand. It makes no sense to try to control demand. No one outside a dictatorship has ever controlled demand and even they can't force people to buy things at a price for very long. You can only control supply and wait for demand to adjust.

That isn't the case. You can make holding a long position less/more attractive by paying/reeving interest on said position. That directly controls demand.

[1714961860]

1714961860

[UmaPessoa]

That isn't the case. You can make holding a long position less/more attractive by paying/reeving interest on said position. That directly controls demand.

This is control of supply. You supply something(high interest rates) you think people will demand more and hope they do so. The demand is how much people want something,

[monsterer2]

That isn't the case. You can make holding a long position less/more attractive by paying/reeving interest on said position. That directly controls demand.

This is control of supply. You supply something(high interest rates) you think people will demand more and hope they do so. The demand is how much people want something,

IMO you've got that backwards, but it doesn't matter. Terminology aside, this mechanism is how the real world pegs currencies to the USD.

https://www.thebalance.com/what-is-a-peg-to-the-dollar-3305925

[d5000]

The FreeCoin solution differs from mine and it has problems that were rightly criticized at the time but it was on the right track. Those problems are:
1. The difficulty is fixed;
2. There are no reliable means for destroying coins, the author simply says that lost wallets are enough for this.

I mentioned FreeCoin only as an example for what was discussed at that time. The problem of the transaction fee destruction is not that it reduces mining incentive but that it reduces the incentive to use the currency. Did I understand right that with less hashrate, the destroyed fee will be higher? (If not, please correct.) In this case, the currency will become less attractive for use for payments just when the hashrate/price is low - and people would even transact less, so there would be less coins destroyed.

The transaction rate approach makes no sense and I didn't see any real argument in favor of it.  Why would more transactions mean greater or lower price?

Yep, I agree here actually - however, it has some theoretical sustain: the Quantity Theory of Value. However, the problem is that the number is easy to manipulate and as you write there always will be spikes and valleys not related to price. They could be "flattened" out using a moving average but I think it's still not enough to become really an indicator that would make sense.

I mentioned the 2013 discussion of the oxidation/demurrage fee as a comment to your discussion with mixoftix, so its outcome actually supports your point.

There is no reliable way of controlling demand. It makes no sense to try to control demand. No one outside a dictatorship has ever controlled demand and even they can't force people to buy things at a price for very long. You can only control supply and wait for demand to adjust.

You cannot "control" demand in the sense to "force" people to buy something, but you can create incentives, as monsterer wrote (e.g. by offering interest). That's why I mentioned Basis: there, you can get interest if you buy "bonds" which later are transformed in to real currency.

The main problems with Basecoin were that the base shares were distributed to early adopters so there was no fair way of obtaining them(mining), there was no way of destroying coins and it required an oracle to feed market price which still doesn't exist.

While I agree with point 1 and (somewhat) with point 3, it's incorrect that there is no way to destroy coins. Coins can be transformed in bonds (to reduce supply), and in certain market situations these bonds are burnt, without any compensation for the holder. So buying bonds is risky, but it can be attractive if you time it well.

Some of those are good but require an oracle, others are not very good and some are just dumb.
(I don't mean to offend you, it's just other people's ideas that are dumb. Your thread is useful. Sometimes this can't be made very clear through the internet.)

This list has only documentation purposes, I don't want to "shill" for any of the coins I listed there, but document success and failure of different concepts, so no problem . I also consider e.g. NuBits to have a pretty "dumb" peg mechanism as supply always grew (and thus it was a matter of time until the peg failed). BitUSD has also lost the peg recently, although it's still close enough (70 cent) to be able to recover. I've read in their forums that this was caused by a "global settlement", i.e. coins were transformed into the collateral currency (BitShares in this case).

[UmaPessoa]

Fist of all sorry for the delay.

I mentioned FreeCoin only as an example for what was discussed at that time. The problem of the transaction fee destruction is not that it reduces mining incentive but that it reduces the incentive to use the currency. Did I understand right that with less hashrate, the destroyed fee will be higher? (If not, please correct.) In this case, the currency will become less attractive for use for payments just when the hashrate/price is low - and people would even transact less, so there would be less coins destroyed.

An increase in transaction to fees, in principle, can reduce the transaction rate. In practice the effect might not be so strong for a few reasons:
1. The blocks can have an unlimited size, there will be much more transactions and therefore the increases in transaction fee can be much lower;
2. It's very conceivable that drastic drops in price *might* increase the transaction rate due to speculator entering the market;

In the implementation I had in mind (this is not in the paper), the changes in fee and block reward would be gradual and small. If the network notices that the  changes are having an undesired effect (in this case dropping the hash-rate even more) it can stop interfering or revert it's actions. The network objective would be to keep the hash-rate variations within a certain band from, say, a linear function.

Again, the goal is to smooth price variations. There might be cases in which there simply is not much to be done and the price will go down or up by a lot.

You cannot "control" demand in the sense to "force" people to buy something, but you can create incentives, as monsterer wrote (e.g. by offering interest). That's why I mentioned Basis: there, you can get interest if you buy "bonds" which later are transformed in to real currency.

This is controlling supply. You offer a product people desire more (more lucrative bonds) and expect them to demand more. But in the end of the day they could think you are not trustworthy and not buy the bonds anyways. I bet Venezuela's public bonds have very high interest rates and yet no one is buying them, because as I said you can only control supply and hope demand follows.

While I agree with point 1 and (somewhat) with point 3, it's incorrect that there is no way to destroy coins. Coins can be transformed in bonds (to reduce supply), and in certain market situations these bonds are burnt, without any compensation for the holder. So buying bonds is risky, but it can be attractive if you time it well.

This is correct, I don't know why I wrote that. Sorry. My opinion on base remains the same though. It has good ideas and could work but I think my approach is better.
Elaborating on the reliable oracle problem I commented on: the problem with using schelling coins *to regulate price* is that the coin owners won't have an incentive to submit the real price, instead they will submit prices as low as possible so that the network will reduce supply and their coins will appreciate in value. I do think schelling coins can useful for other things.
My approach also allows for unlimited block size, which basis doesn't support.

BitUSD has also lost the peg recently, although it's still close enough (70 cent) to be able to recover. I've read in their forums that this was caused by a "global settlement", i.e. coins were transformed into the collateral currency (BitShares in this case).

I think the collateralization approach (which is very similar to my arbitrage approach) should be able to maintain a peg given that:
1. Enough people use the coin;
2. The price of the underlying asset, BitShare, don't move very drastically.
Unfortunately the volume has being in a downward spiral from +2M USD/Day to ~1000 USD/Day.
In the case of a global settlement the supply of BitUSD would decrease drastically and the price would go up and not down. What I think happened is that the price of BitShares dropped, people created more BitUSD to "short sell" BitShares, which increased the supply of BitUSD and this drove the price down. You can see that when the price of BitShares went up again BitUSD followed, this were people converting their BitUSD back to BitShares to "close a short position".
Of course BitUSD has the problem of requiring a trusted data feed.