Stable coin without algorithm or backing

[mu_enrico]

You all never  take in account that in fact collateral is not excluded from circulation and until no critical demand on it from stablecoin holders this collateral can participate in economy partly or even completely thus multiplying a total money supply...

Correct! More informed users already know that USDT, for example, is still run on fractional reserves. However, some people still believe it's legit because they promised (in the beginning) that USDT is backed by actual USD. This was the reason it could grow and become mainstream. However, I believe it will crash at some point, just like other examples in history.

But about the case that you are promoting a stablecoin without some sort of pegging mechanism, and the fact that the mechanism involves burning ETH, won't convince investors.

[FatFork]

You all never  take in account that in fact collateral is not excluded from circulation and until no critical demand on it from stablecoin holders this collateral can participate in economy partly or even completely thus multiplying a total money supply
All u can do here is to just believe the coin issuer doesnt do that

That doesn't apply to all stablecoins and doesn't justify creating valueless tokens.  Sure, some of them probably create worthless tokens without much backing.  But others have ways to keep the value pegged, even if the collateral isn't completely locked up or frozen. The issuers put controls in place so they cant just take the collateral and print more money whenever they feel like it. The assets are supposed to be there as a safety net if people start cashing out the stablecoin all at once.  That way the value stays steady.

And in my case you are sure that collateral is really excluded

But in your case it makes even less sense. Burning real assets to mint tokens with nothing behind them? You'd be destroying value to make something with no value. Maybe I'm missing something, but what's the point of that?

[d5000]

Fortunately such "proof of burn" tokens already exist for a while, so we can analyze how their price evolved. To be fair, none of these had the intention to be pegged to a fiat currency, but the mechanics are the same.

One of the first tokens of this kind was Counterparty (XCP) on the Bitcoin network. It was issued in 2014, with XCP tokens being distributed according to the Bitcoins burnt.

However, this made not behave XCP in a "stable" way, not even compared to Bitcoin:


Source: Coingecko

(orange line is the price of XCP in BTC, blue line in USD).

You see that even if you can argue that XCP always was "backed" by the "collateral" of the BTC which were burnt when they were created, the price lowered year after year, with some spikes in the middle.

The reason is actually: a currency's value is not only determined by the money supply, but also by the demand. If XCP, or your "USD pegged" token, had a perfect stable demand per token then it could hold its value against the USD. But this is so highly unlikely that it becomes totally unrealistic. Demand varies for various reasons, from seasonal changes to economic cycles, and of course cryptocurrency market's own attention cycles.

So you always need a burn mechanism for those times when the demand goes down. And that's what algorithmic stablecoins like Dai actually provide, and that's the reason why they can work.