🤔 What are the issues with an algorithmically pegged stablecoin? Is there a way to make this work reliably so it can maintain its peg with confidence?
Algorithmic stablecoins, aka non-collateralized stablecoins are a new category of stablecoins. This typically means they are not backed by any collateral.
You can think of them as synthetic commodities with fluctuating values and supplies that gradually stabilize
The other 2 kinds of stablecoins are fiat-backed and crypto-backed, which are fairly easy to understand. Though algo-backed cryptos tend to be confusing as they have rebasing or coupon-based mechanism to maintain the peg.
1. rebase: increase or decrease supply
2. coupon based / “seigniorage”: buy and sell tokens
Examples of algorithmic stablecoins:
The thing is, price equilibrium is fragile without collateral, as we see with many rebase or seigniorage-style tokens. Perfect equilibrium to the peg requires a careful dance between two types of participants. (1) Those who likes stability and a preference for stablecoins. (2) Those who likes to speculate and prefers high-return opportunities like coupons.
Fractional reserve models like FRAX attempt to address the no collateral issue. Perhaps this hybrid model can produce a reliable token.
🤔 What is "buying an NFT"? Does it have value?
There are various items that can be considered NFTs, e.g. domain names, game merch, artwork (typically jpegs or gifs), even tweets.
As of now, Q1 2021, these are usually ERC-721 tokens which are discrete individual collectible assets with their own unique ttributes.
What are you buying when you buy NFTs?
1. Autograph of the creator
2. Intellectual property rights (IP)
It could have value if there’s demand on the secondary market, or as a collectable that somebody treasures. If you’re an art collector/investor, you might “get” why it has value. Even though 99% of the world don’t get it.
Since we’re still in experimental phase, there’s a few issues to consider when getting an NFT:
Since NFT aren't bearer assets yet (unlike Bitcoin), whose liability is it? Is it the issuer/artist/underwriter? In other words, is Da Vinci responsible for maintaining the Mona Lisa?
Do you actually own the artwork? Because seems like the NFT token you bought either points to a URL on the internet, or an IPFS hash
🤔 What is decentralized autonomous organization?
Blockchain protocol has ushered in a wave of new business concepts.
Startups such as Ethereum, Backfeed, Steemit, ConsenSys, and Provenance are all facilitating unique use cases for blockchain technology, and each would alter the way businesses conduct business.
As capabilities increase, more innovative business models will emerge. Standard operating procedures are shifting. One of the new concepts is the idea of decentralized autonomous organizations (DAO).
DAO businesses would host all of their operating procedures in the form of smart contracts on the blockchain, replacing management entirely.
It’s a reasonable concept. If we know how a particular business model should work, it should be possible to code all of the rules in an elaborate if-then protocol. LibreTaxi, the open-source alternative to Uber, could be a model worth considering.
Once the technology platform is built out, the rules of operating the day-to-day business are known. They could easily be coded into smart contracts and hosted on a blockchain. This model results in only two market participants: providers and consumers, nothing else. All management and administrative functions would be automated. This DAO concept could be implemented in a progressive fashion. It could begin with the automation of 10% or 20% of managerial and administrative roles, but these percentages would increase over time as smart contracts are devised to handle increasingly complex tasks.
The important thing is that the DAO would have no central governing authority. It would be an entirely collaborative platform. This type of business structure involves a number of challenges. First, if it did not have legal recognition as a limited liability entity, participation in the business could come with unlimited liability.
Second, since all of the code would be visible and easily accessed on the blockchain, known security vulnerabilities could be exploited by hackers until all the participants, through consensus, agree to bug-fixing initiatives.
We have a long way to go before DAO business structures gain traction, but the trend towards decentralized power structures increases the likelihood that these types of organizations will eventually be possible. And when they are, they’ll immediately become part of the exploding gig economy. Imagine a world where people can select and contribute to hundreds of different business models.
They could search for any type of business they like, evaluate the different roles available, and select a job of their choosing. Compensation would be performance-based, allowing each individual to fully control the income they receive. YouTube is a good model to follow.
Anyone can start a YouTube channel, covering whatever topics they like (within their terms of service, of course) and earn money from the advertisements on their videos.
The business model is simple. YouTube sells the advertising and splits the revenue with the content creator. Everyone knows how it works. Anyone can do it.
👀 Highlights of the week:
WTF is an NFT? Here’s a rundown of the basics. (Amy Castor)
Bitcoin Wallets For Beginners: From Zero To Self Custody Of KYC-Free BTC. (Bitcoin Magazine)
Taleb, Peterson and Weinstein's engagement with Bitcoin. (Bitcoin Tech Talk)
Just-in: Morgan Stanley Becomes First Major US Bank to Offer Access to Bitcoin Funds. (Coingape)
Bitcoin is 'more a substitute for gold than the dollar' — Fed Chair Powell. (Cointelegraph)
Bitcoin Hits $100,000 in Turkish P2P Markets as Lira Plummets. (Bitcoinist)
Moon Introduces Visa Merchants to the Lightning Network. (BitcoinLightning)
A quick analysis of FATF’s 2021 draft cryptocurrency guidance (Coin Center)
Satoshi Nakamoto’s View On Bitcoin’s Energy Consumption Resurfaces. (Decrypt)
A History of Bitcoin Transaction Dust & Spam Storms. (Cypherpunk Cogitations)
PS - Joined our community on Quora yet? A bunch of Bitcoin ₿elievers sharing, learning and looking out for each other.
Not financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Do your own research.