Re:Two thought experiments to evaluate automated stablecoins
by seanhunter on Friday May 27, 2022 @12:35AM
(#31526033)
Your question is a trick question because the first few assumptions beg all the detail that would be required to answer the question.
But fundamentally if you were to reach that size the assets you were using to collateralize the coin would in some sense have to have some leverage against the coin itself. Ie be loans backed partially by the coin or something. But because you can’t pull yourself up by your own bootstraps that would never work, and because 50% of all the US dollars in existence is a mindbogglingly large number no player in any market could ever be that large. In particular, regulation actually prevents you from being that large in lots of important ways. For example if you try to participate in equity markets more than a certain percentage you will have your exchange access shut off and you will be investigated for trying to run an illegal market corner. Even if you set regulation aside, as you try to buy 50% say of a government bond issue to have those assets to pledge you will find the price moves further and further against you. This is the supply/demand mechanism forcing you to give more than 50% of the dollars away to other market participants meaning you can never get to the goal that you mention in your hypothesis.
Quite separately your thought experiment doesn’t apply to the situation Vitalik is talking about- he specifically says in the article he is talking about pure algorithmic stablecoins rather than ones backed by assets held by custodians of the type you mention here.
But fundamentally if you were to reach that size the assets you were using to collateralize the coin would in some sense have to have some leverage against the coin itself. Ie be loans backed partially by the coin or something. But because you can’t pull yourself up by your own bootstraps that would never work, and because 50% of all the US dollars in existence is a mindbogglingly large number no player in any market could ever be that large. In particular, regulation actually prevents you from being that large in lots of important ways. For example if you try to participate in equity markets more than a certain percentage you will have your exchange access shut off and you will be investigated for trying to run an illegal market corner. Even if you set regulation aside, as you try to buy 50% say of a government bond issue to have those assets to pledge you will find the price moves further and further against you. This is the supply/demand mechanism forcing you to give more than 50% of the dollars away to other market participants meaning you can never get to the goal that you mention in your hypothesis.
Quite separately your thought experiment doesn’t apply to the situation Vitalik is talking about- he specifically says in the article he is talking about pure algorithmic stablecoins rather than ones backed by assets held by custodians of the type you mention here.