Decentralized FEDcoin

7개월 전

central bank responsibilities.jpg

Why aren't we trying to create our own stable-coin?

Every stable-coin out there simply pegs itself to fiat. This is a clear sign that fiat and the legacy economy still have a lot of value to the cryptosphere.

If it ain't broke, don't fix it.

Yeah well, the times of fiat being not broken are coming to a swift end, so it seems. Are we really going to let them print all fiat into hyperinflated oblivion, and then on top of that shit-sandwich allow them to just start over with a central bank digital currency? Seems that's the way we are headed.

I hope the cryptosphere can beat them to the punch by offering a better way of doing things.

So how is it done today?

  • Central banks print money and loans it out to banks as debt.
    • Interest is owed back to the central bank (money that doesn't exist yet).
      • This is financial debt-slavery.
        • Debt can not be paid back without incurring more debt.

Another less extreme way of looking at it is that it's not financial slavery, but simply a business offering their product and in exchange expecting to receive their fair share of return. Unfortunately, we all know that no one at the top takes their "fair share". These gluttons suck down as much profits as humanly possible like the cancerous agents they are. Maintaining economic harmony is difficult when every agent therein is a cancerous cell only interested in never-ending growth no matter the cost to the host that keeps them alive in the first place.


earthplanet.jpg

This is why force must be used to at least keep some people following the rules while the elite does whatever it wants. When the elite gets too greedy the system collapses in one way or another and there must be a reset to start the whole process over again. During the reset the lower class is almost sure to receive the short end of the stick, as they have no say in the matter.

That is unless shit really hits the fan and too many people have nothing left to lose and revolt, putting their own lives up as collateral to fight the powers that be. This is what the elite always attempts to avoid if they can. They redirect the fury of the lower class back onto the middle class and small businesses. God bless Netflix.

They've gotten very good at this, and even redirect that energy onto itself using politics and the two-party system. For populations to be controlled they must be divided and conquered. It may seem like the elite can just do whatever they want and get away with it, but in reality they are walking a tightrope and the world is absolute batshit unpredictable chaos a lot of the time. Those who create order from the chaos on a macro level can reap huge rewards.

Off Topic

But this isn't what I want to talk about. Rather, I want to flush out an idea I've spoken about before, which is creating a decentralized stable coin that mimics what central banking does. How would that work? Is it possible? I believe it is.

https://peakd.com/volatility/@edicted/a-self-regulating-stable-coin

https://peakd.com/volatility/@edicted/a-stable-coin-that-gains-12-a-year

In fact, I think that it is so possible that such a network would not only remain stable but also gain value every year relative to the dollar. There's no reason why a stable-coin can't gain 10% value or more every year if the fundamentals are solid. This is due to profits being shared rather than raked in by the elite. I don't have to explain how big of a game-changer this would be, as we could easily see a mass exodus from the legacy economy to crypto, as stability is the last remaining hurdle to mainstream adoption.

How is it possible?

Well, again, how does a central bank do it? They inject capital into the economy when the dollar is strong. This allows them to dilute value and take gains. Their product is strong so they "sell" some to turn a profit. Basic stuff.

What's not so basic is how this is actually done in reality. Traditionally, interest rates are used. So a high interest rate means less banks will want to borrow from the bank because they'll have to pay back more. However, now that the system is on its last legs, interest rates sit at zero and the banks must employ quantitative easing (or even negative interest rates) to keep the party going. Surely, we are on borrowed time.

QE

From a logistics standpoint, issuing currency through quantitative easing actually makes more sense than interest rates. You see, interest rates were a trick from back in the day to get people to use fiat in the first place. Paper money used to be backed by actual hard assets like gold and silver because people weren't as accepting of fiat back in the day when it was invented (because they knew the banks were full of shit).


Today, the banks can get away with a lot more because all the people who were around during the inception of the FED are dead and dying.

Now we have a population of drones who blindly accept this worthless paper because it's all they've known since birth. The funny thing about that is we now see that the paper is not worthless, because they are trying to get rid of cash, and the privacy it offers is the last remaining bastion that gave it any real value to begin with. Fungibility is the foundation of currency and privacy is the foundation of fungibility. Money that gets blacklisted because it was used for "illicit activity" undermines the entire currency. Privacy matters.


Too many tangents

Now the banks are being much less subtle, and they're just printing out money and spending it wherever. This actually makes more sense than issuing debt with interest and demanding money be paid back that doesn't exist yet. This is a more blunt way of doing things that sort of removes the veil of the whole process and shows how broken everything truly is.

Interest rates are exploitative.

Debt issued via usury is straight up banned in some places including Islamic religions. This is because it is known that putting yourself up for collateral (reputation) is a slippery slope that leads to financial slavery and should not be allowed.

I have already figured out a way to issue DeFi collateral loans on Hive or anywhere else without using interest rates as the lever that pegs token price. Instead, we can use the lever of required collateral percent itself. The more collateral required to generate an asset the more value that asset gains, and vice versa.

However, that's not what I'm talking about here. Rather, what collateral does a central bank use to issue its currency? It used to be hard assets like gold/silver, but today it is simply based on their own reputation. Trust creates value. Or in the case of the PetroDollar, oil, power, fear, and control create the value (AKA trust in force).

I believe we can do the same thing with a cryptocurrency, but instead of a few elites being in charge of distributing and printing the currency, this process would be decentralized and opened up to a bigger community willing to put their reputation on the line as collateral to stabilize the asset.

Imagine for a moment that crypto has gone mainstream. What if you could find the top 1000 most trustworthy people on the planet that have proven themselves time and time again that they serve their communities rather than enriching themselves? What if you could put these 1000 most trusted people on the planet in control of what is essentially a fiat currency? They alone would have the power to print and or destroy or buy back the currency to keep it stable. Could it work? I think it could depending on the reputation system.

Clearly, issuing currency via interest is an unsustainable process that doesn't really make sense on the macro scale over time. I think in the context of crypto it would make the most sense to issue more/less coins by connecting it to all the other networks and keeping it stable simply through the process of trading and market manipulation.


Manipulation isn't a bad thing if what you are doing is what everyone wants and it's a transparent process. We manipulate the entire world to our advantage on a daily basis. If you want to take a shower you must manipulate water in dozens of ways to get what you want. (Mixing hot with cold, purification, pressure... etc.)


This would mean the trusted individuals that had the power to create coins at will (likely a vote that gave equal portions to all 1000 players) would not only receive a vast array of wealth during the good times, but also during the bear markets they'd be responsible for taking a loss and making sure the value of the stable-coin didn't lose too much value.

The range in which this cabal allowed the stable-coin to fluctuate would be a huge point of debate. A wider range allows less risk to be taken and more profits to be banked during for rainy day, while a short range promotes increased stability and a higher reputation for the elite group controlling the currency because they are spending money out of pocket for the benefit of everyone who depends on that stability.

It's also possible that the entire system could be run without people and instead was dictated by AI. That's also an interesting scenario.

In fact, it makes a lot more sense than putting people in charge for no reason. That's the whole point of this movement, yeah? What could a person do that AI can't in this situation?

If you can't tell I'm trying to flush this idea out right on the spot.

So here's what we have so far:

Reserve Bank:

These are the accounts that collateralize the entire system. This is the money used to buy back the coin on the market should the peg break to the downside. In the event that all reserves are depleted this would mean the stable-coin is at risk of losing trust in the market and drastically breaking the peg. Of course if the network was anywhere near running out of reserves they would make the choice of allowing the peg to fail on purpose to mitigate the failure. Again, such an event reduces network reputation but gives others the chance to enter cheaply or pay off their debts for a discount.

  • What collateral should be used?
  • Should physical or off-chain collateral be allowed?
  • Who/what controls the collateral and how?

These are all issues up for debate, even after such a network were to go live.

Governance:

  • Should a trusted elite be in charge of issuing stable-coins and buyback?
  • Can this process be automated?
  • Is it sustainable?
  • Can the network gain value even in a stable environment?
  • Should their be a separate governance token?

Reputation and trust is such an important part of issuing a controlled stable currency that it probably wouldn't be super smart to simply allow those with money/stake to control the entire network. I'm fairly confident that very advanced reputation systems will come out in the future and literal heroes will rise from these new collaborative economies. People who prove time and time again that they serve a higher power than themselves or their own aggrandizement. The biggest currency of the future will be trust, as decentralization comes at the cost of efficiency. Those who prove themselves trustworthy in an inefficient decentralized atmosphere will find the more centralized systems they've created spiral in value. Everyone is going to be looking for shortcuts. Some will be justified, some not.

Removing the conflict of interest.

If an elite group is responsible for creating coins and enriching themselves "for the good of others", clearly this is a recipe for disaster if we believe that power corrupts even the most trustworthy individuals (not sure if I agree if the system is tailored for find those diamonds in the rough).

In any case, there's no sense in taking unnecessary risk, so can this conflict of interest be removed? I think it can.

Back to the reserve account.

Imagine the account, controlled by AI or even more likely simple scripts and smart contracts (because this process is not very complicated). When the value of this FEDcoin is doing well, the value is above the peg. To ensure stability, gains should be taken by printing coins out of thin air. Where does that money go? Into the reserve account.

From the reserve account, these newly minted coins must then be traded for other assets to reduce the price of the native token and bolster the coffers of the reserve fund (to later be used to buy back assets during bear market dumps). If this money is never directly in control of the group making these decisions, the conflict of interest is eliminated and everyone is incentivized to act in the network's best interest (assuming a hostile takeover is not possible).

This process greatly hinges on who's making these decisions. Is reputation based on stake or something else entirely?

A stake-based solution could work, but every system has its own set of attack-vectors.

Peg

The pegging of this asset is super important and not a trivial process. Even a failed hyperinflated fiat currency could help the network in this regard. The community 'simply' has to make sure that the asset maintains its value over time relative to everything else. For example, a basket of real-world assets could be used like sugar, flour, salt to determine a fair price. However, if the basket of assets you use happens to have major supply/demand problems that just reopens the problem of how to accurately set the price target.

Pretty much all of these price targeting mechanics require off-chain data and oracles, which obviously opens up another serious attack-vector. In the end, an on-chain solution is probably smarter. Again, it all comes down to reputation. High reputation network members need to be setting the targets and acting as the trusted oracles for everything to work. If the goal is stability, the network must know what the definition of "stable" is. Unfortunately, stability is automatically defined by real-world off-chain metrics.

Profit taking and range allowance.

By making a reserve account that no one has access to except through the process of "trusted" voting governance, conflict of interest is removed from the equation of self enrichment, and all gains are distributed to token holders in the form of raising the peg over time.

What I find super interesting about this whole idea is that allowing the peg to break its target and increase the range of volatility allows more profits to be taken. If the network will allow 20% volatility, meaning the peg is allowed to be broken by 20%, profits will be much larger on both sides of the spectrum.

For example, imagine we are in a bull market and demand for the coin is high. Say the current peg of the stable-coin is $5. Allowing 20% volatility means the coin is allowed to get up to a value of $6 before the network takes profit gains and adds to its collateral reserves. On the flip side, the token would be allowed to break down to $4 before the network decided it needed to dip into the collateral funds and prop up the peg.

Add Time (T) variable to liquidity algorithm.

In reality an algorithm should be used that adds time to the volatility equation. If volatility is very high over a short period of time the network should not rush to fill in the gaps. Doing so could result in exploitation of the network or even a hostile takeover.

Rather, high volatility bursts should be capitalized on. If everyone wants to buy/sell all at once a premium must be paid to the network in the form of volatility. Adding liquidity over time makes the network resistant to attack and allows for solid fundamentals when taking profits or buying back a diluted asset.

For example, say the asset has broken its peg by 10%. The network may agree to provide a million coins of liquidity per week to counteract this volatility. However, if volatility remains and the peg becomes broken by 20%, a new level is reached and now the network decides to provide 2M coins a week. This shutter-stepping of liquidity is akin to price-cost averaging and makes the network more resistant to manipulation and volatility, to the point of even making a profit during high volatility times while staying within acceptable limits determined by the network transparently.

Main variables controlled by the network:

  • Allowable volatility range over time.
    • More volatility = more profit taking and a bigger reserve account.
    • Less volatility = more reputation and stability for those that depend on it.
  • Overarching direction of the peg.
    • Increasing the peg over time distributes profits to stake-holders.
      • How many users would want to participate in a stable-coin that has 10% APR yield?
    • Distributing profits to stake holders reduces the reserve account balance.
      • If the coffers are too low this reduces trust in the network.

Conclusion

This post is already too long so I'm just going to kill it here.
I feel like I could debate this issue with myself for pages more.

Bottom line:

Sooner or later, fiat will collapse, and when it does you can be damn sure the elite are going to have a transition waiting that benefits themselves while leading the lambs into the slaughter. I hope that the cryptosphere will have the means to provide the people an superior alternative during that time, and I think a stable coin network like this pegged to its own monetary policy is a real possibility.

Opt out of fiat.

We can create our own fiat with a level of transparency that ensures the entire network benefits instead of just an elite few. It's not hard. Bankers have gotten fat, lazy, and weak because they've been running unopposed for so long.

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Very raw but super interesting. I look forward to the next post.