Thinking more about this sardine coin. There seems to be a custody issue, which I don't think the designers have thought about. The website says that investors can have their sardine cans physically delivered. But.... 1/
Sardines only age properly if the conditions are right. If sardine cans are physically delivered, there is no guarantee that the conditions in which they are kept would be right. Sardine cans not kept in controlled conditions must surely depreciate over time. 2/
Furthermore, what if the investor decides to sell their sardine coins? Do the coins link to SPECIFIC sardine cans - in which case the investor would need to physically deliver the cans as well as selling the coins? 3/
And if coins don't link to specific sardine cans even if the cans are physically delivered, what is to stop the investor selling the coins and eating the sardines?
How would the new owner know that the sardines supposedly backing the coins no longer existed?
Furthermore, even if the coins were linked to specific cans - say using a blockchain - there would still be nothing to prevent the investor eating the sardines and selling the coins. Simply checking the provenance on a blockchain doesn't prove things exist in reality. 6/(I think)
And if the new owner subsequently discovered that the sardines didn't exist but the (empty) cans were still stored in the previous owner's garage, on what grounds would they sue the previous owner? /7
"Not your sardines, not your coins" would seem to apply here.
Of course, "delivery versus payment" would at least ensure that discovering the cans were empty (and the coins therefore worthless) didn't cost the new owner real money. But you can't enforce DVP in an OTC deal with no third-party custodian.
However, if the new owner discovered the coins weren't actually backed by real sardines, s/he could still sell the coins at the market price anyway, because they would be indistinguishable from coins that WERE backed by sardines. Fungibility can dig a sucker out of a hole... /10
In fact the more I think about this, fractionally-reserving the sardine coins looks pretty attractive.
I suppose the solution would be an IOT-enabled sardine can?
unroll please @threadreaderapp
