1/ A few thoughts on algo stablecoins. Touching on DSD, ESD, Frax, BAC & Fei.
These systems rely heavily on game theory. The most important thing to monitor is sentiment
Seeing these algos in the wild leads me to believe some game theory is good. Only game theory is not enough
These systems rely heavily on game theory. The most important thing to monitor is sentiment
Seeing these algos in the wild leads me to believe some game theory is good. Only game theory is not enough
2/ On coupons:
Been running thru various scenarios and second-order effects of coupons expiring OTM. Judging by secondary market prices of DSD coupons, it seems that probability has been growing. Next 10 days will be key
We have yet to see what happens if coupons expire OTM...
Been running thru various scenarios and second-order effects of coupons expiring OTM. Judging by secondary market prices of DSD coupons, it seems that probability has been growing. Next 10 days will be key
We have yet to see what happens if coupons expire OTM...
3/ Point of no return:
If coupons expire OTM, then I think it will be a blow of confidence too big to recover from. Theoretically, it benefits non-coupon holders and clearing that debt helps restore the peg. But just evaluating on that basis misses the point...
If coupons expire OTM, then I think it will be a blow of confidence too big to recover from. Theoretically, it benefits non-coupon holders and clearing that debt helps restore the peg. But just evaluating on that basis misses the point...
4/ Zero-collateral
I see shortcomings w/ zero collateral designs. You need to grow into that confidence. Having a capital base to implement monetary policy vs. rely on new bidders to step in to restore the peg is advantageous.
Look at Frax and Fei. ESD & DSD exploring this too.
I see shortcomings w/ zero collateral designs. You need to grow into that confidence. Having a capital base to implement monetary policy vs. rely on new bidders to step in to restore the peg is advantageous.
Look at Frax and Fei. ESD & DSD exploring this too.
5/ On coordination:
It's all a coordination game.
Will players coordinate or deflect?
Will coupon holders sell in the secondary market?
Will they use those proceeds to bid spot?
This next cycle for ESD & esp. DSD will be crucial tests of the stability of these systems.
It's all a coordination game.
Will players coordinate or deflect?
Will coupon holders sell in the secondary market?
Will they use those proceeds to bid spot?
This next cycle for ESD & esp. DSD will be crucial tests of the stability of these systems.
6/ Opportunity costs:
These algos are competing for flows of capital & there is a constant rotation. What happens in practice depends on multiple factors not all incentive designs.
We've entered what seems a DeFi bull. Why hold stables in a contraction when you can long DeFi?
These algos are competing for flows of capital & there is a constant rotation. What happens in practice depends on multiple factors not all incentive designs.
We've entered what seems a DeFi bull. Why hold stables in a contraction when you can long DeFi?
7/ Ultimately, it seems we're going back to how central banks work - partial collateral.
Zero collateral is ambitious & theoretically possible thru incentives. It remains a fascinating experiment w/ plenty of skin-in-the-game.
These next few cycles will be key.
GG 🤝
Zero collateral is ambitious & theoretically possible thru incentives. It remains a fascinating experiment w/ plenty of skin-in-the-game.
These next few cycles will be key.
GG 🤝
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