Thread by @unbanksyETH

All algorithmic stablecoins aiming to be the Digital Currency are various interpretations of the same thing:

🌜🌜🌜Exchange Rate Policies🌛🌛🌛

This is a thread to better understand the landscape and know what's coming next 👇... or is it?

1/n To achieve trade surplus, countries have strong economic incentives to maintain a 👌 exchange rate of their currency to trading country's currency.

This feeds Exchange Rate Policies: Countries deciding what economic levers to pull at X time for Y years with Z conditions.

2/n Floating Exchange Rate - the currency is non-pegged and allowed to floats in response to forex markets.

Via free market forces, the currency should stabilize business shocks. The same forces, however, can make it unpredictable.

3/n My personal take is that markets are not always rational. We've seen this in reflexive loops in crypto and other asset classes. By extension, floating currencies will probably experience the same run-ups 🤯

4/n If you remember my tweets, this reflexive behavior is exactly what happened with $GAIA. RIP queen 👑.

https://twitter.com/unbanksyETH/status/1374919564744515590

5/n Fixed Exchange Rate - currency is pegged to an asset or basket of assets.

Central Bank is the sugar daddy guaranteeing the peg. To do that, they maintain a reserve of FOREIGN currencies to buy/sell their pair against the foreign currency.

6/n Think about how crazy it is - a large whale offers to maintain your peg and to do so he buys a supply of counter-token. This act itself increases valuation. That's also why USD dominance is not linear - it's a multiple better than next currency on the block

7/n My personal take is that these system *might* work but could fail at extreme ends such as bank runs. A Central Bank is in for a surprise - don't fuck with markets.

$LUNA follows this model for their TerraSDR. Notice how the peg suffered during one of the market downturns:

8/n Argentina's currency board system was another example - in this case, market forces pushed interest rates to an extreme causing a banking crisis

9/n Hybrid Exchange Rate - floating currency with targeted interventions by Central Bank.

Best of both worlds - the market forces decide the valuation while Central Bank intervenes for price support

Currency HODLers enjoys economic prosperity with occassional slap on the wrists

10/n On the point of reflexivity, the Central Bank is perfectly positioned to dampen or even end reflexive loops... but to achieve this, economic policy must be near perfect. @sh4dowlegend would probably agree with me here.

11/n However, it should be noted that Central Bank decisions do not always align with what's best for the population. Mexican peso crisis was one example.

12/n And it highlights exactly why we need decentralized on-chain algorithmic stablecoin. Economic policy power shifts from the few "on the top" to the many "at the bottom".

13/n $OHM is that to me - a decentralized, community-run market-driven economy whose Central Bank policies support floating currency at price floor of $1 while fueling its economic growth thru bonds.

14/n Even more impressive is $OHM staking. By staking, currency holders participate *fairly* in the economic growth engine. When comparing 15K% APY against USD as counter-token, this is effectively a Universal Basic Income for its citizens.

That. Is. Insane.

15/n It's also why I think $OHM resonates with so many crypto enthusiasts. Most of us come from societies where value accrual from national economic activity is extremely lopsided to favor the few. If you're born into a rat race, you'll remain there forever.

16/n @OlympusDAO changed the terms of the game by scratching everything and starting with a barebones economy (of which the currency *is a part of*).

Initial Discord Offering
⬇️
Stake (3,3)
⬇️
Bonds
⬇️
Formation of the DAO
⬇️
[redacted]
⬇️
Digital Economy Mecca

17/n In many ways, building @OlympusDAO feels like Vint Cerf building the The Internet - we all know it's going to be big but just can't comprehend HOW BIG

18/n If you'd like to discuss exchange rate theory, join the fohmilia here 👇👇👇

discord.gg/VQ5pFsww

18/n final note: I love you, my work ohmies - @ohmzeus @sayinshallah @WartuII @JeffExtor @loss__dot__jpg @fattybagz apollo glue tex shadow abipup dmg and everyone else i didn't mention. DAOLOVE <3