The Power of +5%

in bitshares •  3 years ago  (edited)

What if a Smartcoin could grow 5% relative to the purchasing power of the dollar every year?

In a recent post entitled Forget Smartcoins, How about Dreamcoins? I suggested that there was no reason why you couldn't make a BitShares based Smartcoin (MPA) that tracked an imaginary "Dreamcoin" with a definition formula that was growing by, say, 5% with respect to some other popular currency.

Here's what an imaginary +5% coin called the "Sumo" would look like if it had existed over the past 100 years while the dollar was melting down:

I wonder if there would be any consumer demand for a HODLer's coin that performed like that?

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IMO steemit is already dangerously close to a ponzi - it doesn't generate (monetary) value, but it promises to pay out monetary value. The only way these payouts can work is that there is simultaneously a sufficient influx of monetary value into the system, and the only driving force for that influx is the promise of higher output through higher voting power.

Your Dreamcoin is NOTHING BUT a ponzi. At least steem can hide behind phrases like "steemians create valuable content". Dreamcoin promises high output, and the only way to maintain that output is to attract people by making that promise. It is inevitable that at some point the number of people trying to cash out will be higher than the number of new investors, at which point the whole scheme collapses.

  ·  3 years ago (edited)

I understand why you might think that, but let me break the concept down for you:


  • A whale exists that wants to issue an asset backed currency with no counterparty risk.
  • The whale has an unending revenue stream she intends to commit to backing that currency.
  • She uses the BitShares MPA smart contract mechanism to lock up real double collateral for every coin issued.
  • She sells these coins into the market as counterparty-free assets whose only risk is her own potential loss.
  • Part of her calculation is that her actions will cause the BTS asset to appreciate due to her steady investment.

At no point is anybody else's unsecured money involved.

If other copycat speculators attempt to do the same exact thing with their money, they are the ones taking the risk providing the same valuable service.

In the end, if any such service provider falls by the wayside, they are the only loser, since the system will do an automagic margin call and return full value to the holder of each and every dreamcoin.

The appreciation effect caused by the whale's investment is an identical calculation to Disney World buying up vast tracts of swamp land south of Orlando. Their own continuing investment drove up the value of the land they purchased helping to offset the cost of providing a theme park and all the other elements of that ecosystem.

The hypothetical whale is just guaranteeing via counterparty free smart contract to share 5% of the hoped for annual digital real estate gains (whether they are realized by the whale or not) with users of their innovative product.

There's such an obvious, huge difference between Dreamcoin and Disney that I can hardly believe you're bringing that up (and in my experience, seemingly huge but weak and illogical comparisons are typical of ponzis): Disney has not just bought land and thereby magically increased its value. Disney built a theme park. Theme parks attract tourists. Tourists bring money with them. Tourists with money attract merchants. That's why the ecosystem in Orlando grew. The most important point though is that Disney is not continuously pumping money into that ecosystem, they're drawing money out! They have created something that generates value.

Dreamcoin OTOH builds nothing but a speculative bubble. Dreamcoin promises exponential payouts (which is typical of ponzis, too). You cannot generate exponential payouts without an equally large (i. e. exponential) influx of value. Your plan is to back the payouts by creating a speculative bubble, but at some point that bubble will inevitably pop, and then the whole system crumbles into pieces.

At no point is anybody else's unsecured money involved.
In the end, if any such service provider falls by the wayside, they are the only loser, since the system will do an automagic margin call and return full value to the holder of each and every dreamcoin.

Another typical trait of ponzis is that the risks are being downplayed. Margin calls can only execute if there is sufficient liquidity on the market. When a speculative bubble bursts, the result is usually a price crash. This will trigger so many margin calls that they cannot all be filled by existing orders, which means that Dreamcoin will end up in a black swan. Black swan with panic sells of the underlying collateral means almost complete loss by dreamcoin holders. That's where the risk lies.

Disney's continual promotion and upgrade of now three theme parks on that land plus multiple hotels and a nearby cruise lines provides an ecosystem that has attracted uncountable other businesses to the local economy. Since the net result is very profitable to Disney they will no doubt continue to work to grow it in perpetuity. Synergies abound with third parties everywhere.

The BitShares ecosystem is no different. Just substitute worthless ledger entries for worthless swamp land and the analogy is perfect.

Sure, the Orlando economy could crash if Disney pulled out. Someday it could all be a ghost town. That doesn't mean that businesses and tourists haven't derived mutual benefits from the ecosystem for half a century.

Even if Disney pulls out the theme park will still be there. That's the point - they have built something that generates (monetary) value, whereas Dreamcoin does not build anything. It just creates a bubble.

How would you guarantee the exchange rate?

It would simply be defined as a new price feed on the BitShares platform and would then work like all the other market pegged smartcoin assets there.

Of course, the underlying assumption is that the demand for such a coin would draw so much BTS out of circulation that its percentage gain would zoom far beyond the Sumo.

At first glance it doesn't look like you would want to short something like this, but remember, a whale would be shorting the Sumo against a zooming BTS, not the CPI or anything else.

This plot is just pegging the Sumo above the dollar. If it were pegged to a basket, presumably the wiggles would be smoothed out and pegging to the strongest currency at any point in time would maybe eliminate all dips.

But, we just need something simple to explain that is better than what most people have, so I'm thinking sticking with the above definition is a good compromise.

Your actual mileage may vary.

All the other market pegged smartcoin assets there do not correspond well enough to the current FX rates, in some cases the difference exceeds 5 %.
But low liquidity and high spread makes the arbitrage impossible - Sumo will need a market maker, so the investors see the profits in real life, not only on the paper.
I think there are no mathematic tricks which could solely guarantee the peg, to say nothing of any growth :-)
As a collateral the dream coin will need a working business with ROI not less than 5% in terms of USD

  ·  3 years ago (edited)

Correct. No mathematical tricks. The double collateral for the smart contract guaranteed growth are placed in escrow by the hypothetical whale who takes the only risk. The whale is betting that her ongoing investment will increase the value of the ecosystem enough to give her a lucrative profit by offering a useful product insured by escrow locked up on the BitShares blockchain.

This is the same principle used by Disney World when they bought up tracts of swamp land in Orlando and then drove up its value by decades of investment in that ecosystem.

Who will be crazy enough to short it?

+5% you got my demand


How about a smart coin that tracked a basket of commodities? Invlude some that are more volatile than others - such as oil and gold.
As currencies devalue you would think there would be a move in to real assets.

Here's what an imaginary +5% coin called the "Sumo" would look like if it had existed over the past 100 years while the dollar was melting down

And please put a graph for silver and gold in your diagram.

Bitcoin itself seems to be appreciating at 5% annually.