[MicahZoltu]

The thing the author seems to be confused about is that when people talk about stable coin they aren't claiming that the market can't be irrational. They are claiming that over a sufficient period of time the coin will trend towards its target. In the case of DAI today, that target is 1 DAI == 1 USD. This means that while the market may irrationally buy/sell DAI for more or less than 1 USD, over time it will trend towards 1 USD.

For the vast majority of people looking for a stable coin, this is exactly what they want. They don't care so much that on a particular exchange DAI is worth more or less than $1, they care that in a week, or a month or a year DAI will still be worth "about a dollar" and not "100x USD" or "x/100 USD". DAI has the mechanisms necessary to make it profitable to drive the price of DAI back toward 1 USD if it loses its peg and those mechanisms have been shown to generally work in the wild so far.

I have personally made a few bucks when DAI transiently slipped its peg in the past. There are people actively authoring bots that profit off of DAI losing its peg and as those bots become more efficient and gain capital, I think we'll see DAI slip its peg less and less often.

[pjbyrne]

> They are claiming that over a sufficient period of time the coin will trend towards its target

This is not what the MakerDAO team, nor any other stablecoin shill, is claiming. They are claiming the system "ensures" that the stablecoin is "a money that will always maintain its purchasing power."

"Ensure" and 'always' don't mean "trend towards over time." They mean always, as in all the time. If their intention is to sell a different product, I can only suggest they make more representations which are a little harder to falsify.

[MicahZoltu]

If what you want is "something that always is worth _exactly_ 1 USD then you are asking for the unatainable. As others have mentioned, it is _impossible_ in an open market to have a true 100% no variability peg. Markets work on supply and demand and the instant that one exceeds the other the peg will drift.

A good stable coin will have pressures that push that drift back toward the target, but it is impossible to stop the drift from ever occurring. The USD itself presumably targets some basket of goods, but it drifts away from that basket of goods. So even the USD isn't a "stable coin" by your definition.

[AroundTheBlock_]

I mean the notion of "exactly" is nonsensical in so many ways, especially when it comes to thinly traded exchanges. I can sell $1 to my friend for $1.10 break the US dollar. Lol.

[Spivak]

But isn't 'hover around the same value long term' maintaing the purchasing power? I guess if you interpret the marketing as 'will literally always be worth $1.00' you'll be disappointed but it's weird to take that interpretation when it's not really attainable for anything that isn't a US dollar.

[zodiac]

It's not even technically attainable for USD. If China places huge market orders for a basket of commodities with USD, USD would lose purchasing power wrt the basket for a short amount of time (I think a few seconds is possible).

[justincormack]

The USD is not pegged to commodity prices.

[zodiac]

You're right - what would you say it is pegged to?

[splintercell]

Literally nothing.

[relyio]

>stablecoin shill

You make some good points but I'm not sure labeling everyone and everything as "shilling" is helping your case at all.

[JohnJamesRambo]

But how much is DAI straying long term? USDT tethers are also often worth a few percent more or less than a dollar in periods of volatility. Is there hope that the 80% will zero in closer to a few percent in the future like USDT?

[zodiac]

If there are thin enough markets of course "always maintains purchasing power" is impossible. This is true for USD ad well.

[pjbyrne]

The difference being that USD doesn't pretend to be pegged to anything. My point about MakerDAO is that the development team is claiming the impossible is possible.

[zodiac]

One of the many aims of US monetary policy is that USD doesn't lose too much purchasing power too suddenly (eg no unexpected hyperinflation). Of course any currency from a decent country would aim for this kind of soft peg.

I guess you're technically correct that their marketing material claims to go beyond this in a eay which is technically impossible

[cornyNetHandle]

It may attempt to trend towards the dollar over time, but will it be trending that way during the time that you personally need it?

"The market can remain irrational longer than you can remain solvent", springs immediately to mind.

edit: Also, pegging a cryptocurrency to the dollar seems almost comedically perverse. What is it for?

[dragonwriter]

> Also, pegging a cryptocurrency to the dollar seems almost comedically perverse. What is it for?

The frequently cited money transmission benefits of a cryptocurrency, without value instability of playing games with monetary policy.

[cornyNetHandle]

If blockchain based currencies prove themselves to be a significant improvement on current monetary systems then state currencies, such as the US dollar, will adopt the new technology, as they have done with all other previous developments in money.

This would seem to indicate that a blockchain coin pegged to the dollar only keeps any marginal utility at all during the period where the technology is novel, as blockchain tech either crashing or becoming successful, would both be events that kill it.

[dragonwriter]

> If blockchain based currencies prove themselves to be a significant improvement on current monetary systems then state currencies, such as the US dollar, will adopt the new technology, as they have done with all other previous developments in money.

The US dollar, as such, often hasn't adopted new developments in money transmission directly (at least, not at the consumer level); the circle of businesses facilitating USD transactions has, but a dollar-pegged cryptocurrency is essentially just a new part of that ecosystem.

OTOH, the dollar has adopted, directly, new tools in money supply management, several times in its history.

[JumpCrisscross]

> The US dollar, as such, often hasn't adopted new developments in money transmission directly (at least, not at the consumer level)

The Federal Reserve began moving money electronically in 1915 [1]. (You read that right. Nineteen fifteen. In the early 80s, telex transmission services began.) The back offices of finance are surprisingly reactive to new technology, when the risks and rewards balance properly.

[1] https://en.m.wikipedia.org/wiki/Fedwire

[MicahZoltu]

As DAI gains trading volume and gets listed on more exchanges you'll likely see it stabilize. Any active trader who believes the price pressures will work has incentive to buy DAI when it is below 1 USD and sell DAI when it is over 1 USD as this is a low-risk trade (opportunity cost only). Right now, there isn't much volume so it is pretty easy for someone to come in and want a bunch of DAI or to liquidate a bunch of DAI and cause the market to shift suddenly. It will then take a few minutes for the market to correct, and with per-transaction fees the market is hesitant to correct small errors due to the lack of volume.

TL;DR: The more volume DAI has on public exchanges, the tighter it will hold its peg.

[zodiac]

> Also, pegging a cryptocurrency to the dollar seems almost comedically perverse. What is it for?

The general thing you want is for your currency to have stable purchasing power (for goods and services) in the short term, maybe inflate it slowly to encourage investment - monetary policy basically. Targeting a USD peg is a way to do this, of course ideally you'd want your currency to have a monetary policy independent of USD

[erikpukinskis]

Won't someone learn to play the peg slip robots? If you can hack a PS4 you can trick some simple arbitrage robots.

Not saying it's easy, or I could do it... just that it's an inevitability, right? What happens then?

[ves]

I mean presumably if you’re “tricking the arb bots” you’ve just found some additional arb of your own, which should make the market more efficient, and apparently in this case (I don’t know if this is correct, but this is the claim made by TFA), drive the price towards dollar parity because of this thing’s built in incentives. Or the arb isn’t from dollar parity mismatch but from the bots themselves, in which case it doesn’t matter to the market because it was dumb and you made it go away.

[erikpukinskis]

> if you’re “tricking the arb bots” you’ve just found some additional arb of your own, which should make the market more efficient

Do these assertions really hold?

1) That if you are able to make money on a market your presence makes that market more efficient

2) That tricking the arb bots into losing their money means you take it

? The Parity hack wasn’t a money-making endeavor, it just burned the cash.