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JoelKatz

Suggestion: XRP-collateralized Stablecoins

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13 minutes ago, JoelKatz said:

There are four ways you could wind up holding some of a stablecoin:

  • You could create a trustline indicating that you are willing to hold the stablecoin and then someone could pay it to you.
  • You could create a trustline indicating that you are willing to hold the stablecoin and then make a payment to yourself denominated in the same currency as the stablecoin.
  • You could place an offer to acquire the stablecoin and then someone could take that offer. You do not need to create a trustline in this case.
  • You could lock up some XRP and issue the stablecoin. You do not need to create a trustline in this case.

Notice that in all four cases you have to do something to explicitly indicate your willingness to hold/accept the stablecoin. In two of the cases, it's creating a trust line.

The operator create the stablecoin, the issuer is create a position to issue the stablecoin, so a collateralized stablecoin will have multi issuer, is the trustline to operator or to the issuer?

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1 minute ago, yxxyun said:

The operator create the stablecoin, the issuer is create a position to issue the stablecoin, so a collateralized stablecoin will have multi issuer, is the trustline to operator or to the issuer?

I may not have been consistent in my terminology. The operator creates the stablecoin, provides the price feed, and the trust line would be to their account. Anyone can issue the stablecoin by performing an issue operation on a position with sufficient collateral, but from the ledger's point of view, they're causing the issuer to issue the stablecoin to them. Though anyone can cause the stablecoin to issue, all the trustlines would be to the operator and all stablecoin balances in the same system are equivalent regardless of what position they came from.

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I am an outsider with little knowledge of finance or technology.

I think of stable coins as being set up by big institutions and central banks.  What you seem to be creating are much more ephemeral versions of stable coins that come, blossom and fade away?  Although I presume a big institution like Facebook could create a long term DA on your XRP ledger.  What I like is that in the mature XRP ecosystem this stable coin is cross border multi fiat redeemable asset (in two steps)?  This seems to be revolutionary and ups the opportunity for usage?

One last (maybe silly) thought could I tokenise my house or business and make a stable coin?

Edited by Julian_Williams

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Since there can be multiple operators for the same asset, there also can be a dozen or so "USD" stablecoins, right?

Will rippling be enabled for Stablecoin trustlines in the same denomination? So if I own 100 stableUSD/foo and 100 stableUSD/bar, I can enable rippling and end up with e.g. 50 stableUSD/foo and 150 stableUSD/bar without any further action on my end. What about over-/undercollateralization in that case?

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30 minutes ago, Sukrim said:

Since there can be multiple operators for the same asset, there also can be a dozen or so "USD" stablecoins, right?

Will rippling be enabled for Stablecoin trustlines in the same denomination? So if I own 100 stableUSD/foo and 100 stableUSD/bar, I can enable rippling and end up with e.g. 50 stableUSD/foo and 150 stableUSD/bar without any further action on my end. What about over-/undercollateralization in that case?

This wouldn't change anything since the issued amount of USD/foo or USD/bar hasn't changed. It just moved from one wallet to another. The collateralized asset backing it 'should' still be adequate (assuming it ever was and the USD 'valuation' didn't drop enough to make it invalid). And if the foo/bar valuations diverged, then arbitrage might mean that you rippled your 150/stableFoo into 149/stableBar - that would be an unwelcome surprise!

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1 minute ago, jbjnr said:

And if the foo/bar valuations diverged, then arbitrage might mean that you rippled your 150/stableFoo into 149/stableBar - that would be an unwelcome surprise!

That should never be possible with rippling, unless it would only take into account the current XRP backing of each stablecoin instead of its face value.

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2 minutes ago, Sukrim said:

That should never be possible with rippling, unless it would only take into account the current XRP backing of each stablecoin instead of its face value.

OK. My misunderstanding then. I thought that only the exchange value from one to another mattered and since USD/foo <==> xrp and USD/bar <==> xrp are the yardsticks, then a deviation would ripple through from one to another.

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I also wonder if it would be possible to use the actual trades on the ledger as the actual price feed, so there could be "synthetic stablecoins" built on top of any IOU <--> XRP market on ledger...

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Alice has $150 worth of XRP

Alice place this in a newly created position

Alice can issue $100 of stable coins to herself

Alice can use that $100 as she please and as long as she likes

Alice HAS  A FREE LEVERAGE WITHOUT PAYING INTEREST 

Alice has the risk of price drops in XRP when it drops 33%

When Alice want to close the position she pays the $100 back

If XRP raised in value in this periode, Alice had a free ride and is in a better position that if she had sold her XRP

 

Sounds like a great use case for us HODL-ers

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1 minute ago, Gpvde65 said:

Sounds like a great use case for us HODL-ers

Not if someone else also comes along and does this later, since less collateralized positions would be redeemed earlier.

Unless you want to short XRP, in which case holding USD stablecoins is of course better...

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Is there a risk here that in order to salve the fears of those not wanting to transact in XRP,  this new facility is created...  and takes volume, activity and hence price action away from XRP?

So although going long or short in XRP for no cost seems cool I’m not sure this facility is something I’d welcome as a XRP holder.  Futures are available already.

I realise this means there might be a tension between those who want the price to appreciate and those who want additional facilities on an already incredible ledger.

I assume the response is twofold: don’t be greedy and that the over collaterisation puts XRP out of circulation.  Against that I argue that unless the amounts collateralised are ginormous they are unlikely to offset the lost price action because of ‘displacement’ of activity.  To which someone will no doubt reply that the pie is grown which helps us all...  

 

Anyway...   just raising my concerns about this.  (No doubt another instance of my short sightedness)  :) 

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On 10/2/2019 at 10:05 PM, JoelKatz said:

The most obvious application is a stablecoin pegged to a fiat asset such as the dollar. However, stablecoins can also be pegged to the value of precious metals, stocks, indexes, and so on. 

David in my preceding post I raised my concern which you may have some thoughts on...  or not.  
 

But irrespective of that,   although I feel wildly inappropriate questioning someone that I respect so much...  David may I ask...   what problem does this new facility solve?  Is there a shortage of stablecoins?  (Please be gentle with my idiotic question :) )

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8 minutes ago, Tinyaccount said:

But irrespective of that,   although I feel wildly inappropriate questioning someone that I respect so much...  David may I ask...   what problem does this new facility solve?  Is there a shortage of stablecoins?  (Please be gentle with my idiotic question :) )

I can't speak on behalf of JK, but imagine you are a bank and want to settle in XRP using something like Corda Settler, but buying a few million $ worth of XRP is risky becuase it drops by value overnight by a significant amount. You want to hold it for settlement, but you don't want to hold it really. So Ripple can issue an xrp backed stablecoin that allows the banks to put a few million into xrp, settle with it, guaranteed that it's worth what they paid for it. It is convertible on ledger instantly to the amount of xrp required and everybody wins. You get a liquid asset and a stablecoin all in one.

It's kind of genius really, except for the problem of when the value drops and the backing isn't enough any more. Need to read the proposal again to see what happens then. Shouldn't be too much of an issue for Ripple since they have rather a lot of it available - each month the 1 billion escrow release could be used as collateral for settlement tokens worth some % of the face value of xrp at the time...

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In my opinion (though I'm not David...), this solves the issue that many people would probably operate gateways if it were just a very simple thing to do - but the legal and business implications are tougher than many initially assume. This would solve that issue by having "virtual gateways" instead, where someone just provides a trustworthy price feed of anything against XRP and people are then free to trust only that price feed to mint derivatives on top instead of requiring collateral in the form of the asset itself.

Imagine a gateway for stocks: You could hold tons of different titles that belong to a ton of people and need to do a lot of bookkeeping etc. With this proposal instead you would only need to provide a price feed for anything that even just could be in demand (though I'm not sure how that would work out in practice, since I assume these prices need to be on-ledger? This sounds VERY spammy...) and let users decide to use them. Regulation wise you don't really care if someone from e.g. Crimea, Sudan or Iran uses your price data, since it is just data while as a gateways based in the US for example you would need to do KYC of everyone involved in the extreme case.

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57 minutes ago, Gpvde65 said:

Alice has $150 worth of XRP

Alice place this in a newly created position

Alice can issue $100 of stable coins to herself

Alice can use that $100 as she please and as long as she likes

Alice HAS  A FREE LEVERAGE WITHOUT PAYING INTEREST 

Alice has the risk of price drops in XRP when it drops 33%

When Alice want to close the position she pays the $100 back

If XRP raised in value in this periode, Alice had a free ride and is in a better position that if she had sold her XRP

 

Sounds like a great use case for us HODL-ers

Alice is a sensible person - she basically found a way of creating interest free loans using her ownership of XRP as collateral.  Although there would be a temptation for Alice to set up her stable coin when XRP is at peak price.  A drop of 33% is quite likely, but as long as Alice does not spend all her loan money she is not in trouble. 

John is a recently retired stupid person.  Of course John could borrow 100k against his house worth 200K and is not redeemable until after he dies and spend it.  This is a financial package that is available to people like John

John creates a stable coin and thinks he has 100k worth of XRP and 66k worth of free loan cash which will not be redeemable until after he dies (because he expects the value of XRP to go up, so he thinks his children will inherit more this way).  He spends his loan money on holidays and living well.  The price of XRP goes down and John cannot borrow more money against his house.  John is in trouble?

 

Edited by Julian_Williams

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