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Suggestion: XRP-collateralized Stablecoins


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10 minutes ago, xerxesramesepolybius said:

Graveyard. Not sure it was such a great idea to begin with but to be fair to the Schawatz, just because he muses about something on twitter, people expect it to come to be and boost the price of xRP

IMHO, it's the best proposal ever made for the XRP ledger DEX, perhaps the only way to replace the old idea of Ripple Gateways and avoid regulatory burdens involved with issuances, and also part of the liquidity/incentive solution hinted at by @miguel (and later  @BobWay re: his/Ripple's patent(s) for a "resource path monitoring" and "resource distribution system"). For me it's the holy grail. Automated liquidity issuance on XRP's DEX via over-collateralized pegged stablecoins for endless currencies, assets and commodities. 

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One of the original use cases for the XRP Ledger (since 2012) was using the built-in decentralized exchange to exchange between stablecoins and to exchange stablecoins for XRP. Currently, only stablec

I made a video giving more details on the proposed design.  

The advantage is that if you hold XRP directly, the value of what you hold changes over time. Some people want that, some people don't. This scheme lets those that want that hold XRP and those that do

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6 minutes ago, thinlyspread said:

IMHO, it's the best proposal ever made for the XRP ledger DEX, perhaps the only way to replace the old idea of Ripple Gateways and avoid regulatory burdens involved with issuances, and also part of the liquidity/incentive solution hinted at by @miguel (and later  @BobWay re: his/Ripple's patent(s) for a "resource path monitoring" and "resource distribution system"). For me it's the holy grail. Automated liquidity issuance on XRP's DEX via over-collateralized pegged stablecoins for endless currencies, assets and commodities. 

We have been operating in an environment since 2013 of 'test coins and test tokens', glorified science projects, which end up being used to move around real money, making people rich and people poor. Crypto is a bunch of testnets really. I think ideas are dangerous in crypto because it springs a new (formally) ICO and once upon a time a DEX and now DeFi pivot. But if anyone reads up to date news on the OCC and government bodies, stablecoins are the furthest along in government support.

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6 minutes ago, StirCrazy said:

But if anyone reads up to date news on the OCC and government bodies, stablecoins are the furthest along in government support.

Yeah definitely, they just make so much sense. Everyone, realistically, wants to hold fiat or use it as a safe haven without having to jump walls between asset walled gardens. And DEXes need liquidity without the burden of endless KYC, gateways and ramps. Exchanges and apps etc need to be able to swap liquidity. Users love them. There's healthy competiton (USDT, USDC, TUSD, now USDtz, etc). And even governments like the general idea, perhaps even as a CBDC (whichever design they end up choosing). 

And they work – we all use them in this space. They're proven. So I think it's a solid base to work from; if anyone can pull off the "next level" of over-collateralized native pegged assets, it's the guys from Ripple (and friends) who can do it. Finally, it would bring liquidity to the fairly pathetic situation the XRP DEX finds itself in today, after almost EIGHT YEARS of promises and gateway failures. 

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When I first saw FXRP it reminded me of @JoelKatz video on Stablecoin. I have now read the FXRP white paper, and just read his opening post on this thread.

He is talking about FXRP. As far as I can tell.

This makes one issue, a deflationary "base currency". Assuming a 2.5 reserve ratio, an XRP would have to be worth $2.50 to back a single dollar. The elasticity of this monetary set up is 2 fold; 

1. To increase supply of Fiat Stablecoins, the value of the underlying (XRP) would have to grow... or

2. The Reserve Ratio would have to be lowered (below 2.5)

... to enable an expansion of Fiat Stablecoin supply.

The other consideration is non-stable coin Fiat. This would be either CBDC/paper cash, or Commercial Bank deposits.

I need to think about the combination of these influences more to understand their impacts on monetary policy. Anyone know where this has been discussed from a monetary perspective? @tar @Wandering_Dog?

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On 9/24/2020 at 2:43 PM, KarmaCoverage said:

1. To increase supply of Fiat Stablecoins, the value of the underlying (XRP) would have to grow... or

 

Yes but wouldn't there be initial buying (i.e. non-Ripple "free" XRP) for the collateral to somewhat offset that?

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11 minutes ago, thinlyspread said:

Yes but wouldn't there be initial buying (i.e. non-Ripple "free" XRP) for the collateral to somewhat offset that?

I dont follow what you are saying?

Either the value of the collateral has to go up, or the ratio has to go down. This is a mechanical method.

Im responding to your other thread, by trying to explain a 3rd option, but that is more of a systemic method.

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3 minutes ago, KarmaCoverage said:

I dont follow what you are saying?

Either the value of the collateral has to go up, or the ratio has to go down. This is a mechanical method.

Sorry, it was slightly tangential. What you say is correct, I was simply making a side point that for XRP to be used as collateral it would probably be bought (and held) in bulk (if not given for free by Ripple, who cannot currently access their billons of XRP which sits illiquid and otherwise useless) thus putting some serious initial buying pressure onto the market, given that a "small amount" in traditional markets, e.g. a $10m transaction, could require up to $20m worth of XRP given a target of 2:1 collateralization ratio. That very quickly adds up to buy pressure on a very tiny XRP market. 

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On 9/24/2020 at 3:43 PM, KarmaCoverage said:

When I first saw FXRP it reminded me of @JoelKatz video on Stablecoin. I have now read the FXRP white paper, and just read his opening post on this thread.

He is talking about FXRP. As far as I can tell.

This makes one issue, a deflationary "base currency". Assuming a 2.5 reserve ratio, an XRP would have to be worth $2.50 to back a single dollar. The elasticity of this monetary set up is 2 fold; 

1. To increase supply of Fiat Stablecoins, the value of the underlying (XRP) would have to grow... or

2. The Reserve Ratio would have to be lowered (below 2.5)

... to enable an expansion of Fiat Stablecoin supply.

The other consideration is non-stable coin Fiat. This would be either CBDC/paper cash, or Commercial Bank deposits.

I need to think about the combination of these influences more to understand their impacts on monetary policy. Anyone know where this has been discussed from a monetary perspective? @tar @Wandering_Dog?

 I took a quick read through what I could find on 'FXRP', and after a few misplaced links I think I read what you are talking about, but I didn't really get much useful info from it. If you have a link that might help.  

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On 9/22/2020 at 4:46 PM, thinlyspread said:

Automated liquidity issuance on XRP's DEX via over-collateralized pegged stablecoins for endless currencies, assets and commodities. 

It's the Automated aspect that causes me the most consternation. There is a reason Public markets have circuit breakers.

One of the "let's face it, it's reality" things with Ripple... is that just like having a CB "print money"... for the reason of adding some elasticity to the money supply, Ripple's XRP inventory bias XRP LoC & other methods gives XRP suppley elasticity. .. which creates (the main goal) of a higher degree of Resilience at the systemic level.

Let's face another reality, regarding the value of XRP, as well as pretty much anything else that exists; a cow, a business, a real estate, a copyright, a fruit, a oil field, a ship, a person etc.

The longer it lives and thrives, the more economic value it has, because whatever Utility Value it has can be economically deployed over more units of time (days/years).

I view Ripple Inc's efforts to position XRP as better, faster, and cheaper are efforts that, at the global scale, lengthens the life time of RippleNet, XRPL/XRP, ILP, and the IoV thus all crypto.

However, the Automated aspect of auto-execute Smart contracts, connected to Settlement Ledgers (XRPL)... scares me, because it looks similar to the systemic archecture issues of automated-HFT that caused a selling feedback loop called, "The Flash Crash".

That will become a "learning experience" for "Trustless Automation", and some form of Circuit Breakers will be engineered into the industry at the systemic level, aka regulation.

Edited by KarmaCoverage
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On 10/9/2019 at 11:43 AM, JoelKatz said:

It solves a few different problems.

On the side of the people locking up XRP, it allows them to borrow against their XRP at zero interest while retaining full exposure to the price changes in XRP. I can also be used to obtain a leveraged long position in XRP entirely on the ledger.

On the side of the people using the stablecoins, it allows them to transact as if they had XRP while being able to get whatever price exposure they want rather than only and exactly what XRP has. The most obvious case is to hold a stablecoin denominated in a currency like USD that has a relatively stable value because your use case isn't compatible with exposure to wide price changes. But there are also interesting cases where you want exposure to things like precious metals or stocks. It's a generic way to hold assets on the XRP Ledger that provide exposure to the price variability of other asset classes with minimal reliance on a counter-party.

On the side of people who work on the XRP Ledger and want it to be awesome and able to solve real-world problems, all of these stablecoins are automatically liquid to XRP because of the redemption system. So if you make some asset liquid from XRP, it is liquid from every stablecoin. This really furthers the vision of XRP as a central liquidity pool for a variety of assets and payments.

This is just a proposal. I like it a lot technically. It really feels to me like a beautiful system. But I'm not completely convinced that the benefits will outweigh the costs and risks. If you're one of those people who would love to see more on-ledger liquidity and more use of the on-ledger decentralized exchange, issued assets, or even community credit, I think this would be a huge step in that direction. Of course, someone has to actually use it for it to matter and it requires someone (or some coalition) to provide useful, reliable price feeds. A great next step would be for a few entities to step forward and express interest in operating stablecoins on the ledger.

 

Dear Dave, 

First let me say I am a big fan of your work and the system. Currently forming part of a project towards joining it. 

However in this particular case I have to disagree. You are trying to solve something you already have. As your principal motivation is solving the volatility risk of holding XRP (at least in the first years of adoption, as liquidity increases, stability does too, specially with  functionalities focused on everyday value transactions), you might think the answer is trying to force its stability through creating a financial derivative product from the XRP, backed by collateral or as in financial lexic -margin-. 

This might seem like a good application, however, why would you want to expose yourself to such a high risk (from the issuer standpoint). You can see from current system adoption that volumes are very high, to issue a stable coin is effectively hedge the client from a dropping value on XRP, (from issuer) if XRP goes up, great, if it goes down, everyone loses their money (issuer and clients) as you cannot hold a market position against you when the intraday movement is 7% and the position volume enormous. As many countries have learnt before, you might try to gap or create a stable exchange rate, however if the market goes against you, when you give free money, everybody shows up. See the case of UK in 1992 when UK Treasury lost 3.4 billion GBP trying to stable its currency. 

On the other hand, no asset is completely stable, every asset is affected by multiple variables; gold, rates, USD, real estate, flying rewards. What you can say is that some are more stable than others, and this is ideal for Value Transfer System.

Now going back to the start, XRP.L has already solved it... Issued Currencies.

"you don't want to be exposed to the volatility risk of XRP, get an Issued Currency on USD or Gold" This is the same financial structure as creating "a more stable coin/less volatile asset", however this one is backed externally( USD by US (government, economy, FED) - Gold (by its real market value, applications, industry)  as the exposure of the client is directly USD/Gold the risk taken from Gateways is none. Gateways can focus on value transfer while solving other client necessities - value storage-. 

I would love to hear your take on this. Regards


 

 

 

 

 

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@fedlope Excellent post, and you are getting at the root of some of my concerns at the systemic level.

I wrote a while ago about how Ripple Inc could use an XRP LoC to solve for this...

On 10/17/2020 at 9:08 PM, fedlope said:

This might seem like a good application, however, why would you want to expose yourself to such a high risk (from the issuer standpoint). You can see from current system adoption that volumes are very high, to issue a stable coin is effectively hedge the client from a dropping value on XRP, (from issuer) if XRP goes up, great, if it goes down, everyone loses their money (issuer and clients)

This is from back in 2017 when ILP first started, and PayChan took over for the SusPay methods. This is also from the beginning of the thoughts from the series I wrote which concluded with How xPool (there is one error in the chart if I remember right I never fixed it ;))

Quote

 

https://medium.com/@KarmaCoverage/ripple-inc-as-a-lender-of-xrp-risk-exposure-goals-keep-upside-protect-borrower-from-downside-d018095d696f

Ripple Inc as a lender of XRP. Risk exposure goals: keep upside, protect borrower from downside

Lets jump in, here is a chart showing the lifespan of a PayChan. From inception to close. Both “Up & Down” price movements of XRP are considered.

1*hFYmGusdqCV2QpNo2x4UmA.png

 

The key insight here is that Ripple Inc

  1. Is already in the position of being exposed to the downside risk of holding XRP.
  2. However they would also like to keep the upside risk of holding XRP. 

Additionally, as you elude to, I also have concerns about setting up a cascade of automatically executing smart contract margin calls, and the fact that I believe that after whenever the bitcoin market price runs out of Retail Investors for Instructional Investor to frontrun help flow investment flows into Crypto via administering funds/ETFs. Then we could, as I expect, see a Dot Com size crash, but bigger and with all the sell orders being executed automatically via smart contract margin calls.

The addition of Flare in the loop enables the Smart Contracts somewhat of an Out, but I have not fully wrapped my head around all the risk exposures, and how they may be mitigated...

  • Certainly the fact that any Smart Contract can be programmed to have something like a Circut Breaker, is good. But i'm not sure that would be in the best interest of the Lender/Exchange, so unlikely to be done. 
  • There could be some kind of business logic mechanism built into the Oracle providing the data feed for the Smart Contract managing the XRP Stable rate. However this smells of market manipulation, although that IS what Circuit Breakers are intended to be. 
  • Also the fact that there is actually a 2nd tier of collateral the Spark Token, ads another layer or Security, or maybe not. I'm not sure what I think about that idea from a market mechanics perspective. I'd like to think more about how the pricing dynamics of Spark vs XRP vs All other collateral backing "Stable coins". 
Edited by KarmaCoverage
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