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David Schwartz XRP Ledger Stablecoin Prop

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@JoelKatz Maybe a stupid question but how much worth of XRP would you need to collaterise the US dollar as a stablecoin...? Say you would want to cover at least 100% of all existing US dollars.

Edited by cryptoxrp

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On 10/10/2019 at 2:48 AM, jag216 said:

 

The only question is my mind is: who will be the first nation to put their own national stablecoin on the ledger and collateralize it with their natural resources.

What benefit is there for a sovereign that moves from a fiat currency to a liability backed by real assets, especially real resources (generally land)? For example, the US, obviously would lose a great deal, and the world, as the supply of money would become fixed--it would crash the global economy. For a small developing nation, say DRoC, which is rich in natural resources but is exploited by larger developed countries whose currencies are higher in the settlement hierarchy, the benefits accrue to outside investors who no longer have to fear instability associated with domestic institutions--DRoC citizens don't benefit, it's just another, faster, means of being pillaged.    

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The very idea that asset holders effectively control the money supply by collateralizing or redeeming collateral against the coins - this is monumental. This technology makes the quantum leap from debt-based financing of the monetary supply to asset-backed currency but does it in a decentralized way where the incentives potentially keep the engine afloat - so long as there is a reliable price feed available that is not misrepresenting prices or is otherwise a bad actor.

As stated in the video the system is easily manipulated, either outright, through inaccurate information on the feed, or more importantly, third party manipulation of exchange rates for fiat currencies, or say, land (!). Issuing a USD_land_01 where land_01 is, say, a copper mine in Brazil, how do you re-collaterize it? Do you add more copper mines when the first mine is flooded? When the Brazilian political system alters labour laws and prevents anyone from working in the mine, the mine's value falls to zero and the stable coin is worthless at best, or the collateral is transferred to parties with the power to issue fiat USD. Backing liabilities with real assets is a path to exploitation, not freedom. Closing your borders and issuing your own fiat, for example China, is the best way to develop an economy--not making your real resources vulnerable to international legal systems over which you have no control. 

   

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It puts a lot of power in the hands of the price indexes, but with the transparency of the ledger we'll be in a unique position to determine whether the price feeds are properly calibrated or not.

There are no price indexes for natural resources. Where's the price index for Russian uranium deposits, or oil deposits in the South China Sea? Furthermore, who enforces claims on the ledger? No one. 

 

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The idea that the absence of a price feed prevents redemption and buying of collateral positions but places no restrictions in the transaction layer of the stablecoin itself is another stroke of genius - instability in underlying asset prices freeze the volume of money but allows the existing stablecoins to flow freely - this is a tremendous innovation in comparison to traditional gold-back currencies or other asset-backed basket currencies.

How? If a bank issues USD in a gold standard system, and my belief in the reserves of that bank vanish, there is nothing stopping people from exchanging that USD--there is literally nothing new here. 

 

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Previously, it was possible for asset holders to pull their assets and effectively kill the money supply in a panic state, but by placing the price volatility sensor at the feed level, you can lock down the underlying value of the money while allowing the money at the consumer level to continue to function.

What do you mean "asset holders [can] pull their assets"? Are you talking about the gold standard (the thing xrp is trying to recreate)? What money supply is based on "assets", and what assets are you talking about? A copper mine, a private bond, a public municipal bond, a public federal bond, and a system of redemption (such as a peg or conversion) are all very different things and none of them determine the money supply of a sovereign.     

 

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I watched the video on my way to work and just slide after silde this presentation blew my mind in terms of the convention asset-backed currency problems it solves. I'm sure there will be new problems that it raises,

Yeah, like opening up households to getting financially ***** by larger players issuing USD without any regulation at all. 

 

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but my hat falls to the ground to the JK if they are able to implement this on the ledger as he describes. It will allow responsible countries to soar - SOAR - into the new level playing field economy and there will be a flight to quality by other countries that will move so fast that our collective heads will spin.

A responsible country... Hmm, ok. Well, I'm more interested in your analysis, maybe you can add more information using, say, Argentina as an example. 

 

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I look to the countries with the most natural resources and reserves and lowest debt to GDP - and it seems crystal clear to me who the likely candidates are to establish their stablecoin nationalized currency on such a system as DS suggests:

  • Estonia
  • Russia
  • Saudi Arabia
  • Hong Kong
  • India

Hong Kong (imports 90% of its food, has almost no land, and survives as a financial hub for fiat currencies)? Saudi Arabia (will have an average annual temperature of 50C by 2100)? I'm not following your logic here.  

 

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I have said before in chats and on telegram that very soon the first tier digital asset layer will be entire inaccessible to the common retail investor, and markets for the masses will revolve around the trading and commerce of stablecoins built on the fundamental utility layers.

1%ers in XRP will be playing in banking territory potentially, buying out risky collateral position in stable coin and earning premium on this.

But it would change everything about how governments run finance - central banking has to get into a totally different car and let others drive - which is fascinating.

You say: backing liabilities with real assets improves things--but you haven't made clear why. Historically backing liabilities with real things has had negative consequences and is simple a naive way to think about money. Again, how does backing a USD with a copper mine in Brazil help growth, and I won't even bother bringing up whether or not growth is the answer (hint: it's not). 

Edited by Wandering_Dog

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