Halfstablecoins

While recumbing today I had an interest idea for a new kind of stablecoin. I call it a half stable coin because the price is stable only so long as supplies last. Here’s how it could work for Grin.

Suppose some billionaire decides to commit a billion dollars into a fund to be used exclusively to support a Grin halfstablecoin. He (or she) would (potentially after some period of quietly accumulating Grin) officially start operations by offering to buy 1 Grin for 1$.

That means most miners will sell to the fund, and they guarantee to keep this up for at least 30 years. They will also sell 1 Grin for $1.05.

If in 30 years there is never any demand to buy Grin from the fund, then they are simply left as the biggest bagholder ever. But once there are things you can buy and sell in Grin, then some demand can be expected to arise, and over time the fund can make a small profit from the buy-sell spread.

While the committed funds guarantee (modulo trust in the fund legalities) that you can always trade 1 Grin for 1 dollar, there is an obvious limit to how big the market can grow.

At least there is no risk that more stablecoins will be “printed” without dollar backing, as is the case with existing stablecoins likeTether. Every halfstablecoin is still properly PoW mined in a time limited and fair emission.

Once demand exceeds supply, there will be no Grins left to sell for $1.05

I’m not sure what would happen in that case. Perhaps the unmet demand will in itself cause the Grin halfstablecoin to lose some of its appeal and demand for Grin at prices > $1.05 will eventually dry up, and miners will start resupplying the fund.

It might make for an interesting experiment.
I have no idea how to estimate the odds of success or failure.
Perhaps I’m overlooking some very obvious problem and this could never work? Let me know what you think…

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The problem i see is that this would immediatelly pump grin to 1$, at which point people would sell it on exchanges to dump the price, then again buy it for cheap and sell it to this guy etc etc until they make him waste a lot of money

Guaranteeing 1 Grin is worth 1 dollar for 30 years to come is not what I would call pumping.

This makes no sense to me. People who don’t believe the promise would sell to the fund for a dollar. Which is part of the plan. The price cannot be dumped, since enough money is committed to buy all supply for 30 years.

It’s not a waste. It’s an admittedly risky investment in establishing a new kind of stable coin with limited market size, that could pay of if a market develops.

Would you have the same objections if the plan was enacted back when Grin was trading for around a dollar?

no, i made a mistake, it would pump to a dollar and it would stay there until the people selling for 1.05 (automatically i guess?) would have grin. So if grin was 0.9$ people would buy it on exchanges and sell it here until it would reach 1$. So basically i think as long as this halfstablecoin liquidity would exist grin would fluctuate between 1$ and 1.05$

So the idea is that the party committing these funds is expecting that their action of setting a practical floor on the price would generate demand that would at some point pay off for them? Like we’re walking about a profit driven actor right?

There would be a considerable amount of holders that probably would immediately want out for a dollar. 10-30 million dollars maybe right off the bat.

If there were publicly proved reserves capable of backing that, maybe 50 million dollars, I think the flurry of activity and press would be enough to launch the price over $1 pretty quickly, before the fund even had to cover all of the exodus. Then who knows after that, probably cycles of crashing into the floor.

The whole idea could also be scaled down so that a Grin becomes a stable dime instead of a stable dollar. Then a 100 million dollar investment would suffice but the grin economy would be 10x more limited.

There is nothing to do if another billionaire comes and says I am ready to buy each grin for $2 and sell for $2.05

if you can’t control the supply you can’t control the price, it’s simple

I had similar thoughts in the past. I kind of expec(ed) that some old Bitcoiners who would like the project might have agreed to ‘create’ a bottom somewhere, and possibly, also sell to earn back their investment after creating such a bottom. Where that bottom would be, remains anyone’s guess. In your experiment @Tromp you set the border quit tight, but like you also point out it could very well be these whale(s) buy in a flexible range in which case few would notice or suspect. It could also involve a collective of old Bitcoiners, making a clear bottom even murkier and being more decentralised.

Actually, there are more ‘interesting experiments’ or manipulations to think of.

For example:

1. The secret benevolent whale(s)
A benevolent whale buys the market, creating a bottom in a flexible range, no one knows the experiment is going on, the result should be a somewhat stable coin, at least around the bottom. Indeed, since the supply is not controlled, the price could go up, the whale might for some time be able to cap the price by selling what they bought while creating the bottom. Since no one knows, the price will go up less quickly I would expect. The result would be at least a plateau around the bottom at which time Grin would be a rather stable coin.

2. The public benevolent whale(s).
Simply by promising to buy for a certain price, the whale(s) create a buy back guarantee, meaning a lot of investors might buy that were waiting on the side-lines since they are near certain not to lose unless those whale(s) break their promise. The interesting part is that here the ‘promise’ is enough, the whale(s) might actually not even have to intervene or spend funds since it becomes a self-fulfilling promises.

3. The secret benevolent Whale(s) want to speed up the bottom
In this scenario, whales do not want to wait for a natural bottom to occur, they simple enforce one by buying Grin high in the earlier years and selling in the later years. In this way a bottom can form earlier which is not completely natural, but which might give Grin quicker some stable properties earlier in the project. If plaid well, the whale(s) might actually not lose money, since they can buy back Grin very cheaply by making the bottom a bit flexible, so going down slowly, while buying back their earlier losses. I am not 100% certain, but I think a similar scenario can also be used in a malicious way, see next scenario.

4. The secrete malicious whale(s)
These whale(s) artificially dumps the price aggressively by selling early on bought Grin.This can actually be beneficial to these whale(s) if these whale(s) can keep up the impression of Grin dying, by slowly letting the bottom of the market drop and by timing well with a Bitcoin bear market. They could create a unnatural artificially low bottom price while buying back more and gaining a unnatural large amount of Grin in the meantime. This would somewhat disturb the fair supply of Grin on the short term but can only be done so long. In any case, the 1 Grin/second rule will mean these actors will slowly lose their dominance in holding. Also, this trick probably only works ones or twice I suspect. If these actors have patience, it might turn them a nice profit in let’s say 10-20 years from now.

5. Many opposing actors (most likely what is going on in reality :sweat_smile:)
Another interesting though would be that many opposing actors might be working on the above scenarios. Most likely some of them have more limited budgets, meaning the end results would be rather unpredictable. In any case, if a benevolent actor is present. They do well to keep some reserves in case the price is dumped to much artificially by a bad actor, to buy back there and make the malicious actor lose money.
For a malicious actor, there is a huge risk if a benevolent actor buys his ‘death scenario’. In this case that actor would lose significantly since he bought high and sells low.

Sure; anyone can raise the price floor, while no-one can lower it.
In order to keep the horizon at 30 years, the new billionaire would have to invest up to twice as much funds though (less if they first buy a sizeable fraction of all supply at $1.05 or less).

But all this does is just add to the success of the halfstablecoin, since it doubles the limit size of its economy, while making every holder twice as rich.

So this is something the original billionaire can themselves do, if they see the scheme being successful, and can invest additional resources.

Not necessarily. Any profits can be reinvested to either

  1. extend the price floor horizon
  2. raise the price floor itself

It’s an interesting idea. Is $1 actualy dollar and not a crypto variant of it like USDT or USDC?
If A started stabilizing Grin at $1 then if B appeared that wanted to stabilize it at a higher price e.g. $2, A could sell at a profit the coins it bought for $1. That’s assuming B succeeded by having a larger pool of money to invest in this scheme. If B wanted to stabilize it at a lower price e.g. $0.50, then his attempt wouldn’t work because A would still buy at a higher price meaning everyone would be selling to A. It seems to me this scenario would work. It’s kinda hard to guess all the potential strategies people could end up doing.

This also makes me wonder if something similar could be done for the network security. You have A that buys coinbase outputs for $60 ($1 per Grin) which might make pools give a higher reward to miners to get a larger share of the graph rate. This could in turn bring the security of the network to a minimum of $1 per second. So it sets a theoretical minimum - not sure what would happen in practice though. Then if A wanted to prevent the network doing too much PoW, it could, similarly like in your example, start selling Grin at $1.05. This would however require much larger pool since you’d need to buy all the coinbases.

I wonder if these schemes at such a large scale end up being classified as market manipulation:)

How strong could this commitment be?
USD is not permission less so the fund could become seized or frozen. How often a miner could sell the keybase reward of the same blocknumber, by continued 51% attacks? This question is important for the miner to calculate a huge investment. Remember the ‘when pigs fly’ scene in Simpsons with Mr. Burns. And remember the similar commitments about some CEO accepting some POW based Coins.

At least as strong as Coinbase’s commitment to redemption of all USDC.

Note that coinbases can’t be sold until a full day later. The fund can be expected to at least double the required number of confirmations after each successful 51% attack against it. So not many times.

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