Currency stabilizing DAC's

I’ve spoken against techniques that would bias the price of safecoin. My main concern was that the proposed methods might become complicated and hence would make it difficult for people to understand and hence trust the monetary system. If such a system was simple and autonomous then perhaps it would pass my test…so here’s my thought - although I don’t know if it could be applicable to safecoin given we are so far down track already.

Problem - big fish come into the market and buy then sell (the classic pump and dump). They profit off of this (often) by buying and playing on people’s hope and then selling and playing on people’s fear. It’s really a terrible scam - it works well in small speculative markets - you may have heard the old saying “Buy the rumor, sell the news.”

Solution -

  1. DAC’s (decentralized AUTONOMOUS code/corporations/entities) are set-up from the beginning and given a large percentage of safecoin.
  2. a market mechanism is created for creating dirivitive contracts (put and call options). The DAC’s are open-source programs that then use the safecoin they have to create, buy, and sell these contracts, hedging both sides of the value of safecoin.

This would make it very hard for any large fish to move the price without paying a hefty cost. particularly if the DAC’s were given a network trading edge (they are inbuilt into the network and hence can act faster than other traders) - just as the wall-street high speed traders have. This mechanism, I think, would cause market manipulators to avoid safecoin like the plague - it would be a money-losing proposition.

Obviously there are some big difficulties in creating such a mechnism and it would have to be well tested. So I don’t know about the viability, but thought I’d throw it in the ring.

EDIT: I forgot to add the high-speed trading method of manipulation in my ‘problem’ section. but did mention it in the solution. To clarify, I think such DAC’s could solve both pump and dumps and high-speed trading manipulations. Perhaps @dirvine can speak with Max Keiser about this (I think he was on his show once). I believe Max knows a lot about how high-speed traders manipulate the market. He might be able to advise on the viability of such a counter scheme.

EDIT2: Additional proposal to use the money held in escrow for farmers as the money used by the DACs. As the economy grows (money paid out to farmers) less and less stabilization will be needed, so this is a win-win scenario.

EDIT3: I’ve realized that I’ve not accounting for the recycled money in the second edit above – so I’ll amend the proposal to say that I’m not referring to recycled money - paid back to the network. I’ll repropose that the DAC’s have access to an amount equivalent to the initial amount allocated to farmers and as money is paid out to farmers, the funds accessible to DAC’s is equal to that initial amount minus the amount paid out, but not including any amounts paid back in via recycling. By the time the DAC fund reaches zero, the farmer fund will still be cashed up via the recycling mechanism. And I would hope the network would be big enough to fend for itself by then given the size of the initial pool.

Cheers

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I would add some detail – I think these DAC’s would create, buy, and sell contracts around a range of the current price to make contracts with a bias toward the current price -such that the price can be moved but with difficulty.

Isn’t the easiest solution to educate people not to be idiots and listen to the pumpers?
It is, but you can’t fix stupid.
Next comes the idea to redistribute, but you can’t tax SAFE owners, so instead the well intentioned people should follow the pumpers, make a profit and then use it to buy shares when the market crashes.

Given from where? I don’t know anyone who’d want to give away “a large percentage of SafeCoin” to others, so I assume you mean the Foundation?

If you were long MAID (or SAFE), you’d profit together with them. You could create your own DAPP to do this automatically for you. If that sounds difficult and risky, it is, but that’s just because in this case it’d be your money and not money taken from others.

There are no problems that need to be solved. There is no need to stabilize the exchange rate of SAFE (and against what? The volatile bitcoin? Collapsing fiat? It represent a useful activity and it’s automatically stabilized).

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Nope. Tried that for years. Way harder.

yep, from the foundation - it would have to be an early part of the core. As I said, likely too late to implement, but no harm in putting it out there.

The ‘powers that be’, if they see the safe network as a threat or even as a source of revenue, they could buy up a large percentage of safecoin and pump and dump until people are so sick of it they leave - it could become very difficult for farmers as well. That’s a real potential problem - do you think that bitcoin’s volatility hasn’t held it back in a huge way? It seems pretty clear to me and a lot of others that it has.

Seems to me that this is a non-problem. Bitcoin runs on a proof of burn – the hashing power is wasted if not victorous. SAFE is going to be doled out based on proof of resource – The hard drives and bandwidth connections will be actual usable tangible resources in the network… If the price of the currency gets way out of wack with the price of storage and bandwidth, folks will flood the network with storage until things equalize. I don’t see the harm in that.

If the price drops – Folks are using the network for very useful reasons, and they will continue not for the bribe of farming awards, but because the network is valuable in and of itself.

DAO’s can’t win by losing. The can win in a pump and dump though…

I agree with this one. Fixing volatility is done by a system like Bitshares. They create mechanisms described above, where people go long and/or short. I’m glad that’s not done for all crypt’s because I don’t mind price swings. It gives me a good insight in buyers and sellers. Great thing about the crypto 2.0s is that the exchanges will be decentralized. You will be able to buy Ethers with BTC without ever again trusting Mt. Gox or any other company. Same for Safecoin, you will be able to trade it against BTC directly bu running both programs and a bridge between them. These exchanges are quite slow compared to high frequency traders. I think they will br over 1000 times slower at least. So no problem there at all. And to be honest, HFT made my trading live more easy. I can now buy Google or Apple stock with a very very low spread, compared to the 4% BTC/EUR spread.

@TylerAbeoJordan I do think some Dapps/technologies will come your way. For Ethereum people are working on a Shelling Coin project, this will allow people to “pin” the price of ETH/BTC or whatever to oil, gold, SAFecoins etc. So called Oracles will provide the pricedata. You as a user will be able to go LONG or SHORT using contract for difference technologies. Quite amazing. So people who want to speculate can do so using these contracts, other can “protect” their coins by going short on the coins while holding these same coins as well.

I think Bitcoin’s extreme volatility is because it’s major function right now is speculation. That shouldn’t be the case for SafeCoin, at least not to the same degree.

We should teach people to value their SafeCoins in terms of resources it can buy, it’s a far more stable and reliable metric than current market price. In the case of a genuine increase in SafeCoin value, it will be gradually followed by an increase in farming, and thus more storage per SafeCoin. In the case of pumps and dumps, farming (and thus resources per SafeCoin) will not fluctuate at nearly the same magnitude as SafeCoin price, not by a long shot. Farmers don’t buy and then sell hardware as impulsively as SafeCoin is bought and sold, it’s not practical and farming ranking discourages going offline or deleting data.

We should also encourage people to start or increase farming to profit from SafeCoin value increases, rather than buying SafeCoin to sell it later at a higher price. It not only adds even more value to the network and thus indirectly to SafeCoin, creating a positive feedback loop, but it’s also safer. If there’s a market crash, you’ll still have your hardware.

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All I can say to the comments so far is that I think you’ve got it entirely wrong. Volitility is a huge issue and safecoin will have this problem unless something deters pump and dumpers - there is too much money to be made - especially with something like safecoin as it will pull in a large number of hopefuls – buy the rumor, sell the news. I can predict what will happen already - Maidsafe will go up and up in value, and each time a big news item (like beta launch) happens the price will go sluggish and drop as the pumpers start dumping. Then then many of hopeful newbies will lose their shirts and swear off the safe-network…not all of them, but a significant number. This has happened and continues to happen with bitcoin and all of the other crypto’s except the two or three that have a stabilization mechanism. So, yes the safe network will go on, the volatility won’t kill it, but I’ll tell you what will happen - lots of people will be driven away from it and they’ll say bad things about it and that will keep many other people away and hence the network will grow at a tenth the speed it would have grown if it had stability.

If you’re all happy with that…then fine.

@TylerAbeoJordan Are you sure that’s how pump and dump (if it is significant) will affect most users? It affects speculators like that, but not so much users.

If you buy to speculate on price, you are gambling and can get hurt. Agreed. This doesn’t apply to most users though.

Firstly, most users will join to use the SAFE services - initially storage & communications - unlike bitcoin where I think probably most users are speculating. Most of these utility users won’t invest fiat at all, because it’s easier for most to farm what they need.

Even so, those who buy Safecoin for utility, and then find the price fluctuates, only gain/lose on paper, and since they use coin gradually over time, these gains/losses will tend to even out.

Also, services can adjust their Safecoin price to mitigate these effects, rather than lose customers, or charge too little.

And the network automatically adjusts farming rewards in a way to mitigate this for farmers.

So I’m not sure how significant a problem this will prove for network adoption - especially as ordinary users don’t have to buy Safecoin at all - they can just farm what they need regardless of the fiat price.

In so many ways this is different to bitcoin that I think it’s easy to look at bitcoin and conclude Safecoin/SAFENetwork will have the same issues, when actually this is likely to work much better.

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I agree with @happybeing completely. The only ones who get hurt are the people who come to make a quick buck from speculation. Legitimate users of storage services are not affected or even profit after the dump, and the “true believers” who see the potential of SAFE and SafeCoin aren’t going to dump in panic if the price plummets for a while.

Consider this: Right after a dump SafeCoin price is very low, while the Storage/SafeCoin ratio has been barely affected. This makes it obvious that SafeCoin is undervalued, so people will buy up the dumped coins, because it means a very cheap cloud storage service. This is a major dampening effect on dumps.

In SAFE the value of SafeCoin is lead by what farmers do, and the market price will follow. That is different in Bitcoin, where total mining power has no direct effect on the value of Bitcoin because the mining power is not utilized.

Of course market price also influences what farmers do, but because of Ranking farmers are forced to take a long-term view, and won’t be affected by short-term pump and dumps. No sane farmer is going to power down because of a dump.

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Those that get hurt - and there are a lot of them, are going to blame. That blame is going to slow adoption. Let’s not kid ourselves here. We can debate how much an impact it’s going to be, but we can’t deny that there is an impact. I agree that safe is a different animal to bitcoin - but, look at coinmarketcap.com. When bitcoin goes red, most all of them go red. Yet there are many that are quite a bit different to bitcoin (NXT as one example). The pump and dumpers make the most money in the system wherein they can find hopeful people who are willing to put in their hard earned cash. Unfortunately the Safe network is going to attract them in the droves because it is so awesome. And despite the ignorance of these investors, they are still good people. So IMO we should look out for them. Also the more investment and capital that flows and stays in the safe network the greater the network can become. It will attract a huge number of developers. What I’m basically saying is that if we protect the money that comes into the network - we will all benefit much sooner than if we do the three monkey thing (see no evil, hear no evil, do no evil). I have my eyes and ears open and I say we can do more to protect investors and I think there is a huge plus side to doing so. My three bits.

That’s why I suggested we should encourage people to value their SafeCoins by the amount of storage they can buy, not by current market price. This shouldn’t be hard to explain, it’s pretty logical. It could become the tenet of SafeCoin trading.

I don’t think we should protect them more than by giving sound advice to change their views and ways. There is a solid argument to consider speculation the scourge of crypto-currencies, especially if speculators go short regularly. In the end, all this high volatility speculation is only a game of taking someone else’s value without producing any additional value in the process. For every winner there’s an equal loser. In the end it damages the reputation of the asset/currency in question, and there are even more losers than winners.

Speculation is at best amoral, and speculators deep down know it’s at least a zero-sum game, if not a negative-sum game. They’re taking someone else’s value by outwitting them. It’s best if people stop doing that. Even if they’re not manipulating the prices by pump and dumps. I would sooner call them opportunists than good people.

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@Seneca I think the moral issue here is not speculation, it’s market manipulation.

I agree with Tyler that some may get hurt. I don’t think this is a problem for SAFE adoption, nor something that we should try and deal with for their own good.

When people want to gamble there are plenty of ways that we won’t control, and learning about gambling is something I expect every one of us had to do. Some learn cautiously, some dangerously, we all have our style. Some fail to learn, or fail to master themselves in this or that respect. Then we are free to help and support them as human beings, or not. I doubt think we should try to create an environment that precludes the need, or opportunity, to learn - we might though try to ensure that people are not blind to the risks. Whether that’s something SAFE Network can or should try to do I am skeptical. The community, certainly.

But market manipulation is an exploit in the speculation game. The goal is to abuse the fears and hopes of speculators. Speculation is amoral, market manipulation immoral, but market manipulation is an inevitable part of the speculation game in a free market. It makes the speculation phenomenon as a whole lean towards the immoral in my opinion. Without speculators, market manipulation is futile.

Anyway, that’s not the discussion and probably subjective. Concerning the topic I fully agree with you.

I agree with this. My point, and I’ve made it a couple of times, is that WE ALL BENEFIT by providing protection from predatory immoral manipulation. I don’t see why this isn’t a strong concern here given that we can see how the other crypto’s are being manipulated and given that most of us perhaps agree that maidsafe is going to attract a lot of speculative financial investment and hence a lot of market manipulalation. If there is a means of protecting the marketplace in a manner that causes no harm, then the precautionary principle applies - we are doing ourselves a favor.

Nobody knows the future (problem of induction). So everyone gambles their time and efforts when working to build a better future. I think you are meaning to say that people who make speculative FINANCIAL investments should bear that risk, but that doesn’t address the problems I’ve outlined that we are all going to suffer follow-on effects of the suffering of those that are preyed upon. I’m merely positiing that a pro-active approach to self-defense is the best approach (if it is feasible - which we haven’t yet addressed).

The “problems” you talk about (speculation, volatility, pump and dump) where never solved on any place in the world. The SP500 makes some wild swings every now and then, the housing market does the same, even the price of orange juice was never stable. Volatility is part of an open an free market. You cannot make an app to fix these so called problems. Just like I said, with Ethereum and their Shelling Coin idea it will be possible to pin the price to something like dollars or euros, but you’ll always have coins, which vary in price just like stocks on the stock market. I think David and the team did a great job of building in a systems which provides more Safecoin when there are only a few Farmers and less Safecoin when everybody is Farming all the disc space they have.

I see the speculating as fairly analogous to online poker in moral terms, as Happybeing said, it’s basically gambling with the exchanges taking a “rake”. The whales are just the guy’s with the biggest stacks, which enables them to bully the table really.
As with cash, the gambling aspect should be only one use for it and therefore only one input for price discovery - the issue is that this one gambling aspect is going to establish the price of Safecoin for a while until such a time as the “chips/cash” are distributed more evenly and used for more things…this will take time.
I would just say that it is “speculated” that the recent massive dip in BTC price was caused by people “shorting” etc, though I’m not sure how this would affect Safecoin.
There are a handful of people with millions of coins each…that is the basic current problem as I see it. Would early introduction of these things possibly just give the whales another toy to play with? Just asking really.

[quote=“TylerAbeoJordan, post:15, topic:2863”]
I don’t see why this isn’t a strong concern here given that we can see how the other crypto’s are being manipulated and given that most of us perhaps agree that maidsafe is going to attract a lot of speculative financial investment and hence a lot of market manipulalation.[/quote]

Well, I’ve given my reason why I’m not worried about it. SafeCoin has “intrinsic” value because you can buy resources with it from the network that are universally desirable. Whether SafeCoin is over or under valued can easily be seen by comparing the cost of network resources with traditional cloud service pricing. I think this makes SafeCoin far more robust against market manipulation than other crypto-currencies. That’s why I’m not worried.

It would be like trying to pump and dump a currency that is backed by a non-fractional reserve gold standard. If the gold market is stable, it’s not going to work. People in such a system will value the currency by the amount of gold they can get for it. In a similar way, people will value SafeCoin by the amount of computing resources they can get for it.

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Actually, you can slow down the rate of change through hedging. It’s a proven technique. BitUSD a crypto asset issued by bitshares is using this technique, but with open market hedging, right now to peg the value of BitUSD to the USD.

If you understand how hedging works, then you should understand how it can brake or even stop a fast
moving market. If a large percentage of safecoin were to be set aside for this purpose it could brake the movement substancially.

I not proposing an ‘app’, rather I think it should be core code that does this.

I’m a bit confused here - you say at the top that volatility cannot be solved, then you seem to say that it’s possible to ‘pin’ a currency. There are a few ways to pin/peg a currency some are more successful than others - BitUSD uses hedging. In any case the mechanisms stifle volatility, and hence you seem to be contradicting yourself. Maybe you can clarify.