Value stable currency?


#1

I have a desire to create local barter-style marketplaces (on-line and meetups) where good produced by individuals and small businesses can be traded using crypto as the medium of exchange in a permissioned blockchain (on Cardano, of course). A local open goods-for-goods type of economy, with its own medium of exchange. Getting in/out of this economy implies fiat transfer in/out is possible. Within, it is important that the currency has a stable value… perhaps.

As I think this out, it appears there is a need for a value stable currency. Charles has talked about this need to fulfill his vision for Cardano.

But what is a “value" stable currency? It could not be tied to any fiat, since they are not value stable. They are manipulated, inflated, printed at will, devalued purposely and continuously. What about a “basket” of fiat currencies. One pinch of leaven (yeast), leavens (rises) the entire lump.

What about gold, it is value stable? More than fiat, in theory. But is it? What can value be tied to? Your house? Your dog?

Fundamentally, what is “value stable”? Value is subjective and defined by the individual. His willingness to trade one thing for another thing that satisfies some need/want. Value in reality can’t be established or controlled by legislation. It is the outcome of market activity where entities interact and exchange goods. One loaf of bread is worth 18 eggs (to me). One loaf of bread is worth 20 egg, to my neighbor. Why? The value of the bread is subjective.

Establishing a “value” stable currency that is worldwide is very hard, perhaps impossible. You can’t peg value of something that is increasing in supply to something scarce, or vice versa. That does not make sense.

So, economic philosophers… How should the Cardano foundation create a value stable currency (or is it possible)? Should Cardano pursue this, or is ADA the fixed point that all things in the Cardano ecosystem should be relative to? Interested to hear any insight or thoughtful ideas the community may have.


#2

The idea behind a value stable currency IMO would be a currency that has very little volatility ( + - x%) where x is an amount that would not influence the user to spend or hold based of it’s appreciation/depreciation. Achieving zero volatility would be impossible.


#3

@chad.stewart
You might want to read this post (actually the whole thread is interesting) on the subject, where the idea of a stable ADA-Cash paired to the current ADA is discussed. Thread: https://forum.cardano.org/t/deflationary-structure-does-not-provide-incitation-for-use-of-money


#4

I think stable currencies are not truly needed, once we have smart wallets. We can perform transactions using constantly fluctuating security tokens. It’s an information technology problem, not an economic problem.


#5

Man you are talking my language @chad.stewart I love crypto but I much more love a good trade, I have a 1996 2500 Dually Cummins Dodge up for trade right now for 2665 Million Lovelace, lets trade baby!


#6

Fluctuations drives chaos and financial stability is a must-have for all economies. How can this just be a information technology problem?

Also look at one of the largest endeavours of blockchain platforms… i.e to bank the unbanked. Imagine someone living under $5 a day being told this could become $4 or $6 at any time. Literally translates into being able to put meal on table or not.


#7

For most people, value is an economic concept and not a technological one. Value is ultimately subjective and finds its meaning in what (the thing in question) is perceived to bring to the individual with limited resources who chooses to exchange what he has for something held by another in a competitive market. Why does bitcoin have value? Not only because it is scarce. Not because people waste tons of electricity to get it. It has “value” because the people who are obtaining it subjectively believe it has worth (for a variety of reasons) and are willing to trade their fiat currency, gold, chickens, car, house, whatever to get bitcoin. They place a higher priority on having bitcoin than having gold, therefore it has “value”.

We are spoiled living such an advanced economy, so much so, that we think a string of random digits has more value than food or even gold. But to the 3 billion people Charles talks about delivering a financial stack to (the developing world) many of them still value food, clothing, and shelter more than a string of digits. Value begins with survival for them, what will they give up (usually labor) to get the things needed to stay alive.

I am very curious for you to expand what you were thinking with your statement above, perhaps you have some insight or idea that is interesting. Or maybe we are talking on slightly different ideas? Thanks!


#8

Value is a relative concept. Volatility has meaning when one thing of “value” is considered against some other thing of “value”. The question is, what is that underlying asset we measure against?

It seems that Charles has in mind that it will be the US dollar that the “Cardano value stable currency” will be relative to. He mentioned recently a joint research project with Oxford University looking specifically at how to create this. To him it is a necessity for Cardano to achieve its true vision.

Using the US dollar is a good starting point, because it is the reserve currency of the developed world (for now). The USD can be considered value stable over a short arc of time, but over a longer time frame it is by no means “value stable”. We know this because the cost of buying the average home in USD goes up 10x with each generation (25 years or so).

Physical gold has historically been an answer. Soon it may be again as China has been hoarding gold for many years and openly stated they plan to create a gold backed currency that can become the new world reserve currency. They seek to overthrow the USD, and very soon. This is not conspiracy theory, it is common knowledge. It seems they are patiently waiting for the USA to destroy itself with its idiotic politics and economic policies. Obama has brought their dreams nearer by single handedly doubling the historical national debt and printing the USD into obscurity, which was started by Bush. The central banking community is actively and openly working on their next solution as a basket of currencies, which I have heard they are looking at putting on a blockchain.

So, what is the thing of stable “value” that volatility is measured against? USD works for now, but it may not be for long? I like the idea of some global commodity that has intrinsic value, has some real utility to the developing world, has slowly and steadily increasing supply, and takes real serious work and capital to obtain. Gold seems the best thing, but there are conceivably other options. On a local economy scale it can be something else. Here where I live we trade hay for things of value. I get 1 pound of grass fed beef for ~100 pounds of good dry hay. So, we measure things in hay. I bought the labor for my new deck in hay. I bought part of a tractor in hay. Why, it has a stable value to local animal farmers, long as the weather cooperates. That is our local economy. It is our currency. I envision switching it to ADA in the future. It will be something like 1 ADA per 20 pounds dry hay. Then I can use my ADA to buy maple syrup from the guy down the road who does not need hay, but wants grass fed beef…

I think that using the US dollar as the underlying “value stable” option only legitimizes fiat and gives the idea that it is safe to hold. I believe it is not for many reasons. And we must remember our roots, it is the problems with fiat that led Satoshi to invent bitcoin. Why go back and say, “well, I guess your fiat is not so bad after all, our beloved banking cartel, we will peg our crypto to you…”. I would bet all my ADA that the folks putting Cardano together know and understand these things, but yet they must do something, and soon. I am guessing there may be multiple different “value stable currencies” that develop in Cardano as things progress.


#9

Thank you @CosmosX I am going to have a look at the entire original post you linked to. What is discussed here is along the lines of what Charles has talked about. I haven’t thought much about the issue of where the new funds will reside and how they should be distributed.


#10

ADA’s value is related to computational resources. You spend .20 ADA to complete a transaction of fixed complexity. When the currency matures, that value will be relatively stable over a short time arc, because stakers will bid down the cost of transactions toward the marginal cost of electricity. ADA will be deflationary in the long run as computation and storage become cheaper / more efficient.

Assuming, of course, IOHK implements their bidding process.

To the original point, cryptocurrency allows all sorts of commodites, equities, and intangible items to take on most of the properties of money: ease of transport, divisibility, consistency of units of measure, etc.

Imagine that the poor villager who only makes 18 ADA per day walks into the store. The store’s prices are posted in BNB tokens, as that is the only other cryptocurrency that survived the crash of 2023. There is no problem, because Ganesh’s smart wallet automatically negotiates with the store’s node and either converts ADA to BNB for the trade, or pays in ADA at the current exchange rate, or one mutually agreed upon. Ganesh looks at his $700 smart phone that we are somehow assuming he has, and approves the purchase price of 1 ADA.

Simple, right?

Now imagine Ganesh’s wallet has a diversified portfolio of cryptosecurities. He has .01 ADA, .00003 sharres of Microsoft, ,0001 shares of General Electric, etc. He goes to the counter, scans the tamales he wants to buy, and approves the purchase price of one ADA. In the background, all the cryptocurrencies are converted to BNB, sent to the store, and he receives a receipt. His portfolio is intelligently rebalanced by the AI that runs the wallet based on current prices.

Statistically, the basket of securities in his wallet is more stable than any individual member of the class. Of course, if he wants more stability, he can set his wallet to only hold ADA, digital gold, and IBM stock, which is guaranteed never to rise.

Not only is there no common currency, but the only standard of value is subjective. Ganesh sees the transaction in ADA, which he likes. But his .01 ADA may still be in his wallet- he didn’t actually use it. The store only sees the transaction in BNB.

The standard of value doesn’t have to be a currency. Ganesh’s employer can pay him a salary of .01 oz of gold per week. But he can choose to receive it in ADA, BNB, VGENX, or Florida Orange futures, instead of gold. He can change it at any time and his employer doesn’t care. On the off chance that they can’t agree on exchange rates, then by default, he has to take the gold.


#11

In my opinion, there need to be automatic mechanisms that help to make the value more stable. One problem is that if there is only a small amount of coins that actually circulates in the system, there will be large fluctuations in the demand/supply and thus in the price. But if a relatively constant flow of coins can be ensured, fluctuations are much smaller.

The problem with a system with a fixed maximum amount of coins (such as Cardano and other POS cryptos) is that a few holders will collect massive numbers of coins over time which they won’t sell since they are the source of even more coins. This system is doomed to result in ever increasing prices with a low supply of coins.

Please also read my post on Steemit discussing this topic and leave your comment here or there: