BASIS stops operation, where is the algorithm stable

This article from: Babbitt, author: Tong card Research Institute, the daily planet authorized forwarding.

 BASIS ceased operations, where the algorithm is stable

In the long run, we are all going to die. – Keynes

According to foreign media reports The Block, pass card project Basis due to regulatory pressure will cease operations, and most of the funds raised by the return to investors. Basis won the Bain Capital Ventures, GV, Andreessen, Horowitz and other well-known investors Lightspeed public investment of $133 million, is one of the representatives of the project algorithm stability mechanism, let us interrupt project stabilizing mechanism on the algorithm of assets from the anchor have many doubts. We believe that the main problem of Basis is the idea of too much beyond the current level of development of the industry and society, ignoring all in front of the launch, landing and implementation. In this paper, we will provide you a Basis analysis, and discuss the algorithm stability mechanism in the future.

Basis algorithm: on behalf of the bank, the pioneer of internal anchor

Basis algorithm is a stable mechanism through bank card project. The bank is unsecured and stable algorithm mechanism passes the first attempt, the idea can be traced back to 1970s, Hayek described the private issuance of unsecured, stable price competition monetary system conception. The original idea is the Seignorage algorithm of bank Shares, proposed by Robert Sams in 2014, Basis introduced the concept of the bond passes, creating a completely non mortgage pass card. This mechanism has made an attempt from the collateral, there are Basis, Carbon, Fragments and Kowala and other varieties, is a pioneer in the stable internal anchor passes.

The Basis algorithm from the real economy mode of bank monetary system, is established according to the market demand to adjust the stable passes circulation mechanism. Basis system has stable through Basis, ShareTokens and BondTokens certificate. Basis is the core and stable passes through the value of the dollar peg card; BondTokens certificate issued in recovery needs to tighten supply, similar to the central bank bills, the model of credit monetary system under the functions of the central bank; the holder of the ShareTokens share issuance pass in certificate repaid after BondTokens as part of dividend. Overall, this mechanism from the reality of the central bank, according to the demand for money supply adjustment, to issue BondTokens (equivalent to the central bank bills) form of contraction of liquidity, to redeem BondTokens and Basis form of additional liquidity, and Seigniorage to issuance of the form of a Basis is assigned to the ShareTokens holder.

The Basis represents the algorithm bank anchored. Algorithm of bank regulation mechanism passes stable supply to keep prices, passes price actually corresponds to the system of supply and demand, that is to say, the anchor block is stable through the credit chain system liquidity demand, is a kind of internal anchor. With the development of the industry, independent passes the market will be more and more strong, so as a measure of value, medium of exchange, storage and payment tools stable passes long term is necessary to anchor the internal index, Basis project has an exploratory role in this respect.

The mechanism of the problems, it is difficult to form a consensus

Basis ecological development relies on the use of the expansion of the demand, but the mechanism design determines the stable passes difficult in the early formation of a broad consensus. Basis only to use demand anchor currency value, is a mature system of supply control mechanism, but the lack of a system of cold start process. If the pass card has been widely recognized in the market, this mechanism is feasible, but the early lack of the size of the case, the use of demand and value neither rely on external funds, there is no reason to choose this kind of stable exchange passes. In addition, Basis issuance passes completely as seigniorage distribution, stable through the card holder can not enjoy the system scale growth dividend, even no interest, unfair allocation mechanism is difficult to attract new players.

There is a serious market panic when the bank algorithm is difficult to effectively correct price stability, passes into a death spiral. The Basis algorithm mainly by controlling the supply mechanism of the bank and issuing bonds to maintain price stability in the market, it passes better when confidence is feasible, but if meet market demand significantly reduced or even panic, the maintain the price mechanism, and to deal with the system of continuing austerity. The supply side, stable passes the issue of reducing the maximum only to 0, while the bond passes in people’s long-term expectations are pessimistic when it is difficult to effectively issue. If the price is down from to a certain extent, the above two kinds of methods can effectively correct the stability, through the license will inevitably enter the death spiral, price and market value or zero. If the problem cannot be solved, the algorithm is hard to create real stability through the bank card.

Basis issuing mechanism completely out of the central bank currency system, facing another level of regulatory risk. Unlike other pass card project, Basis issued the certificate is not stable through any legal tender value of assets as collateral, the value of anchor use demand, is actually a creation currency equivalent. Other stable passes, whether it is legal tender anchor or anchor assets, directly or indirectly linked the underlying asset value form Chengdu and currency system, but Basis is different, without any contact with the issue of legal tender issued by the central bank, directly created by the algorithm. At this stage, if regulators allow it to issue on the card, it would be tantamount to admitting that as long as people recognized, anyone can get the right to issue currency, which in the current level of economic development and social system is very difficult to achieve.

Termination of the project: the interaction between market and regulation

The regulation is not clear, but may be associated with the issuing mechanism and mode of financing. At present, Basis to stop the operation of the specific regulatory reasons not explained in detail, we believe that the main issue may come from the aspects of mechanism and mode of financing. On the one hand, as previously stated, Basis and other stable passes, the distribution and value support completely out of the central bank led the currency system, with no generally accepted legal tender value as a support, once in the death spiral, three pass card holders will face huge losses; on the other hand, Basis the Share Tokens card through equity although only for institutional investors for financing, but institutional investors still need to profit from the Share Tokens or the Basis bonus to sell, the future may face financial regulatory issues, and this is the focus of attention of SEC regulators such as the recent field.

Regulatory reasons, project ideas beyond the market development level, its operation and prospects is also problematic. Basis consensus mainly requires two conditions, one is the block chain industry reached sufficient size and level of development, the two is its stable operating history and widely recognized in the market, and these two conditions currently do not have, it is difficult to achieve in the short term. “In the long run, we are all going to die”, economic design model of Basis beyond the current stage of development, did not fully consider the immediate start, landing and implementation, so it is difficult to obtain the market consensus, have great obstacles in the present market.

The algorithm is stable anterior: wait for the development of the industry, the conversion requires a transition

We believe that the internal anchor is stable passes the possible direction. $external monetary supply and interest rates are based on their own conditions for issuing economies, not necessarily suitable for other economic systems. With the increasing development of economies of scale and raise the level of internal factors become the main contradiction of the operation and development of independence, this will be more the pursuit of money or through the card, in order to adjust the policy and the corresponding mechanism to fit their actual needs. At present, the economic scale of block chain is still relatively small, high dependence on external economies, higher efficiency in dollar anchor. The future development of the blockchain economy, may be relatively now, there will be several orders of magnitude of the scale of growth, compared with the traditional economic strength will also change, has become part of the independence of the economic system. The internal anchor and chain blocks may be derived from the traditional economic system will be relatively low correlation, also may serve as a traditional way of risk hedge system. In the future, there is a patch of space chain stable economy passes is likely to have internal anchor. Although there are many Basis in the mechanism design is not perfect, but in the direction of the attempt to explore the internal anchor role in industry.

The algorithm is stable as an internal anchor mechanism, need to wait for the industry to expand the scale and development level. The Basis algorithm is set to stable mode fully linked own needs, value and trying to anchor the external legal tender in the current block chain industry development level is relatively difficult to achieve in the short term, the lack of feasibility. We believe that the algorithm bank model need to wait for the expansion of the industry and raise the level of development. When the public acceptance of the blockchain technology and industry reached a certain level, stable passes can be divorced from legal tender for its value system coordinates. Laws and regulations may also develop with the productivity and the economic basis of the change, or will gradually solve the supervision problem. In addition, the algorithm also needs to develop stable mechanism and block chain performance technology will be improved, the introduction of order flow outside the control index, to circumvent the risks, better reflect the needs, realize the value of stable function.

The direct use of internal anchor will face the difficult problem of starting, may need to gradually transition from the external anchor. Any system needs the cold start process, the formation of consensus is many projects face an important issue. Only the size of the system is large enough, the ecological is rich enough, it is possible to build a self stabilizing system relatively independent. The design of economic model for many projects often only the state, while ignoring the forming process, this is a big mistake. Even if there is a government endorsement of the dollar system, the early gold external anchor in the consensus gradually formed after the detachment of gold, the evolution of internal anchor system. We believe that the stability of early passes should introduce some external anchor, with the formation of consensus and the external manifestation of the external anchor, gradually withdraw from the transition to the internal anchor.

Note appended´╝Ü

For some reason, some nouns in this paper label is not very accurate, such as: digital certificate, digital certificate, through currency, token, Crowdsale, currency, readers can contact us if you have any questions, to discuss.

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