This Nobel-winning economist thinks "stablecoins" can reduce volatility

Leo Zhang

By Leo Zhang

The idea seems intuitively unworkable, but that isn't stopping Myron Scholes, co-creator of Black-Scholes, and one of the braintrusts behind the ignominous 90s-era hedge fund Long Term Capital Management.

Technical & Updates

A Nobel-winning economist is part of a team launching a low-volatility cryptocurrency
(Quartz, by Eshe Nelson and Joon Ian Wong)

"To ensure low volatility, Saga will employ methods from traditional finance. Saga will use a fractional reserve method (similar to what banks use) and deposit reserves in regulated banks. Saga will be essentially pegged to the IMF’s Special Drawing Right (SDR), an international reserve asset that’s comprised of a basket dominated by the US dollar and euro."

The project has a who's-who list of advisors:

"The advisory board includes Jacob Frenkel, the former Governor of the Bank of Israel and chairman of JPMorgan Chase International; economics Nobel laureate Myron Scholes, known for creating the Black-Scholes formula, the most well-known model for pricing options and derivatives; Dan Galai, a co-developer of VIX, the leading measure of financial market volatility; and Leo Melamed, the chairman emeritus of CME Group and pioneer in financial futures."

Before we get dazzled by its all-star advisory board (cough Theranos cough), let's first review what exactly stablecoins are and why some people call it "the Holy Grail of crypto". An excellent primer on the functions and mechanisms of stablecoins can be found here: Stablecoins: designing a price-stable cryptocurrency. The vision for stablecoin sounds fantastic, but the existing stablecoins don't actually always work. Read Preston Byrne's commentary below:

Stablecoins are doomed to fail, Pt. III: SAGA
(Preston Byrne)

"What SAGA proposes is not anything new and it’s certainly not worthy of the name “stablecoin.” It’s a subsidy scheme which amasses a huge amount of collateral up front to create a price floor for a product the subsidy scheme sells in exchange for the collateral."

Read Part I and Part II of Preston's takedowns on Stablecoins.

Commentary from NYT journalist Nathaniel Popper

Commentary from blockchain researcher Tuur Demeester

An excellent Reddit exchange on collaterized vs. uncollateralized stableCoins:

Collateralized vs uncollateralized stablecoins from r/MakerDAO

Other updates

Cardano published weekly technical report. Blog

ZK-SNARKs Updatable and universal Common Reference Strings with applications to zk-SNARKs (By Jens Groth and Markulf Kohlweiss and Mary Maller and Sarah Meiklejohn and Ian Miers)

To learn more about CRS in ZK-SNARKs, read our research article The Magic Behind ZK-SNARKs: Part III of Our Review of Technical Approaches to Anonymity in Cryptocurrency.

Lightning Network now has a capacity of ~$56,000 USD.

SegWit transactions capacity increase compared to Bitcoin Cash transactions.

News & Commentary

Japan to warn Hong Kong-based crypto exchange
(Nikkei Asian Review)

"The FSA plans to work with police to file criminal charges if Binance fails to halt its Japan operations."

*The news of Binance, the world's largest cryptocurrency exchange, is under pressure from Japanese regulators immediately sent Bitcoin price to a 3% drop.

Response from CZ, the founder of Binance

Blockchain technology with Andreas M. Antonopoulos (Part 2)

Think cryptocurrency is confusing? Try paying taxes on it
(NYT, by Kevin Roose)

"Until recently, the I.R.S. showed little desire to go after cryptocurrency income, since there was so little of it. But last year’s boom changed all that. The agency has formed a team of specialists to investigate cryptocurrency-related crimes, including international money laundering and tax evasion."

Facebook's troubles could be the beginning of another dot-com bubble bust, economists warn
(Yahoo Finance, by Dion Rabouin)

"Dwyer and Mortimer-Lee argue that the change in sentiment towards companies like Facebook could bring about higher taxes and greater regulation that reduces the companies’ profits and leads to a fundamental repricing of the stocks and the overall tech sector in the market."

Inventor of the internet, Time Berners-Lee, comments on the status quo of the internet

Move swiftly so they stop breaking things!
(Privacy International)

"Data protection and privacy rights are also fundamental to users’ trust in new technologies, because they addresses the vast power imbalances between consumers and those that process their data. Without such consumer trust, innovation cannot thrive."

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