No, we don’t need weirdly pegged “stable assets”

A primer on Generally Accepted Monetary Principles (GAMP)

Samuel McCulloch
Samuel McCulloch
Dec 19, 2022

Over the weekend an article by Ben Goertzel was shared in the main Frax telegram channel (a must follow). Ben gives some lip service to algorithmic stablecoins while soft-shilling his new project Cogito. He writes, “Since its inception, a core aspiration of the blockchain space has been the creation of cryptocurrencies that can serve as media of payment and stores of values, independently of the ‘fiat currencies’ created, defended and manipulated by national governments.” It’s the “modern money has failed” argument that gets thrown around a lot when attacking stables for various reasons.

When Goertzel says he wants to replace fiat, it's with a strangely pegged synthetic store of value that his project SingularityNET provides the oraclize pricing data. In the article, Ben’s first thoughts go to Cogito’s “G-coin,” a stablecoin “pinned to a synthetic index that measures progress on improving the environment (e.g., global temperature).”

Money is made of 4 things, it should hold its value day to day, people should use it to buy and sell things, its value is a global reference for goods, and it should be redeemable at par on demand for exact or similar value. Once something satisfies all four things, it potentially could be accepted as money. But this is extremely hard, as the incumbent’s power is deeply ingrained globally and socially. Crypto money is not trying to work outside of these generally accepted money principles (GAMP). The largest players are actually working hard to proliferate within its principles. USDC/BUSD/Tether all stake their worth against the dollar (and people love it!). Frax/DAI and other decentralized stablecoins are also using different models to peg to the dollar.

Money outside of GAMP typically fails to ever be used as money. If you can’t walk into a store, see prices in your money and then transact with it without significant fees or slippage, your money is probably not going to survive. Everyone references the dollar; even foreigners outside the US have some second level understanding of the dollar price against their own currency. GAMP rules everything around me.

So given GAMP, where do synthetics fit in? Ok, so you’ve got your G-coin that synthetically tracks a climate change index. Every day you look at it sadly knowing that humanity will never hit its climate targets and the global temperature is set to rise 1.5 degrees over the next century. Governments make cute statements about meeting targets, but you know deep down that China and the USA will never tame their emissions, committing the world to untold death, destruction and the end of humanity. Tears roll down your face when you enter Starbucks, Solanaphone in hand and step up to order a decaf iced gingerbread Almond milk latte with extra whipped cream. You flick open your crypto wallet while remembering the coffee giant uses more than 8,000 paper cups a minute, most of which are not recyclable. Your synthetic climate change coin is up .1% in the last year to match the current rise in average temperatures. As you go to pay, liquidity in Uniswap is $250,000, most of which is yours. If you want to sell the slippage will be 4%, one degree higher than the worst case for global temperatures globally in 2100. Whatever, you need your sugary drink. Send transaction. Unfortunately the dollar is a shared way of knowing the world in value. GAMP principles pre-internet led to the creation of many currencies globally, now monopolized by the state. In a post-internet world, we’re working towards the end of money, which will be a single reference currency for all value transacted globally. GAMP demands this efficient harmonization, there can be no second best.

The reason we in the crypto community want an independent dollar has nothing to do with trying to improve its GAMP. They are set in stone after thousands of years of social determination. Crypto money is and will continue to be a declaration of independence against the tyranny of the regional money issuer and their weaponization of money and finance. A rejection of established norms that downstream garbage loan rates, inflation (the bad kind), and predatory fees to the weakest of retail consumers. To top it all off, modern governments are doing their best to create a hyper aware financial intelligence apparatus to ensure hegemonic continuation of the competing, established monetary order.

Terra’s Luna was hailed pre-collapse as an exquisite, independent, refined replacement for the dollar. Hindsight wiped these platitudes indefinitely, but they embodied a general desire, which Goertzel is tapping in his article, to create a functioning non-state dollar free of any assets held on a balance sheet in a bank. The only question we should be asking in crypto is how do we build, distribute, and command power in a fully decentralized, non-political, dollar with unseizable collateral aka the Stablecoin Trilemma.

Frax has achieved initial fitting with GAMP plus remaining unseizable to a point. Frax relies on its AMO’s to distribute the freezing risk to its collateral across the entirety of DeFi. Long term a better solution will have to be found with Frax explicitly given the green light to custody its own collateral in a bank or for some jurisdiction to provide a strong regulatory and legal environment for Frax to exist. GAMP US dollar stablecoins have different problems than trying to find market fit.

Synthetic money with no easily identifiable pricing immediately turns into a dollar referenced investment product. Add on to that a lack of GAMP and you end up with a random digital asset that no one will use. Unless there is a defined reason for the synthetic to exist, like with Frax’s FPI, an inflation resistant (investment product) which tracks the CPI index.

FPI can exist and grow for two reasons. First, inflation as a topic is highly covered in the media and discussed by the general population. Retail doesn’t know what the CPI numbers are off-hand, but they can give a rough idea if inflation is high or low. When FPI changes in price, the mental models process the asset value in reference to the widely publicized month on month reports. In fact, FPI holders probably don’t even reference the price that much, they just see inflation going up or down and assume their FPI holding value is doing the same. Second, FPI isn’t trying to be GAMP (atm, at least). Unlike Bitcoin which attaches fixed supply monetarism to its core principles, FPI simply tries to track the official adjusted values for inflation over time.

For nebulous things other than inflation, it becomes near impossible to create frames of reference for an index. Real (gold, diamonds, etc) and financial assets (equities, bonds, derivatives) are easily tracked because they have a market traded price. For indexes like “climate change,” the reference price is probably heavily politicized and issued by an elite international governing body like the World Bank, IMF, and or UN. These institutions are inherently more corrupt, politicized, and agenda driven than a nationalized banking system, as the latter always works in its own self interest and is not based on a global committee. A climate change-indexed stablecoin would be extremely unideal simply because it attaches itself to politics while trying to be apolitical. It’s a terrible oracle problem, where the exactness of the data isn’t at question, but the very assumptions used to generate it. Crypto is and needs to be focused on apolitical solutions, not pegging to the evil empires responsible for Bitcoin’s genesis.

We shouldn’t fear the dollar or any other fiat. It’s just a reference system. Our largest concerns should lie in the loss of self-sovereignty and accessibility to dollars

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