I tried to explain that with a non-backed asset, that is a potential outcome that is unavoidable. If people decide collectively that your coin is worth shit, it will be worth shit. No matter what mechanism.
The USD and pretty much every fiat currency in the world is non backed. They operate perfectly well. The point is, there are degrees of valuation; it is not as binary as your quote suggests it would be.
It is a fundamental misunderstanding of the fiat system that the USD is non-backed. In fact, it is, even though the modern fiat system is somewhat self-referential in this game. The idea that the FED can just print money is wrong. The FED only gives out freshly printed money against an asset, in the same way that your commercial bank only gives you a loan against an asset: your IOU to pay back. The FED uses similar principles: commercial banks can take a loan at the FED against an IOU, and that IOU is, *ultimately*, backed by real-world economic assets such as shares in companies, real estate and so on. I will not defend entirely the fiat system, but it is less of a joke than the caricature of it that circles in crypto-anarchist environments. There's not just a guy that decides to print money and distribute it to its buddies. These things have existed, yes. They all crumbled very quickly. As I said, the fiat system HAS problems of self-reference, especially when the backing IOU are made up of other IOU. But it is not as obviously stupid and scammy as it is presented.
Quote
For example, you could imagine a BTC side-chain, which was a CFD market for BTC/USD. Shorts of BTC in this market could be issued as stable coin tokens, valued $1. As long as there existed sufficient liquidity this would be a tenable stable coin implementation which would indeed cope with a devalued BTC price.
How would that work out when the BTC price goes down to $0.1 ?
Quote
By contrast, your proposition does nothing at all with devaluation, such that a value of $0.3 could exist forever (when it was supposed to be $1), making the idea of it being stable laughable.
Bitcoin, for all it's worth, could have remained at $0.3 too. Bitcoin took off because once it was at $0.3, people thought MOON!! and chances were that they were early adopters of one of the biggest pyramid games in history. Which is probably right. The thing is, that if you have an asset that keeps a fixed value, even a low one, for a long time, it becomes a useful currency. And if it becomes a useful currency, it acquires value by the shear demand for "store of value". This is described by Fisher's formula. And if that demand rises, and the amount of money remains constant, its price rises.
So, if my coin was, during 10 years, at $0.3, people would assume that it will remain still at $0.3 for some time. That in itself makes it a very useful currency. That utility increases its demand. And that demand increase pushes its price up because there are only a given number of tokens. However, we also know that it cannot become a greater fool game, because when it hits $10, people will start making it.
So, if I see that it is at $0.3 for a few years, and it starts rising to $0.4, and then $0.5, I think it found utility. I know it will then rise until $10. I buy a certain amount of it, because from $0.5 to $10, that's great: my money does x20. By doing so, I am hoarding. There are now less coins, and most probably the market price will rise again. Other people will see so. They will start hoarding too. Until it reaches $5. A factor 2 is not worth speculating any more. So it will remain there and be quite stable. Which again, increases its utility as a currency. And so on. Until we reach $10. Now, the market cap is $100. Because there were only 10 coins in circulation.
