Algorithmic stablecoins are provably impossible without continuous funding
This doesn&#x27;t go far enough.<p>The only thing that maintains the value of <i>any</i> asset (or currency) is the collective belief in that asset or currency. Put another way: there is an <i>inescapable</i> component of <i>trust</i> in <i>every</i> asset.<p>Crypto in any form doesn&#x27;t solve the trust problem other than a very narrow slice because as soon as you interact with anything outside of the blockchain, you&#x27;re adding trust. Even on the blockchain, all the math in the world doesn&#x27;t avoid the trust problem (eg it&#x27;s been estimated that over half the Ethereum are owned by less than 10 entities).<p>Even backing a currency with gold (or any other asset) doesn&#x27;t solve this problem. Additionally, it&#x27;s not even correct. In years long gone the US government just maintained a peg between the US dollar and the gold price. Any reserves (which were never 100% anyway) are irrelevant to this. You don&#x27;t need them. You just need sufficient capital to maintain the peg. Even if you had 100% reserves you still have to trust the government to honor redemptions and not to change the peg. If you have sufficiently deep pockets, you end up not even having to spend much money because no one challenges your peg.<p>So what <i>actually</i> makes the US dollar work as a currency is that it is backed by the long dick of the US government. This is a combination of economic, military and even cultural might.<p>So going back to algorithmic stablecoins, it doesn&#x27;t matter how much you have in reserve. It doesn&#x27;t even matter if there&#x27;s new money entering the system (as this article claims) to maintain the peg. If people lose faith in the &quot;stable&quot; coin, it&#x27;s finished.