In my last post I flagged a great article from Marc Rubinstein using MakerDAO to explain some of the principles of Decentralised Finance (DeFi). One of the points I found especially interesting was the parallels that Rubinstein noted between 21st century DeFi and the free banking systems that evolved during the 18th and 19th centuries
I wound up confessing that while I am a long way from claiming any real DeFi expertise, I did believe that it would be useful to reflect on why free banking is no longer the way the conventional banking system operates.
In that spirit, it appears that the IRON stablecoin has the honour of recording the first bank run in cryptoland.
We never thought it would happen, but it just did. We just experienced the world’s first large-scale crypto bank run.https://ironfinance.medium.com/iron-finance-post-mortem-17-june-2021-6a4e9ccf23f5
No doubt there will be plenty written on this but Matt Levine’s Bloomberg column offers a quick summary of what happened.
The core of an algorithmic stablecoin is that you have some other token that is not meant to be stable, but that is meant to support the stablecoin by being arbitrarily issuable. It doesn’t matter if Titanium is worth $65 or $0.65, as long as you can always issue a few million dollars’ worth of it. But you can’t, not always, and that does matter.Money Stuff by Matt Levine 18 June 2021
Algorithmic is of course just one approach to stablecoin mechanics. I hope to do a deeper dive into stablecoins in a future post.
Tony – From the Outside