It's a bunch of math that uses market mechanisms to try to solve the problem of stability when the only real answer for the question "how do I stabilize a cryptocurrency" is "for each unit you issue, you have a bank account with $1 matching USD in it."
Maker essentially banks on the fact that a bundle of cryptos (ETH and a few others) will not drop past a certain amount in relation to USD over a given amount of time. They've been correct, so far, but that doesn't mean there won't come a time when the markets drop past whatever magical threshold they've set.
I'm not putting down the project, I followed it closely for a while and a lot of work went into it. My point is you can't really have a stablecoin unless you have the USD to back it up.
An interesting plot twist will be if Maker derives from other stablecoins (ones backed by USD reserves, like GUSD) and not ETH.
I would think that, regardless of the math, the token prices might remain stable just because people think the algorithms are doing their work. Kind of like an "invisible hand" situation.
Circulating supply fluctuations don't seem to have much of an influence on crypto prices (as seen with quarterly Binance Coin burns for instance)
It's a bunch of math that uses market mechanisms to try to solve the problem of stability when the only real answer for the question "how do I stabilize a cryptocurrency" is "for each unit you issue, you have a bank account with $1 matching USD in it."
Maker essentially banks on the fact that a bundle of cryptos (ETH and a few others) will not drop past a certain amount in relation to USD over a given amount of time. They've been correct, so far, but that doesn't mean there won't come a time when the markets drop past whatever magical threshold they've set.
I'm not putting down the project, I followed it closely for a while and a lot of work went into it. My point is you can't really have a stablecoin unless you have the USD to back it up.
An interesting plot twist will be if Maker derives from other stablecoins (ones backed by USD reserves, like GUSD) and not ETH.