I'm finding it difficult to engage with the "Let's pretend USD is a ponzi scheme" pre-condition of some of this.
I also think that the premise that RAI is distinct from ETH is... tenuous. The problem that UST-TERRA had was that it was trivially the same, but that means what we're saying is that if RAI succeeds to any significant extent then it puts ETH in a situation where it may also death spiral. I feel like I'm agreeing with Vitalik there.
>Another extreme case worth examining is where RAI becomes the primary appliation on Ethereum. In this case, a reduction in expected future demand for RAI would crater the price of ETH. In the extreme case, a cascade of liquidations is possible, leading to a messy collapse of the system. But RAI is far more robust against this possibility than a Terra-style system.
I think the conclusion of the 2nd experimnet is "Don't buy RAI". It's just that if the return on RAI is positive, well, buy it but know it's going to explode. If it's negative well... You're earning a negative return well done.
Correct, but the mechanism of safe liquidation could look kind of like minting in the right context. Suppose RAI became dominant. Then the old safes of ETH locked away could become really large. In theory, they could even be larger than the ETH float. Increasing ETH prices would fuel lots of RAI withdrawals. But then if the price of the limited amount of floating ETH dropped, suddenly these safes would be forced to liquidate. This liquidation would release a lot more ETH, further depressing the price and driving increasingly larger liquidations.
Of course this is pretty unlikely, because RAI is peanuts compared to ETH.
I also think that the premise that RAI is distinct from ETH is... tenuous. The problem that UST-TERRA had was that it was trivially the same, but that means what we're saying is that if RAI succeeds to any significant extent then it puts ETH in a situation where it may also death spiral. I feel like I'm agreeing with Vitalik there.
>Another extreme case worth examining is where RAI becomes the primary appliation on Ethereum. In this case, a reduction in expected future demand for RAI would crater the price of ETH. In the extreme case, a cascade of liquidations is possible, leading to a messy collapse of the system. But RAI is far more robust against this possibility than a Terra-style system.
I think the conclusion of the 2nd experimnet is "Don't buy RAI". It's just that if the return on RAI is positive, well, buy it but know it's going to explode. If it's negative well... You're earning a negative return well done.