The Tomb Fork Saga : Chapter 7

A dead body from 2018

For the last few days, I had been investigating on some dodgy protocol that had recently caught wind in DeFi. It was involving some weird combination of three tokens (TOMB, TSHARE and TBOND) to create an algorithmic stable coin pegged to Fantom Network’s native token: FTM.

Nicolaus Copernicus, original founder of the Quantity Theory of Money upon which are based all our central banks. That same guy claimed that the earth was revolving around the sun.

First, I had the feeling to be on something big, then the whole story was getting astray in some kind of common ponzi pattern.

Frustrated and disappointed, I had decided to take a step back from DeFi.

What was DeFi?

It was a movement that had started on very good ideas. The main point was to fix the corrupt traditional financial system. But like many movement based on grand ideas, it had turned pretty badly. Ponzi, scams, rub pulls were seen everywhere, all driven by a yearn for insane yields and leverage. Thousands of people were getting wrecked and crooked. Greed was corrupting DeFi. An old system corrupt by humans, was replaced by a new system getting corrupt by humans.

The problem was that humans were corrupt, and there were no system to fix humans.

Setting my mind at rest for a while, and was sorting some old newspapers. Then my eyes got caught by some strange headlines: a man had disappeared on December 13th, 2018. He had been working sixteen months on a project. He had gathered 133 million dollars and was about to do something big. Then nothing. The man was found dead.

His name was Basis.

I searched some archives for a few hours, then found some notes he had left about his project. The notes were quite long. He had called them his white paper.

The basis: a price-stable cryptocurrency with an algorithmic Central Bank

The main goal of the Basis coin, was to implement an algorithmic stablecoin, pegged to an asset more stable than current cryptocurrencies.

In most of the white paper, the US Dollar is used as an example of the stable asset to peg to. The main theoretical framework of the white paper is the Quantity Theory of Money. In order to stabilize the coin around its peg, all you have to do is emit some more when it is over-peg, and take some out of the circulating supply, when it is under-peg.

The white paper dived into the details of the incentives that would be needed to implement a … decentralised central bank. Apart from my love for oxymorons being overwhelmed, I was struck by the toolkit they ended up with. To implement their algorithmic stablecoin, they needed 3 tokens:

1. one token being the stable coin in itself: the basis
2. another token, called the share: when the basis is over-peg. New basis would get minted, and distributed to share holders.
3. one last token called the bond: when basis is under-peg, people could burn their basis for bonds, that would then be redeemed for new basis when the peg is re-established.

An impressive team of smart people worked sixteen months on that project. They gathered 133 million dollars to launch it, and on December 13th 2018, the project dropped dead.

Officially, they said it was for regulatory reasons. I think it was deeper than that.

Un-answered questions

I read the whole white paper from start to end. It gave me some perspectives, and some points were very detailed. Detailed enough to see that some small nuts and bolts had been changed by the Tomb Finance team.

The Basis project team had done the theoretical work, but the Tomb Finance team did the real implementation. They had to make things really work. So, some incentives were refined and carefully polished.

Still, my most serious questions were not answered. Not even mentioned:

1. Its inception: how to launch such a algo-stablecoin? How do you make it grow from zero to millions of users? Are there some initial transitory phases?
2. In terms of game theory: how do you make it an evolutionary stable strategy?
3. Its final size: up to where can you go? Can its market cap get as big as the original asset? Can it replace it?
4. Relation with the original asset: if you originally have 100 trillion dollars, and you manage to mint as many Basis token. As these basis token are equivalent to these dollars, in the end, you simply end up with 200 trillion dollars. If you apply the Quantity Theory of Money, having the Basis project so successful that it gets as big as the USD would simply wind up doubling the quantity of USD and … doubling all the prices denominated in dollars!!!
5. In case you end up minting 10 billions Basis coins pegged to one dollar each. Where does that value come from? (We know where it goes to: the share holders. But where does it come from?)
6. If USD and Basis are equivalent: what differentiates the two? By minting Basis, should you rightfully (I don’t care about what is legal, I care about what is right) end up in jail for money forgery?

Bought with 2omb tokens!!!

Lost in reflexion …

I was looking at my half empty bottle. I had bought it using a debit card backed with real FTMs. I had gotten these FTMs by swapping freshly minted 2omb tokens from 2omb finance funny casino printing machine.

2omb finance was printing real value. I could drink it.

Was this value taken from the silly LP stakers who are entering the first room of the casino? Or was this value sucked, diluted away from FTM’s market cap?

Is the Fantom market cap, now equal to the sum of all FTM + all algo-stable pseudo-FTM market cap?

Ponzi or vampcoin … what are TOMB tokens?

As I was falling asleep, my gut feeling was that the Basis team had realised that minting basis pegged USD, from a quantity theory of money perspective, was completely equivalent to printing real Dollars.

After sixteen months of work, and with 130 million dollars in their pockets, they certainly came to the conclusion that no one would ever allow them to mint dollars out of thin air.

And if that is the case, then the implication for the cryptocurrency landscape would be huge. Because if we follow that logic, then Tomb forks are just forging the native tokens they are pegged to.

Sure, I had to investigate this deeper...

Read the next story: Impermanent Loss: the trap of the LP Stakers