Turn your stories into NFTs

0 Following     0 Follower

The Tomb Fork Saga : Chapter 17

The Fall of the Forks

Le Zèbre had been investigating Tomb Forks for a few weeks. To really feel how it all worked, he invested in 2omb, then Platinum, then, as an experiment, he put 30 FTM in 5 tomb forks. After setting up some page that displays the state of some forks in a synthetic way, everything started to fall apart ...

February 24th 2022 ...

On Thursday February 24th, Russia started to invade Ukraine.

As often in such cases, markets took a hit and tomb forks started to tank badly. The first one to fall was Draco. Draco was calling itself the cutest Tomb Fork on Fantom. It had a good design, but a weak community. It was one of the latest Tomb Fork, and one of the first to go. It lost its peg badly, then the share price came crashing down. A few days earlier, I had seen people buying Sdraco at 800 FTM. It quickly fell to 100 FTM, then 50, then 20 ... and it now rests in peace at 0.10 FTM.

RIP Draco Finance

Tombs are falling

But the panic did not only hit Draco. Almost all the Tomb Fork casinos were hit by panic. The events unfolded the same way: first the peg is hit, going around 0.9. That's the first test. Some protocols recovered, but others went further down. Once you are below 0.8, trust in the protocol vanishes, the price of shares plummet, confirming that almost nobody believes in the future of this Tomb Fork any more. Then it's just panic: everybody runs out for the exit. Some last believers see this as an opportunity to buy the dip, and a few epochs later, they realise that all hope is lost.

I went back a few days ago to the 2omb Casino. It had worked quite well for me last month, and I remember the joy, the enthusiasm, the excitement that filled the atmosphere, with the band playing nice music and happy players drinking champagne. We were all confident about our financial future back then.

All this was gone. Nobody was getting rich any more. Peg is now at 0.32 FTM. 2shares are at 113 FTM. 2share are not lower, because people who hold them are anchored to the price they bought them. Imagine you bought your 2share at 1000 FTM. Now that it's around a tenth of that price, selling it is swallowing a 900 loss. 2share price is maintained by people clinging to the hope it will surge back from the dark waters it is in. But can it?

2omb agony

Are Tomb Forks Ponzi?

Now the big question. In the end, are Tomb Forks just an elaborate Ponzi scheme?

Well, yes of course they are. Just like Bitcoin right? Like Ethereum, or Cardano, Polkadot and the likes of Fantom right? All this blockchain stuff is just ponzi scheme, and the day nobody will want these magic internet money any more, they will be worth nowt.

This is were it gets tricky to answer. It's sure that if everybody treat Tomb Forks as ponzi, and play them as ponzi, they will just end up like ponzi. But looking at the tokenomics, I have the deep feeling that they could have been something else. They could have fed on the oscillations of the coin they are pegged to.

If we take a look at my Tomb Fork Watcher (now offline) you can see that my investments of 30 FTM in 5 different Tomb Forks have lost a lot. There are only two forks standing now: the original Tomb, and Scarab, which I had not invested into for lack of funds. Too bad for me.

I can understand that Tomb still stands because it's the father of them all and is still trusted, but for Scarab? Maybe a strong community.

But when you look at all the others, you are wandering into a graveyard. So, what's the conclusion of all that?

Screenshot of my Tomb fork watcher

Basis forks are weak protocols

In the end, what makes the success or failure of such protocol, is how strong is its community. Here, we can see that the incentives are not as important as how the different human players use the protocol, and for most of them, we can see that the players did a pretty bad job.

I'd call that a weak protocol, and we can see many of them all around us these days. All this (3,3) shilling is just humans calling for their other fellow humans, to play the protocol correctly. A protocol that relies on its users to play fairly, it's like a blockchain that would be vulnerable to a 10% attack, and that would simply hope that 90% of validators will play it fair all the time. A blockchain relying on 90% of its players to play fair just would not work.

What else could they be?

The question here is what Tomb Forks could be, apart from being a ponzi. Imagine a Tomb Fork that would survive the panics, and finally grow to half the size of its target coin. When the target coin rises, selling pressure is applied to it by the underpeg tomb fork coin. When the target coin sinks, some buying pressure is applied to it by the now overpeg tomb fork coin.

You see that a successful Tomb Fork would have grown at the expense of its target, sucking value out of it, but in exchange, it would also stabilize the target coin.

  1. When FTM sinks, Tomb gets overpeg, and it's a good idea to buy cheap FTM with Tomb.
  2. When FTM rises, Tomb gets underpeg, and it's a good idea to buy cheap Tomb with FTM.

The end game of these stablecoins, is that they get so big that they end up stabilizing their target!!

Less is more

So what now? Could we build something on the rumbles of Tomb Forks that would finally work? Maybe. The first thing would be to admit that those who contribute to the protocol are the LP stakers, and those who profit from it are the share holders. They are the vampires. So a working algorithmic stable coin should get rid of share holders.

Bonds are not great either, because they just build up debt. They avoid a swift crash by just delaying it. So I don't think bonds are a good thing either. I would rather have some kind of treasury that builds up during good weather, than a pile of debt that gets deeper during bad weather.

We could try to build a protocol that would be much simpler: a simple liquidity pool, where the base would be paired with the target one to one. Let's say 1 000 FTM to start with, with 1 000 Base coin. The initial holders would have 1 000 LP tokens, each representing 1 FTM and 1 base. (Please, no genesis pool!!!)

As the main goal of that stable coin is to be pegged, there is a clean and easy way to make sure the base never goes above the peg: as soon as the base is above peg (in the liquidity pool of course), just mint base coin and put them in the LP. All emission should go directly in the LP, hence directly go into the pockets of the LP token holders, which is fair, because it's the LP token holders that contribute to the protocol. So, no rewards for those lazy share holders: rewards go straight to the liquidity providers.

Maybe that would work.

To make things more robust, when the protocol mints Base tokens to add them to the LP so that the peg never goes above 1, it could use these fresh Base tokens to buy some target tokens (FTM if we are on Fantom) that are in surplus in the LP. That would be put in a treasury. When the base token gets below peg, the treasury would then buy and burn base token with the FTM from its reserve. This treasury system would lower emissions (hence rewards for LP token holders), but would secure the protocol during bad weathers.

Some more articles

Here are a few articles on the topic of algorithmic stablecoins. I don't agree with a lot of what's in them, but they are a good food for thoughts.

  1. Algorithmic Stablecoins. New Wave of Ponzi Revealed
  2. Built to fail: the inherent fragility of algorithmic stablecoins

One year after

I wrote all those stories a year ago. Last year was a pretty terrible year for crypto as I wrote in 2022 in crypto: a summary of 4 disasters. War is still raging in Ukraine. Poor humans still die there every day.

If you look at WhatTheFork, around 500 tomb forks have been launched so far, and some are still being launched. None of them was a clear lasting success.

A few months ago, I wrote some stories about what we could improve about these algo-stablecoins:

  1. Tomb Fork REX
  2. Tomb Forks: flaws in improvements
  3. Tomb Forks from a different angle - I actually still need to find the time to write this one, although I already know what I want to put in it.
  4. Tomb Forks reloaded: the smart contracts - this is another project of mine: publishing a better version of the Tomb / Basis smart contracts. Here again I just miss the time to write it.
  5. Tomb Fork oracle review: a list of 3 articles where I review the code of oracle smart contracts used in Tomb Forks.
  6. Optimised Oracle Contract: an optimised version of Tomb Fork oracle contracts (gas optimisation, much easier to understand, v0.8 solidity code, minimum dependencies)
  7. Cherry Merry and Tomb Forks: and finally, I deployed an optimised version of a Tomb Fork to handle the tokenomics behind StoryPress.info.

Tomb forks are still a matter of interest for me. I'm a bit sad everybody play them as Ponzi, while the clever machinery that powers them could be used for something else, like I do in Cherry Merry.

We'll see what the future brings us. The Tomb Fork saga started back in 2018 with the Basis team who wanted to create an algorithmic central bank. We are now 5 years later and the story is not finished.

Reactions are currently disabled. They will return soon.

⏪ Previous Story

0xedB0...3484 avatar

Tomb Forks: the race is on

Le Zèbre finally leaves Platinum finance, to launch a new experiment.
by 0xedB0...3484

⏩ Next Story

0xedB0...3484 avatar

The Tomb Fork Saga

A year ago, I discovered a strange kind of algorithmic stablecoins revolving around seigniorage that are also ...
by 0xedB0...3484