Is Algorithmic Stable Coin (ASC) Software a Type of Malware? The Answer May Surprise You

In the reference below, I referred to algorithm " stable coins" as (a kind of) malware. Why? Let me fill in some more details:

For those of you not familiar with ASCs, they are a type of cryptocurrency or token pair which maintain a "peg" to a selected fiat currency by using a computer algorithm developed by the stable coin "founders". Many of these algorithms are based on arbitraging behavioral pattern by traders. The theory, in a very high level nutshell, is that there will always be buyers-and-sellers on both sides of an arbitrage trading opportunity and so the "peg" has little (or nothing) to do with any underlying hard asset or tangible property of value, but on human trading behavior and software algorithms.

So, why do I call ASC software a type of malware?

One reason is that, as can easily be seen from the TerraUSD ASC and Luna collapse, these software algorithms can fail for a number of reasons, and when they fail, the "stable coin" loses it "peg" and enters into what some have called "the death spiral" or a "run to the bottom" phase. The Terra Luna ASC collapse was predicted by many, including the founder, who spoke publicly about the eventual de-pegging and collapse of the TerraUSD stable coin. This collapse helped trigger (arguably started) the crypto-winter of early 2022.

Because ASCs are literally speaking, a kind of new crypto-vaporware, because ASCs promise something that cannot be 100% guaranteed (stability). However, because ASCs exist and the software does, in fact, exist and can be triggered by external events to destabilize and crash, I refer to the ASC algorithms as malware.

I will elaborate on this idea further in a future post.

Reference: YouTube Video on Bank Runs (Russia, China and Stablecoins)

See also:

It sounds like something out of the Omega Force series by Joshua Dalzelle.

A cartel of criminal masterminds write cryptocurrency software which has a hidden time bomb based on some inherent instability in one of the feedback loops in the code. The masterminds do not know the exact date and time the code will destabilize, sending the cryptocurrency into an unstoppable free fall. They also do not know the exact market conditions which will trigger the collapse, but they know with over 98% probability the code will destabilize under an uncertain combination of unique volatile market conditions. They also know the warning signs which are an indication prior to algorithm destabilization.

These criminal masterminds release this cryptocurrency into the wild pumping the token to all time highs, one after another. Around two years after the initial introduction of this code into the wild, the cartel detects the non-linear and mostly unpredictable financial time bomb is about to explode, and they sell short as many lucrative token-related derivative they can, and within a few hours, the token starts to collapse in free fall. Most investors are completely wiped out as the cartel makes billions.

Sound like good science fiction?

Enter algorithm "stablecoins" (ASCs).

ASC cartels also know, from the beginning, that there is a non-trivial finite probability their coin will destabilize under certain, perhaps not fully understood nor predictable, market conditions. They also know the indicators for when the algorithm with destabilize based on the price-action of the coin and market conditions in generally.

The founder of Terra actually said something to this effect; their "stable coin" would "depeg" someday and bring the ecosystem all crashing down. Also, an unknown number of independent third parties published their research and general opinions that these ASCs would eventually crash into "a death spiral". They were proven right.

So, is ASC software malware? Or is this type of crypto-currency software algorithm "too new" to be classified as malware?

We readily know, pump-and-dump, Ponzi and pyramid-type schemes are (non-linear, complex) social-systems where the early participants who get out before the collapse, love the scheme mostly with religious zeal. This social group exhibits very tribal behavior, as we all can easily observe without an expensive research study as "the crowd" promotes and pumps the hell out of an asset on its way up, and those holding the bag during the dump phase demand the schemers make good on their investment and/or beg law enforcement and the legal system to intervene.

You can decide on your own if algorithm stablecoin software is a type of malware.

My view on this complex topic is relatively simple. Any software with a known non-trivial probability to destabilize and cause harm when it does destabilize is a type of malware.

What do you think?

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