Comments
This page collects comments about the Treasury Coin proposal and our responses.
Origin of the Idea
In this X thread, BubbleSurfer claims that “David Yermack at NYU has been talking about this for almost a decade now.” We reached out to Professor Yermack and he declaimed any work along these lines?
But that still leaves open the question: Who first suggested an idea along these lines? We are eager to give appropriate credit!
Rug Pull from the USG
In this X thread, Eric Falkenstein writes:
I don’t see our government supporting a permissionless, decentralized, immutable blockchain. The hook would be instant cash from a pre-mine that they would try to re-neg in a year.
We agree that the USG or, indeed, any government is unlikely to support Treadury Coin. But hope springs eternal! We also agree that there is a danger of the USG reneging. So, we need to give the USG incentives not to renege.
The first incentive is that the value of the premine is maximized, not by converting all of it into dollars in the first year, but by using it over time. Outside of an election year, a president is better off using some of the premine now and some in the following years.
The second incentive is that, as long as the system continues working, the USG gets a coin reward with each new block added to the Treasury Chain. If the USG wants these resources in the years to come, then it can’t renege today.
These concerns raises the question as to the best split between the premine and the on-going rewards. Perhaps more on-going resources and a smaller premine are more incentive compatible to continuing USG support.
Privacy
In this X thread, n00buntu notes that:
Bitcoin does not protect privacy at all. … All Bitcoiners 🙋🏻♂️ understand this is a severe, fatal, weakness. Zero Knowledge protocols are the way.
n00buntu is correct that, at best, the Bitcoin protocol provides pseudonymity. This is one reason we leave open the possibility that Treasury Coin might not simply copy Bitcoin exactly. Instead, perhaps we should provide greater anonymity, along with other improvements.
Printing Dollars
In this X thread, M L asks:
How is this better than just printing dollars?
First, creating the first government-supported, anonymous, decentralized currency is like creating the first government-supported paper currency, i.e., it is like printing dollars. But creating the first paper currency was a really good idea! Doing so facilitated economic activity and increased the government’s resources via seigniorage.
Second, Treasury Coin is very different than “printing dollars” because its algorithm structure quarantees that the USG can’t create, by fiat, too many T-coins.
Dollar Competitor
The T-coin already exists, right? That’s the US Dollar?
No. The dollar and T-coin, even though they are both created by the USG, are very different, just as any fiat currency is different from Bitcoin. There is no limit to the number of dollars which can be printed. The supply of T-coins is strictly limited via the protocol. Dollar transactions, at least outside of the banking system, are invisible. T-coin transactions occur on the blockchain, in public. It is hard, if not impossible, for large, electronic dollar transactions to be anonymous. The Treasury Coin preserves anonymity, at least to the extent that Bitcoin does.
The dollar and T-coin are competitor currencies, with a floating exchange rate. The reason that the USG ought to offer both is that the seigniorage benefits of doing so are immense. The dollar and T-coin have different use cases and appeal to different customers. I am surprised as anyone about the demand for Bitcoin, but, given the demand for decentralized, anonymous blockchain currency, the USG is better off supplying one than not supplying one.
Funding
Under what circumstances could the US government actually spend or borrow against the T-coin and still leave the T-coin an attractive asset for outsiders? If the answer is “never”, then the government is better off with the current funding strategy.
Assume that the USG could not spend/borrow against T-coin. So what? T-coin would still generate trillions of dollars for the USG via seigniorage. This is the major reason why Treasury Coin is so valuable. It generates wealth for the USG to use however it wants.
Yet the rise of stablecoins suggests that the USG could borrow against its T-coins. If random institutions can borrow against Tether (?!), why wouldn’t the USG be able to borrow against T-coins, assuming that T-coins are in use? And T-coins would be in use because they provide, at least initially, US taxpayers with a way to save money on their taxes.
The central point is that once something — anything — enters widespread usage as a currency, whether that be gold or dollars or Bitcoin, then it can and will serve as collateral for borrowing.
Yet nothing about the (potential) rise of T-coin need actually change the USG’s “current funding strategy.” The USG funds itself by borrowing. T-coins, if successful, will simply improve the USG’s balance sheet, thereby making funding easier.
Borrowing
It’s my understanding that efficient borrowing requires rehypothecation. If the Treasury borrows against its T-coin, the T-coin enters the open market one way or another. That’s not too far from selling.
T-coin has nothing to do with the liability side of the USG’s balance sheet. It is, potentially, an asset, both the initial premine of T-coins and the ongoing rewards with each new block created. It’s existence does not change the USG’s ability to borrow, or anyone’s use of T-bills/bonds for rehypothecation or any other purpose.
If the Treasury sells its T-coin or burrows secured against it, what makes it so that the Treasury will still accept it in the future for, say, tax payments or anything?
T-coin, because it uses the Bitcoin protocol, will be out of the control of the USG after it is created.
There’s also a community point. There has to be a large benefit for the owner in the crypto community for them to accept a government coin with extra tax on it based on existing ideas. They like to use their friends’ creations and reward innovation. So you’d need a large credible incentive for adoption.
There is no “extra tax” on T-coin.
Comments from Cryptoboi
What is the “good case” for the value of Bitcoin? Whatever explanation you have for why Bitcoin has a 2+ trillion market cap might apply to T-coin.
Again, the tax benefits would be a temporary device to increase usage. The ultimate value of T-coin will be determined by the value that we, collectively, place on a decentralized, transparent, digital currency. The experience of the last 15 years suggests that that value might be very high indeed.