The Util: A Stabilizing Unit of Account for the Bitcoin Economy \ stacker news ~bitcoin

The Util: A Stabilizing Unit of Account for the Bitcoin Economy theutil.org/util.pdf

2714 sats \ 14 comments \ @josh 30 Nov 2023 bitcoin

The internet would benefit from a native monetary system that has price stability. I think bitcoin is the natural store of value for the Internet, but bitcoin's fixed supply makes BTC a poor unit of account. As economic conditions change, prices must be updated, which is problematic for transactions where payment is due in the future (i.e., wages, subscriptions, purchases made on credit, etc.).

For this reason, I've been working on a new unit of account that could bring price stability to the Bitcoin economy. This unit of account is entirely opt-in and does not require trusted third parties or changes to the Bitcoin protocol.

Key Ideas

Bitcoin remains the medium of exchange and store of value in the economy.
Goods and services are priced in "utils" instead of BTC.
The number of "utils" per BTC is controlled by an interest rate, set through the relative quantity of two convertible tokens, Tighten and Ease, rather than a central authority.
The price level in the economy will be relatively stable if the interest rate equals bitcoin's required real rate of return.
Tighten and Ease live on Bitcoin as a lightweight meta-protocol, akin to the Runes protocol proposed by Casey Rodarmor.

Abstract A monetary system where the price of money is set directly by the market would be less disposed to asset pricing bubbles and monetary inflation. Many users see Bitcoin as the basis for this monetary system, but Bitcoin's fixed supply makes BTC a poor unit of account. In this paper, we argue that bitcoin's value in real terms is an algorithmic function of the required real rate of return. By estimating this rate, we can create a new unit of BTC, which reflects a consistent amount of value in real terms. We call this unit of account the "util." Monetary policy in the "util" economy is controlled by two tokens, Tighten and Ease. Users convert between them according to a constant sum-of-squares invariant, and the relative quantity determines the nominal risk-free rate in the economy. By pricing Tighten and Ease so that the risk-free rate equals bitcoin's required real rate of return, the market updates the number of "utils" per BTC so that the "util" reflects a consistent amount of value in real terms.

A high-level synopsis of this monetary policy can be found at: https://medium.com/@joshsdoman/rethinking-the-flatcoin-problem-1c700754c0b3

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21 sats \ 0 replies \ @benthecarman 1 Dec 2023

Bitcoin's fixed supply makes BTC a poor unit of account.

Welp read everything I need to

30 sats \ 2 replies \ @okpj 30 Nov 2023

This is a neat idea— anything that gets people thinking about bitcoin transactions as an exchange valued in time (our most precious asset) and not an exchange valued in fiat deserves further pursuit.

I would argue that bitcoin, in the future, will make a great unit of account though. Also the term “token” has been ruined for me by the mother asshole of all shitcoins.

0 sats \ 1 reply \ @josh OP 30 Nov 2023

Thanks. I think giving people a new way to think about value is very important for the adoption of bitcoin. A tool like this could help bridge that gap, making it easier for goods and services to be priced in a non-fiat currency. Those who prefer to think about value in terms of BTC, though, are still welcome and encouraged to do so.

I think "token" carries a lot of negative connotations, which is unfortunate. You're right that there are a lot of bad actors pumping out worthless crap and calling them "tokens" to make a quick buck. Perhaps Tighten and Ease should be called something else instead.

0 sats \ 0 replies \ @josh OP 1 Dec 2023

Tighten and Ease are more knobs like on the Fed, giving the market a way to tighten or loosen interest rates in the economy.

Convert Ease to Tighten, and interest rates go up. Convert Tighten to Ease, and interest rates go down. The only thing that matters for the conversion to be sustained is their relative price, which anyone in the world can affect.

2 sats \ 5 replies \ @davidw 1 Dec 2023

Would love to hear your logic here. Many of us bitcoiners will debate you on this until the cows come home…

Bitcoin's fixed supply makes BTC a poor unit of account.

4 sats \ 4 replies \ @elysia 1 Dec 2023

Sometimes, a little reading is all it takes

18 sats \ 3 replies \ @davidw 1 Dec 2023

Perhaps I should have been more specific with my questioning.

Just because I don’t know next week if it will buy me more hours or less of someone’s time, doesn’t mean I can’t use Bitcoin next week as a medium of exchange. Or can’t plan or budget around this.

Stating it is poor, is a bit hyperbolic. Furthermore in the paper it states that:

For Bitcoin to be competitive as money, it needs a native unit of account that reflects a consistent amount of value in real terms.

Bitcoin doesn‘t need this. It’s being adopted just fine as money. It’s a bit alienating to read things written this way.

Yes, there are many merchants that may struggle with the volatility for now, because their other bills are denominated in fiat. They would likely benefit from a stablecoin today. But for the rest of us, our unit of account is already in the future state.

I’m sure protocols and tokens like this will exist. And I hope they get people off the dollar standard. Just wonder if we can be more mindful of language.

29 sats \ 2 replies \ @josh OP 1 Dec 2023

Thanks for the feedback. Perhaps "unit of account" is too encompassing of a term. Most say that money has three functions (unit of account, store of value, and medium of exchange), but some include a fourth function: a standard of deferred payment.

https://en.wikipedia.org/wiki/Standard_of_deferred_payment

The reason that a standard of deferred payment is usually left out is that it is considered redundant. A good unit of account should be a good standard of deferred payment, the thinking goes. But I recognize that not everyone agrees.

My intention was not to use language that was alienating, and I appreciate the feedback.

18 sats \ 1 reply \ @davidw 1 Dec 2023

Thanks for responding and kudos on all the work you’ve put into it. I know many people in the world desire a stablecoin when planning for expenses. I’m just of the opinion that this is mostly only because of the ills of the fiat credit system and Bitcoin will serve us well in future regarding price stability.

What are your planned next steps? Get this operational?

And did you consider alternative implementations, like say a moving average of Bitcoin’s past pricing?

8 sats \ 0 replies \ @josh OP 2 Dec 2023

Thanks, I appreciate it.

Getting this operational is definitely the goal, but the precise manner and timing is still TBD. I have a working prototype, which I’ll share publicly when ready.

0 sats \ 0 replies \ @02df4abd70 1 Dec 2023

The proposal introduces a unit of account, "utils," aiming to provide price stability within the Bitcoin economy, addressing the challenge of BTC's fixed supply for pricing goods and services. This system relies on two convertible tokens, Tighten and Ease, to set an interest rate, potentially aiding in creating a more stable value metric for transactions without altering the Bitcoin protocol. The "util" endeavors to reflect consistent real value, promoting a more balanced monetary framework in the Bitcoin ecosystem.

0 sats \ 0 replies \ @Zepasta 1 Dec 2023

Too complicated. But gl.

0 sats \ 1 reply \ @davidw 1 Dec 2023

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451 sats \ 0 replies \ @josh OP 1 Dec 2023

Great question. We can decompose bitcoin's price fluctuations in USD terms into two factors:

The fluctuating value of the US dollar in real terms
The fluctuating value of bitcoin in real terms

I think we can agree that the purchasing power of bitcoin in real terms is not presently constant and that it is higher today that it was five or ten years. 1 bitcoin is legitimately worth more to the market than in 2013.

Why is this? The market requires a certain real rate of return for every asset in the world. Bitcoin is no different. The rate of return the market requires is a function of bitcoin's perceived riskiness and the compensation required for that level of risk, given the opportunity set. If the attractiveness of the opportunity set changes, or bitcoin is viewed as more or less risky, the required real rate of return will change.

This will literally change the purchasing power of bitcoin in real terms, with or without a fiat system. When the required real rate of return falls, the price of bitcoin in real terms rises, until the required and the expected real rates of return are the same.

Now, to your point, what happens in the "upcoming non-fiat future"? Well, the required real rate of return will still not be constant. At some points in time, the opportunity set in the market will be more attractive, and at other times, it will be less. If an incredible new technology is discovered, for instance, that creates tons of attractive new investment opportunities, the required real rate of return will rise. Conversely, if there is an adverse economic shock, like a global pandemic, that wipes out opportunities, the required real rate of return will fall.

For this reason, as long as the world remains uncertain, and there are opportunities to be discovered, bitcoin's value in real terms will never be constant.

This is perfectly acceptable when thinking about bitcoin as a store of value, but it is problematic when considering BTC as a unit of account. If Bob agrees to sell his labor to Alice for a given monthly wage, Bob wants to know how much purchasing power he will be receiving, and Alice wants to know how much purchasing power she will be spending. It is in everyone's interest to use a unit of account whose future value in real terms is as certain as possible, which is why BTC is a poor unit of account.