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The federated are given a kind of btc paper called fm-sats.

When someone from the federation wants to pay a merchant outside of it, what he does is "sell" the corresponding amount of fm-sats, and the federation sends the merchant real sats.

It is impossible to control that the federations do not issue more fm-sats than the collateral they have, then secondary markets for fm-sats are organized and thus we already have much more paper sats than real sats.

Exactly what the banks did in the days of the gold standard.

Blue Shoyru 2y ago

This is certainly true, but the reason fedimint is such a major upgrade from the current system is the majority of the signing quorum has to be involved to issue more fm-sats then sats in reserve. So it is very much like Gold banking from the 18th century. As long as you trust the bank (mint) then you can leave your money there. One of the big differences from the gold system banking and fedimint is money can be zapped out of mints at the speed of light (with the permission of the majority of the quorum). This doesn’t reduce the trust model, but it may mean these rehypothication schemes get snuffed out faster. I am assuming that money moves in and out of different fedimints as people find better UX or a more trusted group. Since money flows quicker, there is less time to build up considerable rehypothication.

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