I've been thinking about this idea for a while. I try to discuss it with other people; people who know about crypto, but they always tell me it doesn't make sense. Maybe I'm just talking crazy.
Looking through my old posts:
https://steemit.com/stable-coins/@edicted/stable-coins-continued
The corporations aggressively entering the cryptosphere are going to destabilize the banking sector before we even have the chance.
LOL, nice. Sound like anything you've heard about?
*COUGH* Libra *COUGH*COUGH*
https://steemit.com/volatility/@edicted/a-self-regulating-stable-coin
Crux
Because crypto is potentially superior to fiat in every way, we should be able to make a coin that is both stable and gains value over time. How are current stable-coins attaining their so-called stability?
Collateral
Stable-coins piggy back off of USD or another fiat currency to maintain liquidity at the optimal buying/selling points. Essentially, if USD becomes unstable then every stable-coin in existence will also become unstable, making them all effectively worthless. Even stable-coins pegged to other fiat currencies would be destabilized because USD is connected to everything.
Ideally, the solution is to create a stable asset that's pegged to it's own rules of inflation. Doing this in a decentralized manner is no easy task. I personally wouldn't even know where to begin.
No one hoards USD because the FED can just print more money and devalue the hoarder's stake. If you decentralized USD how would you stop people from hoarding it? You'd have to print money in such a way that guaranteed it being added to liquid circulation rather than being stored. Then, when someone dumped their stash on the market you'd have to find a way to remove those coins from circulation to avoid a flash crash.
Essentially, it all comes down to being able to measure trust, just like with every other cryptocurrency. If you can find trustworthy community members to regulate the currency it will work as intended. The reason why Bitcoin worked out so well is that this trust is allocated through expending valuable energy. Whoever spends the most energy can be trusted with the most inflation. Because Bitcoin isn't trying to be stable it doesn't have to deal with that problem. Besides, one Bitcoin is always worth one Bitcoin, as we seen on CoinMarketCap every day. :D
Thought Experiment.
So, I still want to create a stable-coin that gains value over time. Let's take the shortcut and just peg it to USD + interest. On day one, a single coin is targeted at one USD. However, every month that goes by the target increases 1% (not compounded). That way anyone who leaves money in the stable coin is essentially gaining 12% interest a year. Such a coin would surely put all other stable coins to shame and absorb the majority of the stable-coin market cap. But how would such a thing be possible?
Revenue Streams
If I have a billion dollars in a bank to collateralize a billion stable coins, how am I going to keep up with an interest rate of 12% APR? Without a revenue stream that increases my collateral I will eventually become insolvent and the stable-coin will die a swift death.
Insolvency.
When does this happen? It happens when no one wants to hold the bag on your coin anymore. It happens when the value of the stable-coin drops below the peg. When this happens, the moderator of the stable-coin is forced to bite the bullet and buy back their own coins from the market in order to raise liquidity and stabilize the price back at the target.
Conversely, when the value of the stable asset is too high, this is a much easier problem to deal with. All you have to do is print more money out of thin air and sell it on the market.
Stable-Coin Liquidity Window
It is this push and pull that provides the stable-coin operator the chance to make money and increase the collateral of the project. Imagine you set a +/- 5% window on the variance of the acceptable peg. This means the coin in question would be able to fluctuate between $1.05 and $0.95 under the acceptable limits.
Now, obviously this spread is a lot higher than pretty much all the stable coins out there (except SBD lol). However, how many of the other stable-coins are offering 12% interest? None of them; making this asset totally unique and theoretically giving it very high demand.
So, when the price of the asset is low ($0.95) you buy it back with your collateral, and when the price of the asset is high ($1.05) you create coins and take the profit. The more income you need for collateral the more you can widen the window and make the asset less stable. If you have plenty of collateral to peg the asset then you can narrow the window, making it more stable and theoretically giving it even more demand to use.
Other revenue streams
This is just one example of how to generate income with such a project. What if you created a first-person shooter connected to this asset and the only way to purchase ammo was with the stable coin. Say each bullet costs 0.001 coins. Now there exists a permanent drain on the supply of the coin, constantly pushing the value up and allowing you to print coins out of thin and air make a profit, all the while enticing the entire world to use your stable-coin over all others because it's offering 12% interest.
Given this example, it's easy to see that the options to incorporate additional revenue streams are endless.
What's it backed by?
Like Libra, the smartest thing to do is to back said stable asset with a wide range of other stable assets. However, I also think that it should be backed by stores of value as well. The funny thing about Bitcoin volatility is that when it crashes the demand for stable-coins goes up. Therefore, when everyone else is losing money you're the one making money if you run a stable-coin like this.
The only problem is when you receive the crashing Bitcoin you pretty much have to get rid of it or you'll be the one taking all the losses. This is why only big exchanges can operate a big stable-coin (unless you do decentralized collateral like the MakerDAO) because they have other liquid markets they can dump the volatility to. (namely: Bitcoin/USD)
Conclusion
There is a lot of greed out there in the cryptosphere, and that greed offers a lot of opportunity for others to come in and offer a better service at a fair price. Seeing as how superior crypto is to fiat it only makes sense that a stable asset will eventually be developed that gains value over time rather than losing it.
That is interesting but a 12% inflation seems stupidly high. Governments here are 2%-3% inflation and trust me that is plenty that you feel it after just a few years. A high inflation rate of 12% a year would destroy the coin I feel.
Staking 100 coins and then 12 months later having 112 that hold the same value ?
But then again you never know till you try something, tons of theory and talk but until someone actually does it we wont ever know. Could be an interesting project.
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I figure if Bitcoin can maintain a baseline of doubling in value every year then a stable-coin should easily be able to maintain 12%. Maybe that's just crazy talk, dun know.
Also, it doesn't have to be 12%. Ideally it would be a DAO where the interest rate and the liquidity window were determined through decentralized voting every month.
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This is true at the moment the marketcaps are so small that there is always huge potential. I really like that 2nd idea of being voted on.
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Also, the collateral would also ideally be decentralized and backed by crypto instead of stable assets.
Who knows, maybe one day Bitcoin becomes this stable asset that gains value every year but doesn't have a lot of volatility... unfortunately, I think such a reality is unlikely because of the block reward halving... and if it does happen then it will be 20 or 30 years away.
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anything could happen as we should know with how crazy bitcoin has been since it was created lol. The volatility I feel would be less the more money that comes in but also the fact the reward halving after this time around is not going to have as much of an impact on the supply coming out. 12.5 to 6.25 is a pretty big reduction but 6.25 to 3.125 per block I feel will have smaller impacts.
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He's not talking about inflation. Inflation is the increase in the cost of goods comparatively to the currency. So they lose value every year. His coin would increase in value.
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Is that not the same thing? It's like the government printing more money which is what devalues the current use u hold.
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No. He's talking about the money being worth more. When the government prints money, it makes all the money worth less.
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Yeah, for a split second the idea of a stable coin that increases in value by a set amount over a set period of time is a little weird...but actually, normal currencies do the opposite, supposedly to encourage growth of the economy. Every year the dollar drops in value by 2% about I think. America loves it's hidden taxes.
It's just code and math. I don't see why you couldn't do it. Though I wouldn't suggest stabilizing it to USD. One smart thing Libra chose to do, they stabilized it to multiple currencies, so it's actually gonna be more stable than any of them, if they do it right. I would think maybe you could peg it to the price of other goods...but exactly what you'd probably have to do a study on.
Maybe a combination of multiple precious metals? But that might be effected by the eventual asteroid mining. Crops might be too unstable. Maybe if you combined a bunch... Not sure if there's any way for something to be truly stable though.
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This is an interesting idea. I actually have an idea for something along these lines, but it is most definitely a security and I would need to go through quite a bit of legalese/red tape to be able to launch it.
There is a strategy called Dividend Growth Investing and my grandfather created his own version of it. The portfolio grows at about 15% per year on average — including bear markets. It spits off income via dividends as well as stock appreciation. I keep a significant amount of personal wealth in this strategy and would love to open it up through a crypto offering one day in the next few years. Token holders would receive a pegged asset to the portfolio and regular dividend payments. The future of finance! ;)
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I was talking about this in discord the other day.
What people are trying to do with stable coins is create a money market fund. But reinventing the wheel to do so.
What libra is doing is essentially the money market approach. Hold a basket of securities that targets a NAV of 1.00. If you hold a basket of 5B USD in cash, t-bills, and such, you'll make about 1% interest per year. So over the course of the year, you can issue 50M coins which represent the 50M USD in interest you are earning.
In reality, you'd issue something less than the full interest income so as to make the whole venture profitable.
This is also sort of what Tether was trying, but their transparency is zero and I wouldn't trust them as far as I can throw them.
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