Metronome: A DeFi Digital Central Bank
Over centuries, many have come to trust that central bankers are “in the driver’s seat” of an economy, harnessing the ability to steer economic reality through monetary policy. Bitcoin most dramatically shook these notions.
Milton Friedman, a longtime critic of the Federal Reserve and “activist” monetary policy, did not believe in The Fed as a source of clairvoyant stability. In fact he made the argument for a radically different approach in an interview with the Hoover Institute:
“We don’t need a Fed,” Milton Friedman says, twirling a letter opener as he speaks. “I have, for many years, been in favor of replacing the Fed with a computer,” he adds. Each year, it “would print out a specified number of paper dollars” to augment the money supply. “Same number, month after month, week after week, year after year.”
Announced in October 2017 and launched June 2018, the Metronome protocol acts as a central bank network, programmatically managing the supply of MET, the network’s currency. Near as I can tell, it is the first to do so and performs this function in a way superior to Bitcoin. While I’m certain that the Metronome team didn’t necessarily have Dr. Friedman in mind when it was developing Metronome, the foundational principles of autonomous, reliable mintage based on a mechanical rule closely fit the specifications of his vision from decades earlier.
Let’s dive into how Metronome has engineered the functions of a central bank in a programmatic and decentralized way.
Metronome is designed for perpetual token mintage
Hard-capped, deflationary seigniorage has long been an article of faith in the crypto community. Bitcoin’s provable 21 million BTC hard cap ushered in a new era of creative destruction centered around the possibility of privately issued money, especially one that offered digital scarcity in a cut-and-paste world.
However, many economists believe that currency inflation is a necessary and proper practice in healthy monetary systems. Rather than implementing a fixed supply cap like Bitcoin and others, Metronome achieves Dr. Friedman’s ideal by building a currency with continuous, predictable, mechanical mintage. Unlike other crypto currencies, MET are never given away or earned by mining — they can only be purchased in the daily descending price auction. Bitcoin’s mintage, in contrast, is not similarly predictable just due to the nature of proof-of-work. Ethereum’s long-term mintage is, frankly, anyone’s guess.
Metronome acts as MET’s “buyer of last resort”
Just as modern central banks act as “lenders of last resort” in times of economic turmoil, the Metronome Autonomous Converter Contract acts as MET’s “buyer of last resort.”
When investors participate in the daily price auction, they exchange ETH for MET. The ETH received in this sale is put into the Proceeds Contract. Each day after the daily auction has closed, 0.25% of the ETH in the Proceeds contract is sent to the ACC, providing a long-term supply. The ACC allows users to convert MET for ETH, or vice versa, at any time during the day.
The slow-drip of ETH from the proceeds contract to the ACC gives Metronome a built-in mechanism for the protocol to act as the MET “buyer of last resort.” You can always convert your MET using the ACC. It is a guarantee that your MET can be liquidated at some price, no matter what. In central bank jargon, you can think of this as Metronome performing open market operations.
Metronome offers a unique set of assurances
Finally, assurances — simply “things you can count on” — are a critical but less well-understood dimension of crypto assets.
Bitcoin’s most powerful assurance (a 21 million BTC supply cap) still must be enforced socially and technically. Metronome provides assurances programmatically, that is, through an autonomous and unchangeable set of smart contracts, designed to operate in perpetuity without a single upgrade to the code. While other crypto assets share a common social attack vector through the process of forks and upgrades, with Metronome, what you see is what you get — forever.
For these reasons, I believe Metronome is a system far ahead of its time, one built around long-envisaged economic thinking and scrupulously designed for the long term.
