Stable value: killer enabler for Smart Contracts
Piers Ridyard
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Piers — I’m just a newcomer to this space and I really appreciate your article explaining these concepts in relatable language. It left me hungry to learn more! Could you explain, perhaps in a future post, more about the mechanics of DAI and MKR, how DAI and MKR interact and their relationship to Ether? As a newcomer just reading this, couldn’t you have a smart contract that turns a volatile Ether coin into a value/inflated adjusted coin (like DAI, like cheeseburger coin)? For example, the smart contract notes that you want to maintain a real value of $10K in Time X. The parties agree to referencing the Consumer Price Index for inflation (getting our purchasing power parity) and maybe some benchmark interest rate or Treasury (e.g. federal funds target rate or 2 year Treasury) (this serves as a discount factor for time value of money). A formula is agreed for inputing the CPI and the discount rate in order to calculate the nominal value of ether in USD in Time X. This is the amount in USD, (at whatever ether exchange rate at Time X) to be paid out in time X. For escrow purposes, in theory, that amount is what should go into escrow but we don’t know yet what that amount will be so we need to estimate based on historical data (or some other agreed method) to create a reserve — and either refund or ask for additional $ when the final calculation is made in Time X. Wouldn’t such a smart contract preclude the need for DAI and MKR? Of course, this discussion doesn’t take into account exchange rate volatitity, some of which is related to outlooks about inflation but also many other factors. Isn’t the larger issue with crypto/digital currencies the volatility of the exchange rates with fiat currencies?

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