Stablecoins Solved? Understanding the Internal Mechanics of ndau

Jahon Jamali
Apr 12 · 5 min read

Is a secure, dependable digital asset separated from traditional markets getting closer to reality? The ndau team has it figured out.

The Sarson Funds Blockchain Insider Team discusses ndau’s emerging role in the stablecoin universe.

It’s a tough question — how can a cryptocurrency project provide users with confidence in the current state of the market, especially given the seemingly endless cycle of ups and downs that we’ve experienced in the past few months?

At Token Fest, though, it seemed that one project that seems to be on the right path — I’m talking about ndau. What caught my attention in the ndau whitepaper, the various digital governance functions that ndau provides to bring confidence to its ecosystem. Unlike other cryptocurrency projects that I’ve seen on the market, it’s these different, and equally intriguing, capabilities that could make long-term digital asset value storage a reality.

ndau’s “buoyant” stablecoin solution.

Of course, behind every cryptocurrency project is a cryptocurrency enthusiast that wholeheartedly believes in its potential. However, ever since bitcoin’s meteoric rise in 2009, a confence gap has existed within the industry, and ndau might just have the technological infrastructure necessary to fill it. Let’s examine a few of ndau’s capabilities, so you can get a better sense of how the platform functions. In doing so, starting with an open dialogue about how the pursuit of long-term value may play out in the years to come.

Ecosystem Alignment Incentive

There’s a common misconception that exists in cryptocurrency community that stability is primarily attained by instituting reactionary, not precautionary, measures, or that it will just magically happen if it only gets large enough. “The market is going one way,” some might argue, “so let’s institute these specific protocols to help it stabilize.” This is one aspect to the process. If a serious economic event occurs, you want to have the necessary precautions in place to ensure that you don’t suffer debilitating market devaluation. However, reactionary economic stabilization is only a short-term solution to a lasting and often slow-moving problem. To truly enact meaningful change, I argue that you must first find new ways to actively engage with your audience so they feel encouraged to hold cryptocurrency even when business is usual.

This is the concept behind ndau’s ecosystem alignment incentive (EAI), which is a part of the ndau protocol in which economic incentives are released into the market to reward people for holding their ndau reserves for prolonged periods of time. By engaging with ndau’s community, the ndau platform aims to keep its price at a steady, or buoyant, level even in the wake of negative market pressure. As evident from some of the world’s most major economic events, from the housing crisis of 2008 to the great depression in 1929, it’s presumptuous to believe that an economic market will simply react the way you want it to. However, by building a foundation upon which people are incentivized to interact within an economic framework, you are far more likely set the stage for future engagement.

Stabilization Incentive Burn

While encouraging users to stay engaged in a platform is certainly important, discouraging them from leaving in a destabilizing manner is crucial. Using what’s known as stabilization incentive burn (SIB), ndau requires a dynamic extra fee from users looking to take their cryptocurrency holdings off of the ndau blockchain in moments of negative market pressure. As more people try to sell their ndau holdings, the SIB becomes more costly, which ultimately discourages investors from trying to sell large amounts of ndau at one time, and instead being patient and waiting for a more harmonious moment. As many can attest, sell-offs have become a normal part of any economic system; however, while profitable to a select few, this impulsive practice have a debilitating impact on the ecosystem’s ability to grow and expand. Using SIB protocols, ndau seeks to mitigate this impact, serving as a system of checks and balances for “irrationally un-exuberant” user behavior.

Floor Price

If, for some reason, ndau’s SIB is unable to buoy the market sufficiently in a severe market crisis, its platform has a final defense mechanism, called its floor price, where an endowment will automatically buy ndau cryptocurrency back on the open market — decreasing supply, increasing market confidence, and establishing lasting protections against extreme market volatility. The floor price also protects against large-scale hacking events by providing a last resort for the liquefaction of ndau tokens. Each purchase subsequently increases the floor price of future transactions due to the simple mathematics of the Floor Price mechanism, bringing the market closer and closer to its target value, and providing an extra benefit to those who maintained their position and were patient, riding out the storm. In the pursuit of long-term dependability, having a failsafe like this to ensure that the market won’t fall below a certain threshold holds key value to users who want to trust their investments.

Issuance Curve

Using what’s known as the issuance curve, ndau has devised a long-term plan to release reserve ndau into the marketplace only in response to escalating demand along an increasing Target Price Curve to incentivize early adoption of the technology. These growth rates are modeled after the diffusion of innovations theory, which capitalizes on the rate at which new technologies spread and ties into the value creation of network effects as the network scales up. Over the five tiers (innovators, early adopters, early majority, late majority, and laggards) of the diffusion S-curve, ndau’s Target Price curve models it as a matching but simpler S-curve of High-Growth, Transition, and Equilibrium phases. During each phase, 10 million reserve ndau are issued if and when demand expressed the need through higher market prices. If fully issued the ndau network methodically releases the total 30 million reserve ndau tokens in incremental pricing steps of 1000 ndau each which is considered complete adoption of 100 percent. Price appreciation slows as ndau purchasers eventually work their way through this issuance curve. Through this practice, ndau can encourage and incentivize further commitment to the ndau model at each stage of adoption, bringing users into the process and setting the stage for long-term growth.

It’s often said in the world of cryptocurrency that one month in this space is the same as one year in traditional enterprise — and I couldn’t agree more. In the blink of an eye, projects can rise and fall, investors come and go, and markets will inevitably fluctuate. Amid rapid changes, it’s almost easy to forget that the value proposition of cryptocurrency is more substantive than its price. Cryptocurrencies have the potential to fundamentally change the way we interact in society, providing lasting value to otherwise vulnerable infrastructures. By shifting our focus away from price volatility, and more towards a reliable medium of exchange and long-term store of value, we can more easily invest our time in advocating the many incredible projects that have the potential to make the world a better place. Who knows where the future will take us? Anything is possible.

Jahon Jamali

Written by

Welcome to a place where words matter. On Medium, smart voices and original ideas take center stage - with no ads in sight. Watch
Follow all the topics you care about, and we’ll deliver the best stories for you to your homepage and inbox. Explore
Get unlimited access to the best stories on Medium — and support writers while you’re at it. Just $5/month. Upgrade