Argentina’s volatility inspires a Bitcoin collateralized Stablecoin

When I moved from Switzerland to Argentina I soon realized that these countries represent “extreme positions” in terms of inflation. Of course I read and was aware that inflation is a topic in Argentina, nevertheless it struck me how omnipresent the phenomenon is. A few numbers to illustrate the battle of Argentina’s economy; the average inflation between 1944 and 2018 has been 199% with a hyperinflation peak in March 1990 of 20262%. Inflation is though not a thing of the past, in 2017 depending on the source the rate was between 20% and 24,8%.

Why is inflation so bad?

Inflation comes with a cost — the cost of volatility and finding new ways to avoid the consequences of inflation. Investing in physical goods or buying other currencies are examples of the efforts to counterfeit the negative implications of inflation. Volatility leads to instability and as a consequence the FIAT currency can not properly execute its three functions which are medium of exchange, store of value and unit of account.

All these currency functions are compromised when the value of the currency is too volatile. The consequences of an unstable currency are volatile prices of goods, wildly fluctuating account values, and only risk-seeker investors will invest in such a volatile currency.

Therefore, we can conclude that stability is a desirable characteristic of any currency, including cryptocurrencies.

The Argentinian Peso has to deal with significant inflation and volatility problems. Actors of such a market try to mitigate these problems by switching to other FIAT currencies or buy using cryptocurrencies. How do cryptocurrencies then perform in terms of volatility?

Unfortunately cryptocurrencies have proven to be extremely volatile. Even bitcoin, which is the largest player, is not an exception showing volatilities that exceed 10% in a normal trading day. The great portion of volatility held by current cryptocurrencies makes them an imperfect substitute for FIAT money, but attractive for risk seeking investors. In order to enable cryptocurrencies to cope, substitute and execute the 3 functions of FIAT money — medium of exchange, store of value and unit of account — we need them to be stable.

Stable Coin Money On Chain

Recently a project called Money On Chain has been launched aiming to give stability to tokens.

The idea of Money on Chain is to solve the volatility problem by providing a Bitcoin-Collateralized Stable Coin.

Money on Chain will basically strip the volatility of Bitcoin in two separate tokens. There will be a token for risk averse investors. This token will be extremely low in risk since the token will be pegged to the US Dollar and free from bitcoins volatility. In order to offer such a token, somebody must be willing to assume the risk, which the risk averse investor doesn’t want. This second token hence will assume all this risk. The 2 tokens will have a symbiotic relationship and a coexistence. The combination of the two tokens will allow investors to select an individual solution depending on the their risk averseness.

Behind the scenes — back in Argentina

The founders of Money On Chain are Buenos Aires natives Maximiliano Carjuzaa and Manuel Ferrari. They both remember the time when the price of the pasta in the evening was a different one than in the morning, hence both are familiar with the problems and costs resulting from inflation and volatility. As a consequence it seems logical that stability is highly appreciated and seen as necessary for a currency to work properly. Their solution to strip the Bitcoin volatility into two tokens is inspired by their knowledge to reduce the costs of a volatile environment.

Please visit www.moneyonchain.com for further details regarding the solution of a Bitcoin Collateralized Stablecoin and to meet the team. If you enjoyed this article please recommend and share it. Thanks a lot!


Written by Olivier Perruchoud, team member of MoneyOnChain.