Stable Cent — Will Never Fall Below a Cent!
Stable Cent — Algorithmic StableCoin
Simply stated, a StableCoin is a cryptocurrency pegged to another asset. Or, a global digital currency solely unrelated to a central entity. StableCoins make for practical usage of cryptocurrencies by allowing for secure, convenient transactions without the high volatility traditional cryptocurrencies hold. Now let’s move on….
Types of Stablecoins: Asset-Collateralized vs. Non-Collateralized
The socially agreed upon currency most countries use is termed ‘fiat’, which literally means ‘something that was created without effort.” Until 1971 world currencies were backed by gold. Before printed money; diamonds, silver, gold, land, estate and other goods were used as means for barter. Shifting from an asset backed currency to the current fiat system left centralized banks, governments, financial technologists, private entities, and economic experts with the concept of Asset-Collateralized StableCoins. These specific StableCoins’ purpose is to tokenize stable assets on a blockchain serving as a digital currency for means of speedy, secure and stable daily transactions. Stablecoins in this category should be guaranteed to exchange 1 : 1 StableCoin for its underlying asset.
Non-Collateralized Seigniorage StableCoins.
Non-collateralized stablecoins are not backed by any real-world or cryptocurrency asset, and instead it maintains value by people expecting it will maintain a certain value. The main non-collateralized approach is the seigniorage supply (algorithmic) method. Algorithmic method uses smart contracts that automatically expand and contract the supply of the non-collateralized stablecoin using algorithms to maintain its value.
This method is similar to what central banks do with fiat currencies, but non-collateralized stablecoins do this in a decentralized fashion.
Seigniorage is the revenue earned from the issue of money.
- Absence of Collateral. No tangible asset required. This StableCoin is created or destroyed by an algorithm, lessening errors from users.
- Autonomous. Cryptocurrency not influenced by outside markets.
- Decentralized. Trustless, onchain ledger providing secure digital currency.
- Stable. Theoretically protected against crypto volatility related to; automatic value adjustments based on market supply/demand.
- Supported. Many financial technology experts support Algorithmic StableCoins
- Complex. The rule-based system is integrated with complex logic, making understanding difficult for average investors and consumers.
- Futuristic. Relies on own future demand for successful StableCoin.
- New technology. Unproven successful methodology related to new, complex concept.
Stable Cent is designed to keep prices stable by algorithmically adjusting supply. When demand is rising, the smart-contract will create more Stable Cents. The expanded supply is designed to bring the Stable Cent price back down. When demand is falling, the smart-contract will buy back Stable Cents. The contracted supply is designed to restore Stable Cent price.
Said Stable Сent has a $0.01 value. The price drops to $0,008, indicating supply of Stable Сents is higher than demand. The algorithm uses seigniorage to buy ‘said’ Stable Сent, thereby decreasing supply and pushing price back to $0.01.
In event price continues to remain under $0.01, and no remaining profits to purchase more of the coin’s supply; DBC seigniorage tokens (shares) are then issued. These are essentially “bonds” used to raise funds for network users. DBC as “Bonds” promise seigniorage profits to buyers. Users are essentially investing in the growth of Algorithmic Stable Cents supply. When said Stable Cent trades above $0.01, the algorithm issues for DBC holders additional cents, in exchange for their DBC at a fixed price of $ 0.01, increasing supply until price returns to $0.01.Profits collected are termed “seigniorage”.
From The Swiss Finance Institute; Didier Sornette and Richard Senner released a publication stating recent use of Quantitative Easing (QE) tried to restore the US economy by flooding the market with new bonds. With that, they add, “QE was not overly effective because it did not channel new liquidity to ordinary people, who would have a high propensity to consume.”
Others claim “bonds” are merely a bet your investment will remain stable or grow.
“If executed well, this type of stablecoin will unlock rich possibilities for crypto holders since it will be decentralized, efficient, and free of counterparty risk. The approach is promising, albeit in need of testing.” Says Nat Wittayatanaseth on her Medium Publication. (Nice to meet you, Nat! Fabulous work!)
A successful Non-Collateralized StableCoins could radically change financial technology, consumer trade and society views both; value and money.