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Five Takeaways From Our Stablecoin Conference Call on June 27, 2018

On June 27th, in partnership with Leslie Ankney, held a conference call with four Stablecoin thought leaders: Ido Sadeh Man from Saga, Sam Trautwein from Carbon, Nevin Freeman from Reserve, and Kain Warwick from Havven. You can listen to the call by clicking on the link below (it starts a few minutes in to the call):

You can find the decks used by the presenters on Slideshare by .

Below are our five biggest takeaways from the call:

1. There Is A Simple Framework For Assessing Stablecoin Pegs

With various proposals for Stablecoins, it was interesting to hear Reserve’s Nevin Freeman’s ’s simple framework for assessing the ability of a Stablecoin to hold a peg:

The framework simply looks at the level of assets in reserve to maintain . Every Stabelcoin has a different level of assets backing the buy wall, and the ability to handle redemptions.

But it’s also important to understand the commitment to supporting the peg. Even if the entity supporting a peg has 100% or more in reserve, quite often, the backers of a peg don’t want to use up too many reserves to keep a peg. So appreciating the other forces driving the behavior of the backer is essential to evaluating the likelihood of a peg holding.

Interestingly, for a decentralized Stablecoin like Reserve, the pegging mechanism is in the code, so the commitment is ironclad.

2. Reserves Don’t Have To Be Hard Assets

Tether, theoretically, holds dollars in reserves, to enable redemption of 100% of the tether minted. Saga, is backed by a “variable fractional reserve” in a mixture of currencies replicating the , that it uses to stabilize the price.

Interestingly, reserves don’t have to be hard assets. For example, , a decentralized stabelcoin that maintains a peg via an algorithm that expands and contracts the supply of Basis. So if Basis is trading for more than $1, the blockchain creates and distributes new Basis. If Basis is trading for less than $1, the blockchain creates and sells “bond tokens” in an open auction to take coins out of circulation. Bond tokens cost less than 1 Basis, and they should be able to be redeemed for 1 Basis when Basis is created to expand supply. This incentivizes speculators to participate in bond sales and thereby destroy Basis in exchange for the potential that bond tokens will pay out in the future. But more importantly for this discussion, Basis doesn’t have any hard reserves with which to provide stability.

3. The Mechanism, or Oracle, by Which Pricing Discovery Happens Is A Key Factor Driving Stability In Decentralized Stablecoins

It’s not functional to have miners in a decentralized Stablecoin continuously checking on pricing to ensure stability. So Stabelcoins have two alternative mechanisms by which they can drive price discovery:

  1. Stablecoins can get users to submit price information to the blockchain, with incentives in place to drive truthful behavior.
  2. Stablecoins can algorithmically, utilizing secure hardware, aggregate pricing information from a set number of exchanges and then securely post the pricing information in a a transaction to the blockchain periodically, in a way that enables the smart contract to remotely attest that the information provided is accurate.

4. Stablecoins Can Either Have Centralized Risk or Decentralized Risk

Carbon’s Sam Trautwein presented a compelling case per the slide above, that Stabelcoins are all on a risk spectrum. On one end is centralized (e.g. Tether, which reportedly has dollars in a bank that presents a single point of failure, aka a centralized risk ). On the other end is decentralized risk (e.g. Basis, where speculators are expected to buy “bond tokens” in an open auction to take coins out of circulation).

5. Optimizing Monetary Policy Requires An Interdisciplinary Approach & An Appreciation of History

Saga’s Ido Sadeh Man suggested that optimizing monetary policy, including keeping a coin stable, requires an interdisciplinary approach. The Saga team includes economists (e.g. Myron Schols, Nobel Laureate in Economic Sciences), computer scientists (e.g. Prof. Emin Gun Sirer, Phd in Computer Science & Engineering), in addition to philosophers, social scientists, and mathematicians. Ido also suggested that Saga’s approach benefited from a deep understanding of the history of monetary policy and the the work down by central banks and macro economic experts, to best understand what has worked, and what has been tried and failed.

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Lou Kerner

Believe Crypto is the biggest thing to happen in the history of mankind. Focused on community (founded the CryptoOracle Collective &CryptoMondays)