A Four Token Stablecoin Model

Published in
3 min readDec 24, 2022


Icewater has undertaken the challenge of developing a stable cryptocurrency that does not rely on external (i.e., non-crypto) assets and oracles to achieve stability. This is a challenging goal, and we have made a lot of progress. The following model achieves stability using four tokens:

  • H2O — a stable token
  • ICE — a perpetuity token (measures stability)
  • COL — any external collateral token (provides underlying value and stability)
  • STM —an equity token (ensures sufficient collateral)

H2O and ICE

The relationship between H2O and ICE is the key to the Icewater model in general, including the following 4-token (4T) variant. ICE pays out H2O over time. As a result, we can measure the relative value of ICE and H2O to determine the stability of H2O. Details about why this works and how it is done are laid out elsewhere, but it depends on an exchange (i.e., an AMM) which is used purely for measuring the relative price of these two tokens.

H2O and COL

One way to understand the four token model is an attempt to take a volatile collateral token, which we will call COL (but could be, e.g., ETH), and build a stable token H2O on top of it. COL is assumed to be an external token with some underlying value.

The 4T model includes two ways to exchange H20 and COL. The first is an AMM which is used purely for measuring the relative price of H2O and COL, and the second is an auction system for creating new H2O or collecting COL as needed. Strictly speaking, the auction could be used as a price-finding mechanism, but it may not be fluid enough to provide real-time information.

The primary reason we need an H2O/COL price is to determine whether the system is sufficiently collateralized. One can view H2O tokens as liabilities, and COL tokens as assets. To be solvent, the system should have assets that equal or exceed the liabilities, i.e., COL > H2O.

COL auctions can be used to stabilize H2O in the following way: when the H2O/ICE price indicates that the supply of H2O is too high, COL can be auctioned off to reduce the supply of H2O; and when the supply of H2O is too low, H2O can be auctioned off in exchange for more COL.


The most obvious problem with using a volatile asset to stabilize a stablecoin is that the value of the collateral can go down, which makes the system insolvent.

To address this problem, we introduce another token, STM. STM holders provide additional COL into the system in exchange for system profits using a COL/STM AMM.

Under normal operations, the AMM only operates in one direction. That is, people can buy STM in exchange for COL. This results in more collateral being put into the system as it grows (because the potential value of STM depends on the outstanding supply of H2O based on the currency-as-a-service model).

However, if the system becomes under-collateralized, the system starts minting STM and putting it into the AMM to create an ever increasing incentive for people to put in more COL. This is similar to the seigniorage shares model, except that STM is minted to ensure sufficient collateralization, not as the primary mode of stabilization.

If the system is over-collateralized, the AMM is allowed to operate in both directions, and if the system is both over-collateralized and under-supplied (i.e., the H2O supply us under target), H20 is minted and sent to STM holders (either directly, to a DAO treasury, or by adding H2O to an H2O/STM pool).

Six Phases

Thus, there are six phases based on whether the system is under-supplied or over-supplied, and whether the system is under-collateralized, fully collateralized, or over-collateralized. These phases are outlined in the following diagram:




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