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Currency as a Service,_Money,before_Euro.jpg

So you have heard that money has the following attributes: it’s a unit of account, a store of value, and a medium of exchange. Now think of these as attributes as services. Furthermore, they are services that you pay for.

Inflation is one of the primary revenue mechanisms for a currency issuer. It is a tax on holding the currency. It is naïve to think that you should be able to use a currency (i.e., use a service) without paying for it. But you, reader, are not naïve. So let me walk you through a business model called Currency as a Service (CaaS).

A Three Token Business Model

Specifically, let me describe the model in terms of the stablecoin protocol Icewater, which has three tokens: H2O, ICE and STM. H2O is the stablecoin. ICE is a debt instrument that pays out a stable stream of H2O over time. STM is an equity instrument that pays out dividends based on the revenue generated by the protocol.

The stabilization of H2O is one of the primary services provided by the Icewater protocol. The details of how this works are beyond the scope of this article, but in broad strokes, when the demand for H2O is going up, the protocol mints new H2O and gives it to holders of STM. By printing more H2O, it prevents the price from going up too much.

However, if demand goes down, the protocol has to find some way to gracefully reduce supply. This means it has to go out and buy up H2O from the market, which is a cost of the system. If the cost of buying up H2O during a contraction exceeds the revenue of the system, the protocol has to issue new debt (ICE) or equity (STM) to cover the difference. If ICE and STM lose value (i.e., the protocol loses the ability to issue new debt or equity) the system becomes insolvent (i.e., a death spiral). So Icewater is like a company that provides a service (namely, CaaS). It has revenues and expenses, and it can become insolvent.

Types of Revenue

The revenue of a CaaS company falls into three main categories:

  1. Holding Fees
  2. Transaction fees
  3. Related Service Fees

In order to establish a broad revenue base, Icewater employs all three forms of revenue generation. First, let’s talk about holding fees. I mentioned above that inflation is one of the ways you pay to use a currency. Specifically, inflation is like a tax on people who hold currency. Icewater implements a 2% inflation as a way of generating revenue, and uses the revenue to make payments on debt (from ICE) and to pay dividends (to STM). In the Icewater protocol, the inflation rate is also useful in defining stability without the need to peg to an outside currency like the dollar. But for present purposes, it is enough to think of it as the fee primary paid by users of H2O, which is used to fund the stability of the system. However, setting the inflation rate too high interferes with the ability of the system to serve as a store of value.

Next, there are transaction fees. On the blockchain, it is pretty simple to automatically collect transaction fees, but as with inflation there is an obvious tradeoff. If transaction fees are too high, it will undermine the value of the currency as a medium of exchange. Icewater deals with this by limiting fees on H2O, and imposing more substantial transaction fees on ICE.

Note that the Icewater protocol attempts to stabilize the value of both H2O and ICE. H2O is the “liquid” part of the protocol that serves as the medium of exchange (and has a higher “holding fee”). ICE offsets inflation by paying out a steady stream of H2O, but is subject to a higher transaction fee. This means that H2O provides a better medium of exchange, and ICE provides a better store of value.

The last category of revenue covers pretty much everything other than holding fees and transaction fees. Think of how Google provides search as a service, but it charges for a separate, related service (namely, advertising). Similarly, a stablecoin provider can have revenue streams that are not strictly related to holding or transacting the currency.

Specifically, Icewater also provides the ability to exchange native tokens (i.e., between H2O, ICE and STM). The exchange charges a modest fee, and this provides additional revenue that can be used to pay STM holders in good times, and buy up more H2O from the system in bad times.


Ok, here are a few points in summary:

  • A currency is a service that you pay for
  • One of the main aspects of the service is to maintain stability of the currency
  • During a contraction, maintaining stability is costly
  • If you can’t cover the costs of stability (i.e., with revenue or by issuing debt/equity) a currency provider will become defunct
  • Inflation can be a form of revenue, but it undermines the ability of a currency to serve as a store of value
  • Transaction fees can be a form of revenue, but they undermine the ability of a currency to serve as a medium of exchange
  • A currency provider can also provide related services that provide revenue not directly related to the use of the currency



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Patent Attorney, Crypto Enthusiast, Father of two daughters