First test for DeFi 4 Bitcoin — Interview with Max Carjuzaa, Co-Founder of Money On Chain

Apr 1, 2020 · 10 min read

On March 13th a sharp drop in the price of bitcoin (and the entire crypto ecosystem), exposed vulnerabilities in the majority of stablecoin platforms. Money on Chain was one of the exceptions. In this interview, Max Carjuzaa, co-founder of the project, tells us how the protocol performed.

Can you give us a review of the three tokens that the Money On Chain platform (DoC, BPRO and BTC2X) now has, for what purpose, who may be interested in them?

Dollar On Chain (DOC) is a stablecoin that uses Bitcoin as collateral. The price of 1 is always 1 USD.

The BitPRO (BPRO) is a token that was designed for Bitcoin Hodlers. You can think of it as “Bitcoin on Steroids”: When the price of Bitcoin goes up, the price of BPRO increases a little bit more than BTC, and when the price of BTC goes down the price of the BPRO will decrease a little bit more than BTC. The BPRO has also other revenue streams that provide a passive income.

Finally, we have the BTCX, that is a long leveraged position on the price of BTC. When the price of BTC moves, the price of the BTCX will move much more (approximately by double in current version).

Why is Dollar on Chain (DoC) different from other stablecoins? Why is it better?

The peg 1DOC:1USD is guaranteed by the smart contract. Additionally, there is a settlement date that occurs every 30 days. On that date, all DoCs can be redeemed to the smart contract. This offers much higher liquidity to the DoC, and people do not have to be at the mercy of an Exchange or a secondary market (that may or may not have demand) in order to sell their DoCs.

To our knowledge, DoC is the only stablecoin that has this feature.

The drop in cryptocurrency prices in recent days has had a negative impact on other stablecoin projects. How was the Money on Chain platform and its users affected during the drop?

The MoneyOnChain protocol responded very well. As it should, the DoC peg price with the USD was never lost. The collateral in the system was not at risk of being liquidated. It worked as it should work. The protocol was designed with the anticipation of a scenario like what we saw last Friday.

Because of Coronavirus, we are experiencing a very sad health and financial crisis worldwide. But while last Friday’s drop in the Bitcoin price was the largest in the last 7 years, this is not something atypical for in the Cryptoworld. It is not unthinkable that the price of Bitcoin can drop 70%; that is something we have seen on several occasions in the past. We originally designed the protocol with the consideration that on several occasions the network could become heavily congested and on many occasions the price would increase or decrease abruptly, and that in general those two events will be correlated.

Not only did we think about what could happen, but we built a simulation machine on which we simulated thousands of scenarios using Bitcoin price historical data, trying to stress the system to a maximum. We analysed results and adjusted the parameters of the protocol to successfully face any foreseeable worst-case scenario.

In this international crisis context, what is the potential for a solution like Money on Chain?

Money On Chain is now running on an Alpha version. I think Last Friday’s price crash — the worst price drop for Bitcoin in the last 7 years — has shown that this is a very solid protocol.

There are some very important components of the MoneyOnChain protocol that are under construction right now. What had been already released is the tip of the iceberg for this protocol, which has several components. For example, one of the components that will be added is a Token Decentralized Exchange (we call it TeX). It is important to assure the existence of a transparent secondary market of our protocol tokens and other RRC-20 tokens (tokens that run on RSK Network). Also by the end of this year we will be implementing a governance system that will allow all smart contracts to be governed in a decentralized way.

Finally, we are implementing decentralized Oracles for Money On Chain (we call them OMoC). One of the most important components of a Stablecoin protocol is who, how and when the price of the USD/BTC is feeded to the protocol. A malicious Oracle could cheat a protocol. Nowadays we are using a similar model to the one MakerDao is using, but we are developing a superior solution.

So, before thinking about using MoneyOnChain protocol at a global level, with billions of dollars in volume, we should first launch these components to ensure that the protocol is sufficiently secure.

We had developed Money On Chain using the highest security and design standards available, as if we were going to launch a manned rocket to the moon. Nevertheless, we think it is still required to develop a productive history before onboarding billions of USD in Bitcoin.

Why would someone need a Stablecoin?

If someone uses a Stablecoin, it’s because they need it. Some time in the future Stablecoins will be used by everybody, but that is not what is happening today. We have not yet reached that moment. People are not paying for Netflix or pizza using Stablecoins. We are in the very early stage of Stablecoin adoption.

At this time, only innovators are using Stablecoins. Most are people who are using cryptocurrencies, who have most of their assets in the crypto market, at certain moments need to exit the volatility. We all know that BTC is a highly volatile asset. So, for anyone that wants to leave that volatility, most of the alternatives available are not very good. If you exchange your BTC for USD and leave your money in an Exchange you will be exposed to a counterparty risk. You can also sell your BTC and transfer your money to a Bank, but that is expensive and slow (and also you have a counterparty risk). So, if you are in Bitcoin and you want to leave the volatility, but stay in Bitcoin, a Bitcoin Collateralized Stablecoin is an ideal solution for you.

Another use case is to trade goods and services between Bitcoiners. When you agree to do a business transaction, most times you agree on a USD-denominated price. And when you need to do the transaction, there is a friction between the buyer and the seller, who might be watching different prices from different exchanges or at different times. That difference could be really high with Bitcoin volatility.

Will Bitcoin stop being volatile one day? How likely is it?

There is no chance for that to happen. It is clear that Bitcoin volatility is going to decrease year after year while bitcoin will be growing. But humans have been using gold for 5000 years, and gold is still volatile; a couple of days ago it went down 6% in one day. So, to think that Bitcoin one day will be a Stable asset is a fantasy.

How is it possible to use Bitcoin as collateral for a Stablecoin, if Bitcoin is such a volatile asset?

The protocol is over-collateralized. That’s the only way to solve Bitcoin’s volatility problem. Usually the coverage ratio is 4, but when the price of BTC increases very rapidly that ratio increases. The protocol uses an algorithm for calculating that ratio.

Why have you chosen RBTC (BTC on RSK), instead of other cryptocurrency such as ETH?

The characteristics of the collateral is very important for a stablecoin. The only way to solve the volatility problem for a crypto collateralized Stablecoin is to have an overcollateralized system. If the collateral is less volatile, and more liquid, more robust the protocol will be (using same parameters). The less volatile cryptocurrency (and also the most decentralized one, that is a requirement for not having a counterparty risk), is Bitcoin.

When we started this project, and even today, the only blockchain live on which to build the MoneyOnChain protocol was RSK.

What concepts do I have to learn to understand this project?

We would recommend most people to learn what you can do with MoneyOnChain protocol. The Financial model behind the protocol is new and innovative.

Most people do not understand how cellular phones work. But most people know what they can be used for. The important thing is to understand the use case for each token. Do you prefer to have a Stablecoin backed by Bitcoin protected by a Trezor, or do you prefer to have paper bills under your mattress? Are you interested in earning a passive income on your Bitcoins using a BPRO Token, in a smart contract secured by most Bitcoins miners? Or do you prefer to leave them on an Exchange and/or not earn an income on them. Do you prefer to trade leveraged products in a trendy centralized exchange or you prefer a decentralized exchange, which will usually have lower fees?

Why is it important to understand MoC? How can it affect the evolution of the Crypto Market?

Money On Chain was built for being the cornerstone of DeFi for Bitcoin. That is why the protocol was built. That idea was on our heads for several years before starting to build this project.

Is there a possibility of being liquidated if I have the DOC, BPRO or BTC2X tokens?

Regarding the BTC2X it is possible to be liquidated, which did occur last Friday. The BTC2X is a 2X leveraged long product on Bitcoins Price, so if the price of BTC goes down 50% the BTC2X is liquidated.

The BPRO has been designed not to be liquidated, and it is extremely unlikely to happen. The price of BTC would need to drop 95% in a couple of minutes for the protocol to liquidate the BPROs. In that case, the BTC2X holders lose their money, the BPRO holders lose their money and the Dollar on Chain holders will receive the equivalent in USD of DOCs but in Bitcoin, at the moment of the liquidation. But the system has been designed not to be liquidated, and its robustness has been shown during last Friday’s price crash.

How many BTC2X were liquidated last friday?

All BTC2X in the system were liquidated. But most positions were opened again by traders (as we expected will happen in such a situation).

Did all BTC2Xs have a 2x leverage factor?

The leverage is 2 at the settlement date. But after that moment, if the price of BTC increases the leverage of the BTX2C decreases and vice versa. When you buy the BTC2X, the leverage is fixed until the settlement date or until you sell your position.

It seems that your approach is different from other DeFi projects. Can you summarize why?

First Money On Chain protocol has 3 different types of users. The Stablecoin User, the Bitcoin holder that wants to have a passive income, and the Bitcoin leveraged operations trader.

Another very important difference is that the stablecoin peg is guaranteed by the smart contract.

Another difference is that our protocol does not depend on most processes to happen in real time. The MoneyOnChain protocol has been designed to work with a congested network

Who controls the Money On Chain platform?

Upgrades of the Smart Contracts right now are centralized. The Smart Contracts are all open source and everybody can verify the code. We designed a governance system to decentralize the upgrades and we are in the process of implementing the smart contracts.

How will MoC tokens be distributed?

The MoC tokens holders will have governance of the protocol upgrades, and also will be able to pay the platform fees using MoC. Additionally, they will be able to stack the tokens and receive MoC tokens rewards. At least 10% of the MoC tokens will be distributed among BPRO holders. At least 35% of the MoC Token will be distributed as rewards for users of the platform. So, everybody will be able to receive MoC tokens, even not having bought MoC tokens, just by using the platform.

Is there a wallet for DOCs, MoCs and BPRO?

We recommend Nifty wallet because it is preconfigured to work with RSK tokens, and you can interface with Ledger and Trezor. You can also use Metamask, but you need to do a configuration to use it with RSK Network.

RSK is also about to launch a non custodial mobile wallet application. It will be open source.

How do you hope to increase the adoption of the system?

Smart contracts for Bitcoin is something that is just starting. As we mentioned before, the first mobile wallet from RSK will be live in the following weeks, and many fundamental puzzle pieces are in development, such as on-ramp / off-ramp methods to buy and sell tokens or also to exchange rBTC to BTC in an easy way. Once those fundamental pieces have been deployed, we expect that the user adoption will flow.

DoC is the only Stablecoin using Bitcoin as collateral in the world.

What plans do you have for this year?

In a couple of weeks we will start testing our decentralized oracles solution, that is very important not only for Money On Chain but also for other DeFi projects. The other two important pieces will be the TeX and the MoC token (including the governance smart contracts).

Also, in a very short time we will be launching a rewards program for BPRO holders (rewards will be in MoCs).

What is Money On Chain’s relationship with RSK?

Money On Chain uses the RSK Network Smart Contracts. RSK Co-founder Diego Gutiérrez Zaldívar is an advisor for Money On Chain. Founders of both projects have been cultivating a strong relationship since Money On Chain started the project more than two years ago. We continue to collaborate closely on many initiatives.

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Original article in Spanish:


Money On Chain combines a BTC collateralized stablecoin…

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