The interest in financial stability and safety on blockchain persists unabated. Since our last post about the projects attempting to produce a stable token in summer last year, various new projects have emerged. We have received questions from the community regarding these developments. As a response we offer this succinct analysis of the list of projects which will be expanded in the future.
PLAYERS IN THE FIELD
Basecoin plans to tackle the stability issue through algorithmic banking. The theoretical background of the project is the Quantitative theory of money which upholds the view that prices are directly dependent on the money supply. The system will use three different tokens: Basecoin, Base Bonds and Base Shares. Basecoin is intended as a stable means of payment. It will be pegged to the USD and its supply regulated to maintain stability. Base bonds are intended to be auctioned on the blockchain to contract the Basecoin supply. To expand the Basecoin supply new Basecoins are issued to Basebonds holders and, if necessary, to Base share holders. Base shares are tokens with fixed supply and bring dividends of the system to the holder. Their whitepaper claims that as long as there is sufficient liquidity and trust in the system that Basecoin supply will be restored to the appropriate amount before the liquidity is used up, only small deviations in value around the peg are expected for Basecoin.
Location: USA Hard cap: TBA
Makerdao is a dual token effort in pursuit of the stablecoin. In this case Ethereum is used as collateral to create DAI tokens which are collateralised at issue by a factor of 1.5. Think of it as a collateralised loan with which you can conduct payments or savings. You can even use the loan to leverage more Ethers to collateralise a further loan and so on…
The fees accumulated on DAI can only be paid in the MKR utility token which is how that second token is justified.
The whole structure is regulatedby MKR holders who “vote” for the risk management strategies of the system and, ultimately, stand as buyer of last resort.
At launch the assumed stable value was US$ 1.00. As this is written DAI has traded in a band of between +2% and -25% from that US$ 1.00 value with an exchange value of around $0.82 less than week ago from the writing of this article so there is clearly quite a bit of volatility.
Location: USA/Denmark Hard cap: 12.000.000$
Havven also approaches the problem of stability with a dual token mechanism which produces a stable payment network. The Havven token provides thecollateral for the platform which enables the creation of the Nomentoken. This latter is backed by the value of the collateral Havven tokens of which number must be significantly greater than that of the Nomen tokens. Their value is derived from fees of transactions and the system works provided there is demand for the Nomen tokens.This demand gives the Havven holders an incentive to hold tokens. Nomen tokens should be redeemed for their face value even if the value of the collateral drops, hence the need for overcollaterisation.The team points out the system has been tested with favourable results. Their whitepaper claims the Havven foundation will act as a buyer of last resort in extreme situations.
Location: Australia Hard cap: 30.000.000 $
Globcoin team stopped the sale of their tokens in January in order to ”revise their sale with an ERC-20 token” and reopened it again. The project intends to launch a platform of rules-based baskets of currencies. The first basket will be launched with the intention to provide a stable instrument for the holders. Each basket will contain a selection of currencies weighed differently according to the needs and will be tokenized.There are 15 currencies in the basket and gold. The monthly weighting calculations are validated by the Advisory Committee. This agent also decides if any currency should be excluded due to inappropriate liquidity. The system also includes a utility token enabling access to the services of the platform.
Location: Zug, Switzerland Hard cap: 12.000.000$
Royal Mint Gold is a project that will issue tokens which will represent direct ownership of 1g of gold stored in The Royal Mint’s vault. The project does not claim to bring about a stable token despite being introduced as the new Tether in some media. It does emphasise security and transparency and efficient price discovery. Instead of value preservation they focus on returns which ownership of physical gold may bring with deduction of the usual storage and management fees. This project brings to the forefront gold’s potential for value gain rather than presenting it as a store of value.
Location: UK Hard cap: TBA
COMPARISON TO X8
We can divide the attempts at creating a stable token into two categories: decentralised involving a closed system and multiple token models, and centralised in the sense that assets backing the token are placed outside the blockchain.
An interesting feature of the decentralised systems that aim at stability is the complexity involved brought about by the fact that passing certain quantitative thresholds in the system requires the system to switch to a different mode of operation. This in itself is not a weakness but an interesting point of difference to X8C which never has to switch to another mode of operation and does not need to increase complexity in this way. With X8C there is no need to be on guard for situations that would require special actions and interventions. There is no need to be ready to intervene as a buyer of last resort. The users of X8C themselves provide a collateral and no other party has to hold it on blockchain. Stability is provided by AI intrinsic to the system and does not depend on the interplay of anything outside the token. The possibility to redeem X8C at fair value is always present for X8X holders even in the case of the demand for X8C dropping to zero on exchanges. The stability of X8C is also independent of any long-term expectations and theory-based anticipation of the parties involved. The X8 system does involve two tokens but this is not related to stability which finds its ultimate expression in X8C alone.
Parity with an asset can bring about stability, but no more of it than the stability of the asset itself as a token tied to an asset must share its fate. X8C is resilient to external shocks due to the diversified and active basket. For X8C it is not good enough to be pegged to gold for example as gold is historically volatile. Any single currency also suffers from value swings that are detected over longer periods of time, not to mention the problem of inflation. So, the next step is to diversify the basket. X8C’s basket contains 8 major currencies and gold. There is a reason why these currencies (CHF, EUR, USD, GBP, AUD, CAD, NZD, JPY) are involved and not some others. Just like there is a reason why there are 8 of them, not 7 or 20. This architecture enables AI to move without friction between the said currencies. A number of currencies greater than 8 must mean there are currencies included which are not 100% convertible into each other which means they have a wider spread than others, which means higher risk and less stability. With the said architecture and the use of ARM AI the X8 project avoids the need for periodical or arbitrary meetings or any kind of human interventions and can truly operate as an autonomous platform.
Last but not least, we need to point out that the X8 project is about to show that a quality project can be brought into existence with a relatively modest hard cap of 3.400.000€, which benefits the users since there is no unnecessary cost in the structure and creates better value for X8X as a result.
We welcome the possibility of choice in the area of stability and safety which has recently opened up. We also believe that some if not all of these projects will eventually deliver a product of some stability. We are also quite confident that X8C warrants the slogan – the ultimate crypto safe haven.
Click the link to “The Quest for the Stable Token – Part 1”.