Stablecoin comments and compendium


#1

I will recap what was discussed in the meeting today about stablecoins, and provide a compendium for further info.

If you use a stablecoin, there is at least greatly reduced volatility, making it easier to more closely approximate or equal the value of rewards to the true utility payout, while having less need to dynamically adjust the rate of the reward, as will be the case with a much more volatile coin, which adds more complexity to design and implementation. With a volatile coin, to dynamically get the price you would need to use a price oracle to collect data from various decentralized and centralised exchanges in order to at least approximate the market price. Conversely, if you have a fixed rate of reward denominated against a volatile coin, then the true utility payout will actually not be (near) constant, which will be bad for validators, full nodes, etc., as well as for users and the whole network due to nodes being less likely to stick around due to uncertainty.

Compendium:

  • Maker DAO a stablecoin that uses a utility and governance volatile MKR token, for holders to use in governing the DAI stable coin
  • Havven: another stablecoin that involves issuing tokens against a distributed collateral pool. James Ray’s opinion: this seems simpler than DAI, while also intuitively seeming to be more desirable. See e.g. this Twitter thread for a related perspective.

#2

I believe that the volatility in the core token is part of the economic incentive for those participating. I believe the protocol can adjust to various price fluctuations using proven market mechanisms such as fees in bitcoin and Ethereum.

Pocket would need to create it’s own stablecoin within the protocol, likely something like Spankchain’s model. This would ass (oops) significant complexity to the economic and distribution model of the core protocol.

It is our job as protocol builders to ensure that the value created by the protocol is high enough such that even in extreme volatility situations, the protocol is sustainable. The protocol is at highest risk in it’s early years, and as long the protocol can recover quickly enough through active measures, I’m not seeing enough benefit in awarding a stablecoin for work provided within a protocol.


#3

I understand your perspective, while it is fair, I am not sure if I fully agree, e.g. using a stablecoin would allow for less risk of a bubble/overspeculation; make it easier for continued growth (e.g. with user and new dapp adoption) in bear markets; and less need to be overcapitalized with projects to account for risk. A stablecoin like Havven that is issued against a distributed pool of (ethical, my preference) assets can still allow for growth. Perhaps more of a detailed argument could be fleshed out on both sides, but I understand if it is not perceived as a high priority.


#4

Agreed, I want to continue thinking about this. There are tradeoffs to both.


#5

If you go with a volatile coin in order to calculate rewards that have a stable value you could use a decentralized price oracle. FMI see https://github.com/Meta-tx/Harbour-MVP/issues/4#issuecomment-429224919.


#6

This is something we’ve definitely considered for the amount of POKT that developers need to stake, since the price of the token has a real cost to people.