In my neverending quest to understand DeFi, I encountered a new “valuecoin”.
I know that one of the hot topics in Nakamotoland are “stablecoins”, which are implemented with a blockchain and other Nakamotoan technology, but are pegged to other assets. Pegging is generally done via executable “smart contracts”, i.e., with software. The simplest form is pegged to a fixed asset, e.g., a Bahamian Dollar. But there are a lot of possible variations that might be called a ‘stablecoin’, depending on exactly what the peg is and how it is implemented.
We should note in passing that this entire concept is pretty dramatic heresy as far as strict, fundamentalist Nakamotoism would say. Bitcoin is “digital gold”, it has its own intrinsic value (if any), not depending on any other asset, especially the hated ‘fiat currency’. Linking a cryptocoin to other assets is, well, just wrong.
This winter William Foxley writes about a variation on this theme, which the developers call a “valuecoin”. As the website puts it, ARTHCoin is “World’s first non-depreciating currency” [1]. The idea appears to be to have the crypto tokens be redeemable for a fixed, inflation adjusted value in whatever the pegged assets are.
So, ARTHcoin is both pegged to an external asset, and indexed against the fluctuation of that asset.
Frankly, I don’t really understand how this stability is supposed to be done. This being Nakamotoland, this balancing act is supposed to be completely automatic, with a fancy algorithm that magically keeps everything working. It looks to me like human interventions are available in the form of “buying bonds”. Is this some kind of (heretical) human backup, escape hatch for the inevitable face plant of the algorithms?
As Foxley notes, this approach “hasn’t really panned out” for earlier incarnations of the idea. I know nothing about those specific systems, but I do know that efforts to peg assets are fragile and fraught. It is difficult to imagine an algorithm that will do this.
But MahaDAO is sure that this time is different, because they have just the right sauce.
We’ll see.
In the end, I have so many questions.
When the website says “non-depreciating”, who exactly stands behind that promise? And what does that promise even mean? Is it a promise, or more of a “goal”?
What is the business model here? Is MahaDAO taking a rake off? If so, how much and how is this covered? (There seem to be some kind of “fees”.)
Above all, what is this coin even for? Why is it better to have a digital token opaquely linked to a basket of assets than to simply own the assets? This looks like it wants to mash up indexed bonds with the liquidity of “cash”. How is that supposed to even make sense?
And, of course, nasty skeptical people could ask if you need a blockchain for this?
- William Foxley (2021) MahaDAO’s Algorithmic ‘Valuecoin’ Goes Live on Ethereum. Coindesk, https://www.coindesk.com/mahadaos-algorithmic-valuecoin-goes-live-on-ethereum
Cryptocurrency Thursday
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