For a little while I have been trying to bring this issue to Nexus community members, yet few seem to grasp how essential a stable unit of account is for the adoption of blockchain technology. I believe this is a rather dangerous disposition that could greatly affect the chances of Nexus being adopted on a world wide scale.
Why:
Having a stable unit of account is essential for the adoption of blockchain based applications such derivatives/lending, remittance, charity, escrows, fundraising, payroll, hedging, DEX(!), various other dapps in which a stable medium of exchange would potentiate usability.
Without a liquid stablecoin, Nexus will only fulfill a limited number of use cases. It is naive to assume that all organizations are willing to do business with a highly volatile asset, even if that asset is the fundamental backbone of the ledger they are operating on. Obviously quick fluctuations in value complicate the business incentives and effects companies bottom lines. The lack of a stablecoin limits any prediction markets, derivative/lending, trading, gambling, etc. because instead of simply analyzing the conditions of the contract, the user also needs to make an analysis on the price movements of the volatile collateral within to make a proper judgment about the risk/reward of the contract. This is generally too much variability for an organization or a business to comfortably base decisions off of.
We all know about the fundamental flaws of fiat back centralized stablecoins, these are fairly useless in my mind for a decentralized permissioned distributed ledger. So somehow we would have to make a decentralized, permissionless robust stablecoin to capture full potential value within Nexus contracts.
I have not done intensive research on the alternatives- at the moment MakerDAO clearly has the largest community commitment, governance, funding and technological/logical development in the decentralized stablecoin sector. Looking at their model may help inspire development or connection with Nexus.
Integrating dai may be more efficient rather than creating our own stablecoin system, which is obviously a massive undertaking. What is the state of interoperability for Nexus? Could Nexus call smart contracts in Ethereum to interact with CDPs to acquire the DAI for use in the Nexus system? Please chime in if you know anything about Nexus’ interoperability potential.
Concluding:
I see Maker/DAI as the best starting point to frame discussions around integrating a decentralized stablecoin on the Nexus blockchain. I want a clearer understanding of why the Nexus community has not engaged in this discussion. The design of the 3DC seems much more congruent with the financial contract logic for a stablecoin system than Ethereum, which is another reason I believe the community should strongly consider the possibility. To create, or integrate? Thoughts?
Here is a brief overview of the mechanics of MakerDAO:
Collateralized Debt Positions (CDPs)
Stability requires full or over collateralization, in makerdao this is done through Collateralized debt positions, in which a user can lock up a collateral type and draw (mint) dai (stablecoin) as debt. Here I will give a brief overview of the system dynamics. There is much more to explore than what I go into here.
When the user pays back this debt they pay the debt+stability fee. The stability fee is paid in dai which is exchanged for mkr, then burned, which acts as the incentivisation mechanism for governance participation.
In extreme market situations, if many collateral types crash simultaneously and the ratio of outstanding dai debt to collateral value falls below the minimum collateralization ratio faster than the collateral can be liquidated, then mkr is printed to cover the outstanding debt, thus diluting the total supply of mkr. To avoid the fallout from black swan events mkr holders engage in scientific risk governance to determine safe parameters for collateral types. These parameters include the debt ceiling (how much dai can be drawn as debt in total), collateralization ratio (what is the minimum ratio of outstanding debt to collateral value before liquidation), and stability fee (interest paid once the debt is paid back)
Scientific Risk Assessment:
Quantitative and qualitative profiles for each collateral type.
Qualitative refers to aspects such as fundamental analysis, team experience, product valuation, the projects place in the market, funding, and other intrinsic considerations that follow any sort of project issuing a coin.
Quantitative models use quantified inputs from the qualitative assessment to guide models based on the market movements of the asset. The quantitative model integrates those inputs with market data such as trading volume, liquidity, market cap, supply dynamics and recourse (possible legal recourse or other situations specific to the collateral).
Essentially any non scam asset can function as a collateral type, just a corresponding risk assessment is required. Continuous risk assessment is another vital component, these values cannot be static over time, reality changes.
If you want a deeper look at the makerdao system https://github.com/makerdao/awesome-makerdao is the best overall resource. I can answer some questions as well, I purposely left a lot out.
