I’m not a programmer, cryptographer, or economics wizard. However, I was pondering the creation of a value stable currency. This was attempted before with Bitshares. Currently, some would argue that Tether is a value stable currency, but that remains to be seen.
Cardano wants to be the financial stack for the developing world, then it will need a value stable currency. Charles has discussed this many times before. The basic questions are:
- how do you make it
- what do you peg it to
- how do you keep it solvent
For Tether, the answer was to simply “print it”, peg it to the $USD, and then hold a full reserve of the money. As to whether there is truly a full reserve or only a fractional one behind it remains to be seen.
So I was wondering, is it possible to generate a subtoken under ADA which would be pegged to the USD? Let’s just call it ADAUSD. Eventually once the rewards pool is over and there are no more rewards to be minted, then eventually the incentive to create the block will be based on transaction fees. What if this transaction fee is ADAUSD, kind of similar to NEO and its subtoken GAS.
However, ADAUSD would be pegged to the USD. There would need to be some kind of continually exchange between ADA and ADAUSD. The way this would be achieved is on an epoch by epoch basis.
For example, if in a certain epoch ADA was trading at $10 and the transaction fee was $1, then the creation of the block would cost 0.1 ADA = 1 ADAUSD. In this way, 1 ADAUSD would always be worth 1 USD.
If you had a sidechain, they could also communicate with the ecosystem. For example, if Ethereum interoperated with ADA, then you could take your ETH and convert it into ADAUSD based on the epoch’s calculation of ADA. So it would be an ETH --> ADA --> ADAUSD conversion minus the transaction fee.
The more sidechains that interoperate with ADAUSD, the more liquidity available for the value stable currency. This would provide increased stability and keep it solvent. Essentially, every ADAUSD it backed by ADA, whether it came natively from the ADA ecosystem, or from outside via sidechains.
All that said, I don’t know if any of this is even possible or makes sense.
It was just an idea I had when I couldn’t sleep one night.