MONEY: Ultra-Sound and First Interest-Bearing Stablecoin on Avalanche
Blockchain ecosystems require the capacity to store value in reliable pegged assets: welcome to the MONEY stablecoin.
- Three types of stablecoins: “dollar backed,” algorithmic, and over-collateralized
- We recommend the latter, as it is the only transparent type that is backed with excess funds
- This type of stablecoin can still lose peg if the Liquidity Pools in which it trades get out of balance
- There are two major defences against this: a variable interest-rate model and forced redemptions
- We may be the first stablecoin protocol to implement both methods, which is why we refer to MONEY as the Ultra-Sound stablecoin
- Interest from the variable interest-rate model will be used to launch MONEY as the First Interest-Bearing Stablecoin on Avalanche
Types of Stablecoins
Let’s first introduce the types of stablecoins:
- “Dollar-backed” like USDT and USDC. We use quotes to describe “dollar-backed,” because these types of stables are meant to be backed 1-to-1 dollar-to-stable, but are often collateralized differently. As a rule, these stablecoins are managed by centralized organizations in opaque ways. Some of these stablecoins present a systemic risk to crypto.
- Purely algorithmic like UST and IRON. These types of stablecoins are vulnerable to death spirals if the market loses confidence in the stable or its balancing asset — both can head simultaneously to zero. Made clear by recent events with UST, this category of stablecoin is not recommended, at least at this time.
- Over-collateralized like MONEY and DAI. This type of stable offers a margin of safety that the others do not, as they are backed by greater than a 1-to-1 ratio, with all information available transparently, in real-time, on the blockchain. Nothing is hidden, everything is executed via smart contracts — we like this, and it is why we built the MONEY stablecoin around this model.
The Ultra-Sound Stablecoin
MONEY is minted when Moremoney users deposit collateral and then borrow — it is therefore backed by real funds. In the event that the underlying collateral loses a predetermined amount of value relative to the loan, the position will be liquidated by market participants and MONEY will be removed from the market to close out the associated loan. This ensures that MONEY always remains over-collateralized.
Stablecoins trade via liquidity pools so users can move between different tokens, which is the context in which an over-collateralized stablecoins could lose peg. If a pool gets out-of-balance, at some point it will stop exchanging assets at a 1:1 ratio, and the stablecoin will lose peg.
The solution to this issue is to drive funds back through the pool by incentivizing users to do this themselves via a variable-interest rate model or to do it via forced-redemptions (closing-out loans). Most stablecoin builders choose one of these two models. We have chosen to move ahead with both, which is why we think of MONEY as the Ultra-Sound stablecoin.
The variable interest rate model will be in play at all times, which should keep the peg stable without having to resort to forced redemptions — while still having that option available in lieu of grave situations. We believe this will improve user experience (as most users do not appreciate having their loans foreclosed), while adding an optimal number of redundancies.
First Interest-Bearing Stablecoin on Avalanche
The majority of the interest collected from borrowers will be redistributed to MONEY stakers. We believe this will be a major use-case for our stablecoin, which will further improve the peg due to increased demand for simply holding the asset. The important part to note is that MONEY will be the First Interest-Bearing Stablecoin on Avalanche — a major development, on a chain we truly believe in.
This is just the beginning for the MONEY stablecoin. We will continue to build it and develop its utility, with all our might.