When MakerDAO created the DAI stablecoin, they introduced the term “CDP” to describe how it worked. I wish they hadn’t because it’s confusing. First of all, what is a CDP? A CDP is when you put collateral into a vault in return for another asset, typically a stablecoin. The CDP…

Recently, here and here, I have talked about the role of Guardians in a stablecoin system. Specifically, the main role of guardians is to take on the volatility of the system so that the stablecoin can remain stable. And we must provide them an incentive to do so. There are…

Recently, the stablecoin Frax voted to sunset the key innovation of their protocol: partially algorithmic collateralization. Does this mean that the age of experimentation with algorithmic collateral is over? If not, why would anyone keep trying to play with the fire that is algorithmic stabilization? But First, Let’s Talk About Decentralization Frax is not a decentralized…

In my previous post I wrote that every stablecoin depends on the interaction of three groups of people: users, oracles, and guardians. …

An important thing to remember about crypto protocols is that they are simply mechanisms for managing voluntary relationships among people. So let’s talk about the people involved in a stablecoin. Specifically, there are three important groups of people that need to cooperate to have a successful stablecoin. Let’s call them…

At the latest ETHDenver Event, Vitalik Buterin emphasized that the next stage in the development of the crypto economy is to improve the user experience (UX) so that we can use crypto for everyday transactions. This led me to ask myself: why don’t I use crypto for everyday transactions? The…

Can you create order from chaos? Stability from volatility? Previously, when talking about achieving stability for stablecoins, I have primarily discussed changing supply in response to changes in demand (or more specifically, in response to your stability measurement, whatever that is). But there are other frameworks that can help in…

The basic problem of all stablecoins can be broken down into two parts: How do you define your stability target? How do you achieve your stability target? Defining Stability (Traditional): Level Targeting Most stablecoins assume the existence of an external unit of account (i.e., …

This post is a follow-up to my post on Kin Egoism. Consider the following analogy: Altruism is like debt and Egoism is like equity. First, what are debt and equity? For a company, debts are obligations to (typically) external entities (i.e., who the company owes). On the other hand, equity…