In- depth research on calculation stability: early viewing incentives mid-term viewing in depth and long-term viewing scenarios

core point

  • Insufficient collateral is both the definition and the original sin of algorithmic stablecoins. The “death spiral” is a threat that every CSC project always faces. The various delicate designs and operations of the CSC project are essentially designed to resist this threat.
  • To analyze the stable project, pay attention to the design and income of its incentive mechanism in the early stage, the depth of its capital pool and the linkage with other mainstream encrypted assets in the mid-term, and its application scenarios and potential as a means of circulation in the long-term.

Classification of Stablecoins and Definition of Stable Coins

Although the popularity of cryptocurrencies in the world is gradually increasing, considering the high volatility of cryptocurrencies and the purchasing power of the material world, most people still value their wealth in fiat currency. Therefore, stablecoins whose prices are anchored to fiat currencies were invented by people to undertake the functions of wealth storage and circulation in the encrypted world.

Stablecoins can be roughly divided into three categories:

  1. An anchored stablecoin issued by a centralized institution with a 1:1 mortgage of fiat currency, represented by USDC;
  2. Decentralized issuance and over-collateralized stablecoins with mainstream encrypted assets such as ETH, represented by DAI;
  3. Stablecoins that are issued in a decentralized manner and do not use mainstream cryptographic assets for over-collateralization are represented by UST and FRAX; they often have relatively sophisticated mechanisms and algorithm designs, so they are also called Algorithmic Stablecoins.

Algorithmic Stablecoins: Original Sin and Temptation

The definition of “under-collateralized” of algorithmic stablecoin itself is its original sin, and it also determines its temptation for project parties.

From the perspective of the project party, because the algorithmic stablecoin does not need to use excess encrypted assets as collateral (or even zero collateral), the difference between the market value of the stablecoin and the collateralized assets is similar to the “pure income” of the project party. To put it simply, it is possible to “print money out of thin air” – this is indeed a temptation that is hard to resist.

From the user’s point of view, the original sin of insufficient collateralization of algorithmic stablecoins means that when all stablecoin holders want to sell or exchange stablecoins, the last batch of sale holders will bear the insufficiency of collateral. losses to come . In practice, once the market loses confidence in a stable project, there will often be a spiral of panic and token selling, that is, a “death spiral”. The principle of this collapse process is very similar to the collapse process of many over-issued credit currencies in history, such as the National Government’s Golden Circle and Weimar Germany’s Mark.

Therefore, how to prevent the emergence of the “death spiral” is the core issue that every algorithmic stablecoin project party must think about. Many complex and delicate mechanism designs are essentially based on this problem.

Further thinking: Why do users hold algorithmic stablecoins?

The emergence of the “death spiral” must have originated from users’ abandonment of stablecoin holdings.

Let’s think further: Why are users motivated to hold algorithmic stablecoins?

Is it for store of value? Actually not – since the face value is 1 US dollar, if it is just to store value, why don’t users replace the higher-risk algorithmic stablecoins with USDC, DAI and other more solid and less volatile stablecoins?

In fact, the main motivation for current users to hold algorithmic stablecoins is the investment income given by the project party. However, if you blindly rely on investment income to attract users, the entire project will show the characteristics of “returning the old with the new”, making it difficult to continue to operate.

Therefore, in the long run, in order to truly retain users, algorithmic stablecoins still need to expand enough application scenarios to meet the real needs of users. For example, play the function of calculating stability as a means of circulation – assuming that the top 100 DApps now accept a certain algorithmic stable currency to purchase tokens and NFTs in their ecosystem, then users will not mind putting more in their wallets How about this coin?

However, considering the current status of the application layer of the encryption ecosystem, it is not easy to realize the extension of this application scenario: on the one hand, there are not many excellent application projects themselves, and the economic sustainability of many projects themselves is a problem; on the other hand, in order to convince excellent application project parties to reach cooperation, the algorithmic stablecoin itself must first reach a certain magnitude and stability, which becomes the problem of “the chicken or the egg”.

Therefore, for a stable project, a better transition plan is: in the early stage, attract users through higher returns and expand the project scale; with the expansion of the project scale, slowly reduce the user’s investment income, through and more Stable binding of encrypted assets (such as USDT, USDC, DAI), build a deep enough capital pool, improve the system’s ability to bear pressure on users’ exchange, and vigorously expand application scenarios. When users hold it not for investment income but for its application scenario, it is the time when an algorithmic stablecoin project is truly mature. This is also the core point of this article: “The analysis is stable, the incentive is in the early stage, the depth in the mid-term, and the scene in the long-term. 

Let us follow the development of algorithmic stablecoins and analyze those well-known stablecoin projects in detail.

Early Stability: The Failure of Pure Mechanism Design Exploration

There are mainly three early algorithmic stablecoins – AMPL, ESD, and BAC. Their common feature is that they completely hope to rely on their own supply mechanism design to anchor their currency prices at 1 U, which has the nature of an ideal experiment. They neither attract a large number of initial participants with high returns, nor do they have collateral and linkage of external currencies, nor do they consider application scenarios and ecological construction. Naturally, none of them succeeded in the end.

  • AMPL: Simple and Straightforward Rebase Mechanism

In- depth research on calculation stability: early viewing incentives mid-term viewing in depth and long-term viewing scenarios

Figure: AMPL price action

AMPL (Ampleforth) is the earliest attempt for an algorithmic stablecoin. It designs a rebase mechanism to adjust the supply of AMPL: when the AMPL price is > 1U, additional tokens will be issued proportionally according to the total amount of tokens in each user’s wallet. We hope to bring the price back to 1U by increasing the supply of AMPL; similarly, when the AMPL price is < 1U, the token will be deflated proportionally. This additional issuance and deflation occurs every 8 hours and directly affects the amount of tokens in the user’s wallet.

It is not difficult to see the simple economic thinking of the AMPL mechanism designer: since the price is determined by “supply and demand”, the supply of tokens should be adjusted in real time to match people’s demand for AMPL in the current market.

However, after AMPL was put into the market, it was found that the rebase mechanism would actually induce the FOMO mood of the participants and amplify the fluctuation of the currency price: when AMPL was issued additionally, it formed a double profit situation in which the holder’s currency increased in price, which was extremely Big stimulus holders continue to hold and attract new money in. As long as the consensus is not broken, the growth of the market value will be multiples of the inflow of funds. But conversely, when the currency price falls below 1, there will be deflation. At this time, for the holders, they are faced with double losses due to the low price of the currency, which will greatly stimulate the holders to sell and curb new entry of funds.

Therefore, AMPL was called “exciting casino” for a while. Although it has been able to maintain the price around 1U so far, its volatility is too high compared to other stablecoins. At present, its daily trading volume is only about 1 million US dollars, which has basically faded out of the public eye.

  • ESD and BAC: Bond Mechanisms, Widening System Deficit

The main idea of ​​ESD (Empty Set Dollar) and BAC (Basis Cash) is: when it is necessary to maintain the stability of the currency price, it is not by directly increasing or decreasing the total supply of tokens, but by means of future income, to motivate users to sacrifice current liquidity .

ESD is the inventor of the “bond mechanism”. When the ESD price is higher than 1, users need to pledge the LP TOKEN of ESD or ESD-USDC, sacrificing their own liquidity, in order to obtain the income from the additional issuance of ESD, which cannot be “earned for nothing” like AMPL; and when the ESD price is lower than 1, Users can enjoy discounts on the purchase of ESD bonds. When the ESD price returns to above 1, the system will first issue additional tokens to bond holders, and then to pledgers.

For example, the current price of ESD is 0.99U, and the bond with a face value of 1 ESD is priced at 0.9U. If a user buys 1.1 bonds with 1 ESD, and sells it when the ESD price returns to 1, then. When the ESD price is higher than 1, the user can obtain 1.1 ESDs and gain profits.

It can be seen that since the total amount of ESD is actually increasing, the bond mechanism only delays the deficit of the system : when the market sentiment is good, some people will buy bonds when the ESD price is lower than 1, hoping that when the currency price rises arbitrage when the price of the currency is higher; but when the currency price returns to above 1 again, the redemption of bonds will greatly increase the supply of ESD and bring about selling pressure; as time goes on, the time period when the currency price is higher than 1 becomes less and less. , the number of additional issuances has also begun to make it difficult to cash the bonds; finally, when the market loses confidence in the cashing of the bonds, there will be a large number of ESD sell-offs and unmanned purchases of bonds, making ESD enter a “death spiral”

In- depth research on calculation stability: early viewing incentives mid-term viewing in depth and long-term viewing scenarios

Figure: Price Trend of ESD

The underlying logic of the BAC (Basis Cash) mechanism is very similar to ESD, but differs in some details. There are three currencies in Basis Cash’s system: BAC (stable currency), BAS (pledge certificate), and BAB (bond). When the BAC price is lower than 1, users can buy BAB at the discounted price of BAC * BAC; when the BAC price is higher than 1, the system will give priority to converting BAB to BAC during additional issuance, and if there is any surplus, it will be issued to those Users who pledge BAC in exchange for BAS.

Obviously, Basis Cash has not solved the problem of system deficit caused by a large number of additional issuances of BAB. In fact, its stable time is shorter than that of ESD.

In- depth research on calculation stability: early viewing incentives mid-term viewing in depth and long-term viewing scenarios

Figure: BAC price action

A new generation of computing stability: partial mortgage, dual currency mechanism and pure capital disk

The new generation of algorithmic stablecoins adopts a more sophisticated mechanism design, among which Frax, as a representative of such projects, can be said to have achieved staged success; however, a simple mechanism design cannot avoid a death spiral, of which Iron Finance is an important warning. In addition, the fund game represented by OHM will also be in the name of “calculation stability”, but the motivation and long-term development of its mechanism design will still be fundamentally different from the algorithmic stablecoins generally considered.

  • FRAX: Robust mortgage rate, sufficient funding depth

In the system of FRAX (Frax Finance), there are two tokens, FRAX and FXS. Among them, FRAX is a stable currency pegged to 1 USD; FXS is the governance token of the project, which is used to absorb the volatility and selling pressure of FRAX, as well as reflect the growth of the project itself.

In this system, the most important concept is Collateral Ratio (CR, Collateral Ratio), which determines how much USDC collateral users need to mint a FRAX. This ratio is dynamically adjusted. It is 100% at the beginning (fully collateralized), and the current FRAX price is checked and updated every hour: if the FRAX price is higher than 1U, the CR will decrease by 0.25%; if the FRAX price is lower than 1U, CR will increase by 0.25%. The adjusted time interval and parameters can be modified by post-treatment, and the latest CR is 86.75%.

Taking CR = 85% as an example, in order to mint 1 FRAX, you need to deposit 0.85 USDC and 0.15 U worth of FXS to the project side; on the contrary, if you want to redeem your FRAX through the agreement, each 1 FRAX can be exchanged for 0.85 USDC and FXS worth 0.15 U. This allows users to arbitrage by minting or redeeming when the market price of FRAX deviates from 1U, thereby maintaining the stability of the FRAX price.

It can be seen that the above mechanism design transfers the volatility and selling pressure of FRAX to FXS. In order to avoid the collapse of FXS, the project side also gave FXS value: when users pledge FXS, they can enjoy the governance rights of the Frax project and share the 0.4% fee required for FRAX minting/redemption; at the same time, The project party introduced AMO (algorithmic automatic market making mechanism) to reinvest the assets in the mortgage pool, and this part of the income will also be shared with FXS pledgers.

After more than a year of accumulation, FRAX has become one of the winners of Curve’s “liquidity war”: as of April 26, FRAX has occupied 16.4% of the CVX market share, and is in the first echelon with Terra.

The most intuitive impact of the victory of the liquidity war is to build a deep enough capital pool for the exchange of FRAX and other stable coins. The depth of the capital pool of FRAX-3Crv (USDT, USDC, DAI) alone is as high as 2.8 billion U, of which the pool There are 1.14 billion U of the three major stablecoins in the market. This means that if FRAX is to be de-anchored, it cannot be done without a sell-off of more than 1 billion U. In addition, this also gives FRAX more voice and potential investment income to expand application scenarios in the Defi world.

In- depth research on calculation stability: early viewing incentives mid-term viewing in depth and long-term viewing scenarios

Chart: CVX market share

In- depth research on calculation stability: early viewing incentives mid-term viewing in depth and long-term viewing scenarios

Figure: FRAX-3Crv Fund Pool Depth

FRAX can be said to be one of the most stable of all algorithmic stablecoins, and it has also stood the test of a long time. Its method of fighting the “death spiral” is worth learning from later generations: on the one hand, FRAX itself has a high USDC mortgage rate, and when the currency price is lower than 1, the mortgage rate will increase, thus enhancing user confidence; on the other hand On the one hand, FRAX and the three mainstream stablecoins have built a deep enough exchange pool, and it is not easy to hit the market price of FRAX in a short time. At present, Frax Finance is also actively expanding its partners in the Defi world to maintain its long-term competitiveness.

In- depth research on calculation stability: early viewing incentives mid-term viewing in depth and long-term viewing scenarios

Figure: FRAX price trend

Some people once believed that Frax’s dual-currency mechanism design itself is one of the core factors for the stability of its currency price. Although the introduction of tokens to absorb the volatility and selling pressure of stablecoins is an innovation, it cannot hide the original sin of insufficient collateralization of algorithmic stablecoins. The failure of a series of Frax imitation discs has illustrated this. Among them, the most influential and most alarming is the collapse of Iron Finance, which has a market value of $2.3 billion locked by the protocol, in one afternoon.

5.2 IRON: A flaw in the initial mechanism design caused a crash

The core code of Iron Finance is derived from Frax and runs on Polygon. Its system also has two tokens: the stable currency IRON (analogous to FRAX) and the token TITAN (analogous to FXS). It differs mainly in two points:

  1. The USDC required to mint IRON is fixed at 75% instead of 100% in the initial stage of FRAX; the other 25% is made up by TITAN
  2. The staking yield of the Iron project was surprisingly high in the early stage: staking USDC-IRON can get a daily yield of 1.5% , and staking USDC-TITAN can get a daily yield of 4.5% .

Obviously, IRON’s earnings are obviously not sustainable in the long term, but such high earnings have indeed attracted a large number of early participants, and its protocol lock-up volume has reached an astonishing figure of $2.3 billion within two weeks. It’s hard to imagine any project in the world that can consistently deliver a 4.5% daily return on $2.3 billion.

Therefore, when the price of TITAN reached the highest point of 60U, it naturally triggered the first batch of concentrated selling. In just a few hours, TITAN fell back to 30U, and the price of IRON began to fall below 1U. In theory, due to IRON’s minting and redemption mechanism, the ups and downs of TITAN do not seem to affect IRON’s market price too much — anyway, no matter how the price of TITAN fluctuates, IRON can exchange “TITAN worth 0.25U”, naturally Some arbitrageurs pulled the market price of IRON back to 1U.

But in fact, a fatal flaw in the design of the IRON mechanism made the “snowball” of TITAN’s fall became the beginning of the “avalanche” of the project: since the market price of TITAN in the redemption agreement was determined by a “10-minute average of market prices” oracle provided. When the price of TITAN falls too fast, the price of TITAN that stays on the 10-minute average will be significantly higher than the real price of TITAN, which leads users to find that the value of TITAN redeemed by IRON is less than 0.25U, and then finds the arbitrage logic of IRON does not hold. This further destroyed users’ confidence in the stability of IRON, triggered a stampede-style large-scale sell-off of IRON and TIAN, and introduced the Iron project into a “death spiral”.

In- depth research on calculation stability: early viewing incentives mid-term viewing in depth and long-term viewing scenarios

Figure: TITAN’s price trend

Iron’s story gives us the following warning:

  1. The “death spiral” is a problem that needs to be faced all the time, and it cannot be avoided by simply copying the mechanism design.
  2. The initial high revenue can indeed attract a large number of users and create high visibility, but it will also strongly increase the instability of the project. When designing high returns, the financial strength of the project party to maintain the currency price should be considered.
  3. Even the small details of the price mechanism design can become an important factor in the success or failure of a project.

It is speculated that the reason why Iron adopted the “10-minute price average” oracle was because Frax also used it at the time. However, the faster settlement speed on Polygon should probably be considered to adapt to a smaller time interval.

  • Talking about OHM: A Funding Game under the Cloak of “Stable Calculation”

OHM (Olympus DAO) is a Defi project in 2021, known for its Defi 2.0 concept, “(3, 3)” MEME, spiraling currency prices and numerous imitations. Although OHM was also called “algorithmic stable coin” in the initial stage of its release, DAI was also used in the design to redeem the bottom guarantee mechanism of OHM. However, the induction of user behavior by other more core mechanism designs of OHM has actually abandoned the root of the stablecoin concept of “price anchoring”, and thus has become a big game of funds.

In- depth research on calculation stability: early viewing incentives mid-term viewing in depth and long-term viewing scenarios

Figure: OHM’s currency price trend

The highlights of OHM, there are already many related analysis articles, so I won’t introduce them in detail here. In short, the project side absorbs and controls market liquidity through the rebase mechanism + high pledge rate of return, the bonding mechanism, and the “(3, 3)” community MEME propaganda, so that the currency price continues to rise – although the last A downward spiral is still inevitable. However, the Olympus DAO Pro launched by the project party in early 2022 gives OHM a certain real application scenario in Defi, so that it still has a currency price of 20U+ instead of returning to zero.

In fact, OHM has also unveiled a coat of “algorithmic stable currency”, showing its attributes as a carrier of capital disk games: since those projects that engage in dual currency mechanism (refer to Iron), use unsustainable high returns to attract users to participate , let the price of the secondary currency continue to rise, then it is better to play directly, abandon the design of “anchoring the fiat currency”, and then use other methods to directly let the main currency soar into the sky, isn’t it more direct? However, when OHM even gave up the pegged fiat currency, it means that its long-term development model and application scenarios must be very different from the “stable currency”.

In fact, many capital disk projects will also use the name of algorithmic stablecoins, and even the initially formed algorithmic stablecoins such as FRAX and UST, it is difficult to avoid the characteristics of capital disks in the initial stage. Therefore, calculating stable has a very high investment risk, and if you want to consider participating, you must be very careful.

Public chain algorithm stable currency: state and credit currency

Recently, major public chains have issued stable coins in their own ecosystems, which has also become a hot spot in the near future. This article mainly analyzes the mechanism design and development path of UST, and makes some brief comments on other public chain stablecoins.

  • UST: Burning money to expand, trying to be “too big to fail”

UST is a token launched by the project side of the Terra public chain, and together with LUNA, it forms a set of “dual currency mechanism”: users can burn LUNA with a market value of 1U to mint 1 UST, or burn 1 UST to mint 1U of market value LUNA.

In- depth research on calculation stability: early viewing incentives mid-term viewing in depth and long-term viewing scenarios

Figure: UST currency price trend

In- depth research on calculation stability: early viewing incentives mid-term viewing in depth and long-term viewing scenarios

Figure: LUNA currency price trend

Only from the point of view of UST’s minting mechanism, UST itself shares the value of LUNA, the public chain token. So why do users mint and hold UST? The reason is the Anchor protocol on the LUNA chain: it provides a 20% annualized return on UST staking. It should be noted that this kind of income is completely provided in the form of UST stable currency and not settled in project tokens, which reduces the risk of devaluation of project tokens. The 20% return is already a notch higher than the annualized return of other stablecoins. Considering the transparency of Anchor’s capital pool, the financial strength of the Korean consortium behind Terra and various capitals, users have turned their idle stablecoins into UST. At present, the market value of UST is as high as 18.3 billion US dollars, far ahead of the second place FRAX’s US $ 2.7 billion, and even more than half of LUNA’s own market value of 33.4 billion.

Anchor will also lend the funds pledged by users to obtain income; users need to over-collateralize when borrowing, and this part of the collateral can also be reinvested. However, after calculation (refer to the article: “Attack on Algorithmic Stablecoins: Terra, Olympus, FRAX Analysis”), Anchor’s income cannot cover its interest expenses. If it were to pay interest, it would be incurring a deficit of $1.7 billion a year. At present, this part of the deficit is mainly provided by LFG (Luna Foundation Guard), the funder behind Terra.

Obviously, everyone can realize that the 20% annualized income cannot be sustained for a long time. If the situation is allowed to develop naturally, UST will reduce the pledge income sooner or later, which may trigger panic selling in the market and cause the price of LUNA to rise. The downward spiral even triggered the collapse of the project. Terra is currently using two measures to avoid UST and Terra from entering this situation:

On the one hand, buying hundreds of millions of dollars of BTC, hoping to use 1U worth of BTC as the support of UST in the future, so that the nature of UST will be transformed into a dollar similar to the Bretton Woods system in the 1960s – although my dollar (UST ) In fact, there is not that much gold (BTC) to back it up, but I also have a lot of gold (BTC); as long as people don’t flock to run on it, the system can work. In addition, if you really want to exchange U.S. dollars (UST) for gold (BTC), the high fee rate and necessary procedures may be unavoidable.

On the other hand, UST is constantly strengthening the connection between the Defi world and other various tokens, expanding the depth of its capital pool and application scenarios. For example, cooperate with Frax to build a 4Crv pool on Curve, and intend to replace DAI with Frax as one of the cornerstone stablecoins of Defi; cooperate with Avalanche, UST can also be minted on the Avax chain… The goal of these actions is not only for UST The exchange provides enough buffer space, and also builds the “too big to fail” effect for UST: if UST really collapses, then it will set off a bloody storm in the Defi world, and everyone should not think about it.

This kind of “too big to fail” in the Crypto world actually has a precedent – that is USDT. The market value of USDT is currently nearly 83 billion US dollars. I am afraid that no one will believe that there are really so many US dollars in the accounts of the opaque audit company Tether. In fact, to some extent, everyone actively ignores the problem of USDT. After all, its stock and popularity have made it one of the cornerstones of the encrypted world. The collapse of USDT is something that no one wants to see. Tether also fully enjoys the benefits of minting rights. Even though the market is constantly hearing about Tether’s over-issue and market manipulation, it still hasn’t caused much waves in the market. The problems of USDT itself may need to be solved by a more compliant USDC; but the “too big to fail” effect it creates in the process and the minting rights benefits it enjoys are seen by everyone.

It can be said that the ultimate goal of all public chain algorithm stablecoins is a credit currency similar to “USDT”. In the long run, in order for UST to truly become a stable, functioning means of currency circulation, even means of payment and value scale, its own ecological expansion is the only way. Compared with Frax, an algorithmic stable currency without public chain support, UST has stronger inherent advantages in expanding ecology and scenarios. As mentioned above, if the excellent application projects on the market use UST as a stable currency for interaction (it is best to use UST only for interaction), then users will not pay too much attention to the pledge income of UST itself, but will pay more attention to holding UST feels comfortable.

  • USDN: obvious traces of manipulation, the carrier of the capital disk

In March 2022, the “Russian Ethereum” Waves issued USDN, and the price of WAVES also rose from less than 10U to more than 50U. The minting mechanism of USDN is similar to UST, but its staking yield consists of two parts: a relatively fixed staking yield, multiplied by the ratio of the market value of WAVES and USDN.

This mechanism design has a certain balance in theory, but when the price of WAVES is constantly rising, it can become a carrier of a Ponzi scheme: buy WAVES and exchange for USDN, pledge USDN to lend USDC, and then use USDC to buy WAVES , constantly rising and rising, and finally achieve the effect of using the collapsed WAVES and USDN to obtain USDC from retail investors. Some people have found through detailed on-chain data analysis that some teams are actively raising the price of WAVES, and even the Waves project itself has admitted this (but they accuse the manipulator of other institutions)

In- depth research on calculation stability: early viewing incentives mid-term viewing in depth and long-term viewing scenarios

Figure: WAVES currency price trend

The price of WAVES has dived, and USDN has not returned to the target price of 1U for a long time. Obviously, the funder behind USDN does not have the idea of ​​developing USDN for a long time. Unlike UST, which wants to subsidize users by burning money, it just regards it as a carrier of a fund game.

  • NIRV: short-term efficient drainage, long-term prospects to be seen

In April 2022, the Nirvana project appeared on Solana. There are many innovations in the mechanism design of Nirvana: the dual currency mechanism consists of the stable currency NIRV and the auxiliary currency ANA; a “floor price” mechanism is set for ANA to rise slowly. When the ANA price is lower than the floor price, you can find Project agreement to sell ANA at the floor price.

Users can purchase ANA with USDC and other stablecoins and then pledge them. While pledging ANA, they can: 1. Lend 1U NIRV equivalent to their floor price; “floor price” to buy new ANA; 3. Get 300% APY pledge income denominated in ANA.

Compared with FRAX and UST, Nirvana’s logic is more similar to OHM: the floor price seems to be “the bottom line”, but just like no one will exchange 1 OHM for 1 DAI, in fact, the market price of ANA is much higher than the floor price. The cost of user entry is very high, and no one will really find a project agreement to sell ANA; while staking ANA, the stable currency NIRV can be lent, and these NIRV can be used to buy ANA at a “discount”, combined with high yields , which makes the price of ANA spiral upward, similar to OHM. When ANA was launched, a large-scale FOMO was triggered. The community’s evaluation of this project was: “Left foot on right foot, spiral to the sky”.

However, although the mechanism is imitated, there is a stable currency NIRV in the Nirvana system. However, the logic of using NIRV as a stable currency as an ecological expansion is somewhat problematic, because its capital utilization efficiency is too low. For example, the current market price of ANA is about 16U, and the floor price is 5U, so 16 USDC can only exchange 5 NIRVs to participate in ecological applications. This efficiency is far worse than that of FRAX and UST.

All in all, in the short term, Nirvana’s imitation of OHM’s famous capital trading method has indeed played a role in efficient drainage, and it has also raised the price of ANA. In the long run, if its ANA market price is close to the floor price, and it can build some ecology by relying on Solana, then its development prospects will have more space for discussion and research.

In- depth research on calculation stability: early viewing incentives mid-term viewing in depth and long-term viewing scenarios

Figure: ANA currency price trend


After the analysis of many stable projects, we can try to outline the development path of an algorithmic stablecoin:

In the early stage, users were attracted to participate and hold through reasonable incentive mechanism design and high pledge income;

In the mid-term, with the continuous expansion of the project, slowly remove the unsustainable part of the income, and build a deeper correlation and capital pool with the algorithmic stablecoin and more mainstream encrypted assets to enhance user confidence and avoid the impact of runs;

In the long run, for the logic of calculating stability to be truly established, on the one hand, it is necessary to pursue the image and status of “too big to fail” in the crypto world, and on the other hand, there must be enough application scenarios to subtly subtly influence its image of “stable $1” implanted in the minds of users.

For ordinary investors, the risk of participating in the algorithmic stablecoin itself is very high, especially for new projects, the price of the currency may return to 0 if you are not careful, and you must be cautious when participating ; Relying on the premise of stabilizing the currency price will often produce many innovations in the design of the token mechanism , and these innovations will also be absorbed into the Tokenomics of various projects in the future. Therefore, it is very positive to pay attention to and learn from this field.

Posted by:CoinYuppie,Reprinted with attribution to:
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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