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The product

Note: Names inside {{}} denote placeholder product names.

Based on the vision of this proposal, we focus on envisioning a viable product that will function on top of the proposed system. Here we describe the different aspects of the potential product’s development, business model, market position/branding, assumptions made along the way, as well as the value interactions between stakeholders.

References:

Basic description

{{PegLoan}} is a loan system available to all on a public blockchain, which produces {{PegDollar}}, a money product in the form of a cryptocurrency token representing the US dollar ($). Anyone can buy, hold and use this currency, as well as store it in a digital savings account and collect interest, all without the involvement of a bank.

There are many other available cryptocurrencies representing the US Dollar, however they all depend on some type of central entity, making them more vulnerable to capture or failure. {{PegLoan}} is ownerless and functions on a never-changing (immutable) secure smart contract. The system allows anyone to take a loan of {{PegDollars}} against their trust-minimal blockchain assets (e.g. ETH on Ethereum, BTC on Bitcoin) without really giving up ownership, after storing a proportional amount of the backing asset in a blockchain account. While the system guarantees most aspects of security, transparent to the users, various actors are incentivized to profit from competing to maintain the system.

Assumptions

Advance description

In more technical terms, {{PegLoan}} is a trust-minimized, governance-minimized, capital efficient, collateral-backed stable-coin system on Ethereum that only works with ETH as collateral and has no formal governance process or token. It focuses on one stable currency pegged to the US dollar, given the minimal level of cognitive load required for everyday use of a US dollar digital currency. However, it is possible for anyone to copy the ideas and open source code behind {{PegLoan}} to deploy new instances of the system targeting different currencies or other baskets of assets. There exist many stable-coin competitors as of this writing, ranging from centrally issued ones, to automated ones like DAI by MakerDAO. We believe all of these competitors represent an inferior level of optimizations around trust minimization, risk minimization, capital efficiency, and governance minimization, that significantly lowers their potential for long-term success. These other options, either depend on a centralized entity for issuance, or for governance, and often do not efficiently flow capital through the system.

Stakeholders

Partners

Ode to Uniswap

Even though {{PegLoan}} provides a different financial service compared to Hayden Adams’ Uniswap, some of its properties around trust-minimization and decentralization are in fact inspired by Uniswap. It also attempts to stay true to the brand essence of Uniswap, which also happens to overlaps with the values of the greater Ethereum community, and its Unicorn symbology.

Uniswap is a maximally decentralized exchange smart contract, that is permission-less, censorship resistant and unstoppable. After the contract’s finalization and deployment by original author, no one (not even the author) has any control over its operation. The contract will run as long as Ethereum 1.0 continues, and has been available to anyone with an internet connection, to be used in performing token exchanges or profiting by providing liquidity.

If done right, {{PegLoan}} and its default US dollar stable-coin {{PegDollar}}, will have most or all of the important properties of Uniswap, including its level of decentralization. After deployment and finalization, the {{PegLoan}} smart contract, should no longer be controlled by anyone, and be available to all Ethereum users.

Tip of the hat to MakerDAO

This proposal recognizes standing on the shoulder of Rune Christensen, the MakerDAO team, the Maker community, and the world changing impact they have had. Keeping in mind that ideas and progress are not beholden to any one group or person, the proposal uses learnings from the remarkable experiment they have run, and shares in the common goal of evolving digital finance.

Branding

A few options detailed below:

1. PegLoan and PegDollar

The more generic branding can be used for any public blockchain, and is consistent with the terminology used.

In case of use on the Ethereum blockchain, this generic branding is a fallback to the more compelling option below. Of course the Ethereum community can effectively reject the branding below, based on the sentiment that the product does not sufficiently align itself with Ethereum, or it is attempting to illegitimately appropriate the community’s identity.

2. UniLoan and UniDollar

Preferred option for Ethereum.

The brand symbology and emoji representation is inherently “meme-able”, adding to the velocity of the product’s dissemination.

The innovators and early adopter market segment, who have significant community influence, and believe in the Ethereum community’s value of maximal decentralization, have already been exposed to this symbology and can be recruited to spread the word about Uniloan and UniDollar.

Of course adoption of this branding mainly depends on the community’s effective permission to use it, based on their sentiment of how aligned the product is with the Ethereum ideals.

2.a. Unicorn dollar

This would be the preferred currency symbol for at least the initial stages of the product (before crossing the chasm), when the innovators and early adopter market segment would likely prefer to use this notation in their apps, as it reinforces a sense of community.

Referred to as Unicorn dollars.

2.b. Uni dollar

For mass users of UniDollar, more likely part of the early and late majority, who may not be familiar with the Unicorn symbology, having a more conventional and less light alternative representation is desirable. It will will help establish the trust and comfort required to use the currency for everyday commerce, both by consumers and by merchants. For example, one can imagine this symbol being used in payment applications, spreadsheets or accounting software user interfaces.

Market

{{PegDollar}} and {{PegLoan}} represent the two sides of our system’s two sided market, one focused on consumers and the other on financial investors. Per our vision, primary focus will be more on the consumer market.

The main market we are considering is the “general-purpose consumer money” market, or larger segment. We will consider the various properties that determine demand for a given money product in this market, whether they are determined by the consumer’s desires, technical aspects of that money product, or the environmental factors such as jurisdictional regulation. We will also categorize the market and define sub-segments, in order to better show the optimal positioning of {{PegDollar}}.

We will also briefly touch on the “Digital asset backed loan” market, and discuss optimal positioning of {{PegLoan}} for the system’s other stakeholders such as loan takers, price feed providers, liquidators, and market arbitragers.

Desired properties

In general, a good money product candidate should demonstrates a good level of the following properties to the end-consumers:

  1. Store of Value (SoV) - the consumer likes to be assured that the value they hold in a money product is not lost.
  2. Medium of Exchange (MoE) - the consumer likes to use a money product that can be used for a wide array of markets for a wide array of economic transaction types.
  3. Unit of Account (UofA) - The consumer’s mental accounting of sending and receiving money is least costly when most of the economic transactions they participate in, use the same stable unit of account. This makes exchange across different markets predictable and less mentally exhausting.

Reference value and backing

Any money products consists of technical components such as their reference value, their backing assets, and the payment networks that support them.

Reference value

Money products track a commonly accepted concept of value per unit of account through time. In a global setting, and assuming minimal regulatory limitations, taking the US dollar ($) as the money’s reference value, results in optimal SoV and UoA properties of that money. In a jurisdictional setting, most common choice is the national currency. Selecting a national currency as reference value, adds a centralization factor around determining the value of money, that could potentially be exploited by the national government, through printing money, and inflating its value.

Interest bearing

A money product that can earn risk free interest, while not in use, is superior to one that does not. Bank deposit money does earn small amounts of interest when stored in savings accounts that subjects the money to some restrictions around withdrawal. DAI and {{PegDollar}} offer considerably higher variable interest, which makes them a better in terms of SoV as not only are they likely not to lose value, the value is likely to increase with time.

Asset backing

In order to ensure their long term value, money products are fully or partially backed by other assets. The mechanisms of this backing and the type of assets used determine many of the technical risk parameters of such a money product. Some common examples of this are Gold, digital assets like BTC and ETH, or the national currency like US dollar ($), Euro, or Chinese Yuan.

Payment network

This is a network of payment senders and receivers, backed by underlying payment infrastructure. The backing assets of a money product are the least visible to consumers, however they affect and are heavily dependent upon regulatory factors. In case of {{UniDollar}} backed by {{UniLoan}}, the specific selection of backing assets as digital assets, mainly affects the other side of the market, namely the “digital asset backed loan” market;

In order for a money product to be a good Medium of Exchange (MoE) it has to be widely available in markets that consumers want to participate. Low cost of access, as well as merchant and consumer desire to be part of a money payment network, determines the extent of the money’s desirability as a MoE.

Jurisdictional considerations

In many jurisdictional sub-segments, due to regulatory enforced limitations, most everyday economic transactions can only be denominated in the national currency. This, most viable money candidates have no choice but to use that jurisdiction’s national currency as their reference value, as well their backing asset.

Unfortunately, in many cases this occurs even if the national currency does not represent good characteristics for Store of Value (SoV), due to consistently large inflation, and volatility. Some examples like Argentinian Peso and Iranian Rial demonstrate the extent of this problem.

Categorization

Numerous sub-segments exist in the greater “general-purpose money for consumers” segment, some of which are already seeing very large scales market activity. Some of these include our daily use of cash, credit/debit cards, money apps and bank transfers. We categorize the market sub-segments as follows:

Market segment Reference value Asset backing Interest bearing Payment network SoV rating MoE rating UoA rating
Physical cash money (bank notes) National currency Gold, National credit and rep No Physical commerce 🔴Low to 🟢High (jurisdictional) 🟡Medium to 🟢High 🟡Medium to 🟢High (jurisdictional)
Credit card money National currency Consumer credit No Digitized commerce 🔴Low to 🟢High (jurisdictional) 🟡Medium to 🟢High 🟡Medium to 🟢High (jurisdictional)
Bank deposit money debit card National currency Consumer deposit, Bank credit Yes Transfer network (like ACH) 🔴Low to 🟢High (jurisdictional) 🟡Medium to 🟢High 🟡Medium to 🟢High (jurisdictional)
Corporate digitized money National currency Consumer deposit, corporate credit No Money app 🔴Low to 🟢High (jurisdictional) 🔴Low to 🟡Medium 🟡Medium to 🟢High (jurisdictional)
Corporate stable-coin money US dollar ($) Corporate deposit 100% (Some cases credit) No Public blockchains 🟡Medium to 🟢High 🟡Medium 🟢High
State backed stable-coin money National currency Gold, National credit Yes Public blockchains 🟡Medium to 🟢High (jurisdictional) 🟡Medium 🟢High
DAO-governed asset-backed stable-coin money US dollar ($) Digital assets >100% (often ETH) Yes Public blockchains 🟢High 🟡Medium 🟢High
Trust-minimized asset backed stable-coin money US dollar ($) Digital assets >100% (often ETH) Yes Public blockchains 🟢High 🟡Medium 🟢High

Notable exclusions

Notable products

Product Market segment Reference value Asset backing Interest bearing Payment network SoV rating MoE rating UoA rating
US dollar ($) bills Physical cash money (bank notes) US dollar ($) Gold, National credit and rep No Physical commerce 🟢High 🟢High 🟢High
Argentine peso bills Physical cash money (bank notes) Argentine peso Gold, National credit and rep No Physical commerce 🔴Low 🟢High 🟡Medium
Any US credit card Credit card money US dollar ($) Consumer credit No Digitized commerce 🟡Medium to 🟢High 🟢High 🟢High
Any US deposit bank w/ debit card Deposit and debit card money US dollar ($) Yes Consumer deposit, bank credit Digitized commerce 🟢High 🟢High 🟢High
Venmo Corporate digitized money US dollar ($) Consumer deposit, corporate credit No Money app 🟢High 🟡Medium 🟢High
PayPal Corporate digitized money US dollar ($) Consumer deposit, corporate credit No Money app, payment provider 🟢High 🟢High 🟢High
WeChat Pay Corporate digitized money Chinese Yuan Consumer deposit, corporate credit No Money app, payment provider 🟢High 🟢High++ 🟢High
Tether Corporate stable-coin money US dollar ($) Corporate deposit and credit (<100%) No Public blockchains 🟡Medium+ 🟡Medium 🟢High
Coinbase USDCoin (USDC) Corporate stable-coin money US dollar ($) Corporate deposit (100%) No Public blockchains 🟢High 🟡Medium 🟢High
Digital US dollar ($) State backed stable-coin money National currency Gold, National credit No Public blockchains 🟢High 🟡Medium 🟢High
Digital Chinese Yuan State backed stable-coin money National currency Gold, National credit No Public blockchains 🟢High- 🟡Medium- 🟢High
DAI DAO-governed asset-backed stable-coin money US dollar ($) Digital assets >100% (ETH) Yes Public blockchains 🟢High 🟡Medium 🟢High
{{PegDollar}} Trust-minimized asset backed stable-coin money US dollar ($) Digital assets >100% (commonly ETH) Yes Public blockchains 🟢High+ 🟡Medium 🟢High
{{PegWTF}} Trust-minimal asset backed stable-coin money US dollar ($) Digital assets >100% (commonly ETH) Yes Public blockchains 🟢High++ 🟡Medium 🟢High

Terms

Stable-coin - A fully digital token whose value that is stable relative to a reference pegged asset with high level of historical stability. The reference pegged asset could be anything from a national currency like the US Dollar ($), to a basket of stable and uncorrelated assets, such as basic commodities, or currencies.

Digitized commerce/money - Commerce or money that is represented and operated in digital form in order to achieve efficiencies offered by digital automation. The digitization is however not with full fidelity, and relies on a mechanism to tie the digital representation to physical representation of value, through legal and operational processes representing overhead.

Digital commerce/money - Commerce or money that is backed, represented and operated fully in digital form in order to achieve even higher efficiencies offered by digital automation.