Stablecoin Overview

Predictability for Contributors

Olas stablecoin design is based on the following assumptions:

  1. If the protocol is to achieve its goals of maximum autonomy to provide journalists with an extremely secure platform from which they can shine a light on those in power, a censorship-resistent currency is required.

  2. Many users won't want to be exposed to excessive currency volatility and will want their earnings predominantly dependent on their performance in the review markets.

  3. Almost all currencies that attempt to fix to an external peg fail.

  4. Successful currencies that remain stable are governed with low levels corruption and remain stable within their own economy. The are relatively stable against other stable currencies as a result.

  5. Since the Olas economic model is based on donations and tipping, nothing has an official price. This brings challenges for stability targetting.

A Secure and Stable Fallback

We expect most contributors are likely to prefer their local fiat currencies or the US dollar. This is because the costs they face every day are in their local currencies and USD is a very hard currency with by far the most liquidity globally. However, all of these currencies are subject to control by governments and these governments regularly use their control over them to achieve domestic political or geopolitical goals. Consequently, journalists using these currencies always run the risk of having their money frozen or seized on account of the work they do. This is in fact one of the primary ways authoritarian regimes suppress the work of journalists critical of them. The US government also regularly uses sanctions to further its goals. The case of Wikileaks highlighted that the mere threat of sanctions can lead to journalists being debanked.

What is required therefore is a censorship and seizure resistant currency journalists can always rely on in case authorities abuse their power to silence them. Olas, the native asset to the Olas system, is of course both of these things. However given it is designed with the goal of being attractive to investors, it is almost guaranteed to be volatile. Such volatilty exposes the earnings of journalists to factors outside of their control, a situation which is highly undesirable. What is needed therefore is another currency that holds these properties but is designed with stability in mind.

The Graveyard of Currency Pegs

History is littered with attempts to achieve stability by pegging to an external currency. These attempts always fail as asymmetric economic performance pushes the collateral maintaining the peg and the value of the pegged currency in different directions. Eventually a point is reached where the peg can no longer be maintained. The only exceptions to this rule are when the maintainer of the peg also has unfettered access to the underlying it is pegging to. Examples of this are petro states that peg their currencies to the dollar while also earning huge amounts of dollars every day by selling oil. They can always meet their obligations to maintaining the peg as a result. Another analogous case is that of the Bahamas which earns USD every day from US tourists. Apart from these exceptions, all other currency pegs in history have failed for the reasons stated above.

Stable Currencies that Succeed

Currencies that are both durable and stable have a number of properties. Firstly they have a credible and predictable monetary policy that inspires trust in those that might hold it. The processes by which policy is changed are well-signalled, mostly independent from politics and are not corrupted. Independent monetary institutions attempt to keep the currency they issue stable in their own economy. To achieve this a certain rate of inflation - normally 2% - against a basket of goods and services is targetted. Interest rates are adjusted according to the price moves of this basket and sometimes employment levels in an economy. If this strategy is well-implemented, the currency remains stable in its own economy, and relatively stable against other well-managed currencies. It is rare the world's most stable government-issued currencies would fluctuate more than 10% against each other in any given calendar year.

Olas Stablecoin Summary

The yet-to-be named Olas stablecoin will be built with these history lessons in mind.

  1. The currency will be issued by being collateralised with Olas.

  2. Donations and tips will be automatically converted to the native currency.

  3. There are two mechanisms available to us to use to stabilise the currency. Firstly, contributors could suggest three tip amounts (small, medium large) for their article. These suggested prices would reasonably be expected to be elastic to demand and could therefore be used as a peg for the stablecoin analogous to how central banks stabilise fiat currencies. Alternatively the interest rate that governs issuance could adjust according to the velocity of donations and tips as there since there are no real prices in a charity-based economy. It's possible a combination of both these approaches could be employed. Olas will model all approaches and choose which one proves to be the most effective at producing a stable currency.

  4. If suggested tips and/or velocity increase(s), so too will the interest rate. Conversely if they decrease, the interest rate will be lowered to discourage issuance.

  5. Bank run protection can be coded into the stablecoin in the knowledge that prices can only diverge from fundamentals for so long during speculative attacks.

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