Tracer Drop Episode #11: A New Algorithmic Stable Coin for Tracer

A New Algorithmic Stable Coin for Tracer


  • Introduction
  • Stable coins In DeFi
  • Focus on Stable coins
  • Evolution of Stable coins
  • Stable coin Tracer Derivative Designs
  • A Tracer Use Case
  • A Role for Stable coins
  • The NGDP Proposal
  • NGDP Tracer Model

Call Recording: Here


  • Tokemak reactor is LIVE
  • Liquidity is available for Tracer Token (TCR)
  • Runtime verification audit coming up - proposal passed for v2 perpetual pools contract
  • Opportunites in Tracer to use derivative smart contracts in interesting ways
  • Stable coins are a technically complicated part of the DeFi ecosystem.

Stable coins in DeFi

  • They are digital money in DeFi amongst many others.
  • Stable coins are functionally useful units of accounts
  • The purpose of money is a unit of account to make calculations of worth and facilitate the exchange
  • Digital money that works in the blockchain
  • Scott Sumner: Stabilize store of value of the unit of accounts
  • Store of value can be misunderstood - You would want to have something that does not appreciate or depreciate

Focus on Stable coins

  • Stablecoins are (commonly) denominated in USD
  • Used as the unit of account for international trade
  • What is the US dollar stable in respect to?: Used to be the quantity of gold.
  • Since the 1970s, it has been stable with respect to expectations of the viability of the US government collecting taxes from citizens they have jurisdiction over.
  • Same with other countries.
  • The stability of fiat is only stable in respect to future tax systems
  • The US dollar itself is not all that stable.
  • Profound fundamental problems with the US Dollar and other fiat currencies
  • Satoshi came up with a digital currency (or digital gold).
  • The value of the US Dollar should not be underestimated.
  • USD has been around since the end of the Second World War and was fixed in terms of gold.
  • After Bretton woods, other currencies pegged to the US Dollar.
  • Lots of cheating happened and this system fell apart.
  • Since then, we have been on floating exchange rates.
  • USD has consistently depreciated.
  • Stable coins are then, effectively depreciating.

Evolution of Stable coins

  • Started with fiat-backed stable coins (USDC or USDT)
  • Stable coin issuers keep fiat currency and you can buy fiat-backed stable coins
  • Then evolved to cryptocurrency-backed stable coins like Maker DAO.
  • To ensure peg is kept, we look at the oracle price of USD and liquidate backing of collateral value crashes
  • Protocol Control Value Stable coins (Olympus DAO)
  • Governors control collateral backed by stable coins.

Stable coin Tracer Derivative Designs

  • Friedrich Hayek: Work on currency and monetary economist.
  • You need to de-nationalize money - governments can manipulate the money supply
  • Cryptocurrency de-nationalizes to an extent.
  • Commodity-based money: Instead of connecting to the gold standard, it is impractical to return to. You need politicians to with values and standards to maintain
  • Money should be pegged to ‘Warehouse Receipts’
  • You have a warehouse full of goods and all are worth something in the open market, and peg money to that.
  • As the value of goods/services increase and decreases, the value of money remains stable in regards to them.
  • Limitations: Which goods should you include and exclude
  • We have something called GDP: Reasonable optimation of the value that the economy is producing.
  • Nominal GDP: Value in nominal dollars
  • People spoke about governments creating nominal GDP targetting regimes for money.
  • Using Tracer, private people can create nominal GDP-backed stable coin without government.

A Tracer use case

  • Involving a Tracer perpetual pool and ‘Maker DAO’ type system where you build stable coin tracking nominal GDP and no problem re-nationalizing a currency to the USD and pegging stable coin to a depreciating asset instead, you will peg to a realization value of something which grows and falls to the economy as well.
  • Currency is stable with respect to the economy
  • Scalable.
  • One Tracer market and two Maker DAO type system

A role for Stable coins

  • Stable with respect to what? Old: gold and new: expectations of future tax receipts divided by the precariousness of federal reserves willingness to print money
  • The currency unit should be stable with respect to the economic activity taking place in the economy
  • Trading with the region: Need money stable with all parties (World money)
  • We have government money with respect to government money
  • We can measure GDP in a region, state, city.
  • Because we can measure, we can create stable money with respect to the economic activity over a region and stabilize with respect to a trade region
  • Combination of Nominal GDP (NGDP) oracles of a series of contracts

The NGDP Proposal

  • The idea is using Tracer derivative markets to produce an oracle of expectation about future price levels or GDP levels.
  • Use the price of the perpetual pool to see what the community expectations of nominal GDP would be.
  • The pool token itself can be an NGDP stable coin.
  • The price of a perpetual pool token can be used to build any type of algorithmic stable coin you want.
  • Take the price and treat it as an oracle and build a ‘Maker DAO’ borrowing and lending style stable coin and cryptocurrency-backed or any other stable coin model that relies on an oracle.
  • Tracer products need oracles and become oracles of predictions and price feeds between unclear price feeds.
  • Fundamentally, we want to exploit the capabilities of Tracer products to do things that add real-world value.

NGDP Tracer Model

  • A huge breakthrough is that all monies had physical backing of it.
  • Bitcoin de-materialized this and created digital scarcity for backing.
  • NGDP is turning it into trust in information feeds of the economic activity.
  • How much economic activity is taking place in a region and using the information through oracles to create stability in the money.
  • Components: Platform to point it at, Information measure across the economy and agreement.
  • Information and decentralization of money.
  • Oracle technology + protocols = amazing trade money
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Not to put a damper on things but the recent US banking committee suggests stablecoins are going to get a regulatory haircut to tame the wildcats into treasury pussies.

whilst the USD and EUR have their DeFi equivs, did you know that USD to AUD&NZD pair are ranked #5 & #7 by FX volume? Sometimes a defensible niche is easier than the obvious market with low barriers to entry

The role of algo-coins (algorithmic or protocol coins) as described in the Tracer Drop is interesting, whether it will be taken up by retail level or stay at a wholesale function and convert to fiat at the end. If RMIT does implement, then will be radical in redefining a store of value category if adopted.

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