NOTICE: There has been a modification in the protocol proposed and voted by the MoC Holders, for which this article is out of date and is how the model initially worked. You can find the updated version of "Deep Dive into Money On Chain" in this other article.
Brief description: What’s Money On Chain?
A Bitcoin-collateralized stablecoin would minimize the counterparty risks found in other stablecoins, such as traditional bank accounts or less established blockchains.
The collateral is not held in a third-party bank account, but, instead, in a smart contract secured by the most liquid and widely used blockchain in the world. An open-source smart contract on the RSK network provides part of the solution, but the main benefits are derived from building on top of Bitcoin. We provide a solution to the counterparty risk problem by collateralizing on top of Bitcoin.
Disclaimer: This post contains a mention of the leveraged position BTCX, which was removed from the protocol to simplify the Money On Chain model through its decentralized governance process. To learn more about it, we recommend reading the publication Simplification of the Money On Chain model
The solution entails several tokens: the Dollar on Chain (DoC), that is the first Bitcoin Collateralized Stablecoin; the Bitpro (BPro), a token designed for Bitcoin Holders; and the BTCX, a leveraged Bitcoin long position. The protocol includes also the Money On Chain Token (MoC), a governance token. Money on Chain platform also includes a decentralized token exchange (TEX) for the trading of tokens on the RSK blockchain.
Let’s dive deep into Money On Chain.
The financial system and its fiat money are proving inefficient. Frictions and large overheads have led to a system that is slow and expensive.
In this scenario, cryptocurrencies are attractive because they help us overcome these inefficiencies. Cryptocurrencies are growing rapidly, shaking the financial system to its core. The technological backbone of Bitcoin and other cryptocurrencies is the blockchain, which uses a distributed ledger to record the information of all holdings and transactions in their domain.
Any currency, be it fiat or cryptocurrency, needs to fulfill the three functions of money to be accepted in society: it needs to function as (i) a medium of exchange: (ii) a unit of account, (iii) a store of value.
All these characteristics, however, are compromised when a currency is too volatile, as Bitcoin is.
As a solution for the problems caused by volatility, several stablecoins were created for the cryptocurrencies market. Most of these have solved the volatility issue but have brought new problems that we will describe in greater detail throughout this article. Money On Chain proposes a novel solution that solves the volatility problem without the downsides caused by other stablecoins solutions.
To solve Bitcoin’s volatility problem, Money On Chain provides a Bitcoin-collateralized stablecoin using a three-party system.
Money On Chain strips Bitcoin’s volatility into two separate tokens:
The Dollar on Chain (DoC) — first Stablecoin backed by bitcoin. The token price is pegged to the USD Dollar, and the peg is guaranteed (1DOC:1USD) by the SmartContract.
The Bitpro (BPro) — a token suitable for Bitcoin holders. This token receives:
The DoC tokens perform the three functions of money mentioned above, being: a medium of exchange, a unit of account, and a store of value.
The BPro tokens gets the volatility of Bitcoin not wanted by DoC Holders. Thus, BitPRO is even more volatile than Bitcoin. BitPRO holders sell part of that volatility to traders looking for leverage (BTCX), earning a passive income.
The BTCX is a BTC/USD instrument that is settled in Bitcoin. It is a X leveraged long operation on the price of BTC (current leverage is set to 2 each 30 days). In the future the protocol will include up to 20X leveraged, long and short positions.
Money On Chain will issue a third token: the Money On Chain Token (MoC). MoCs will have several use cases:
There will also be a decentralized token exchange (TEX), that will trade any tokens on the RSK Blockchain. Unlike most traditional crypto currencies exchanges, the mechanism used for trading in the TEX is based on The London Gold Fixing (or Gold Fix) method. It is based on an order book (OB) and periodic ticks, that is, the OB is loaded by the users between ticks and every certain period of time the price setting is executed and the operations are closed. OB orders can be canceled at any time by the user who uploaded it. The operation based on ticks and operation at an emerging price, is proposed as a way to avoid front-running, and ensures a fair price discovery, even with low volume.
The protocol will also include Oracles MOC (OMoC): It is a service that provides data (initially BTC price) to the MOC Protocol and any other Smart-Contract that requires it. Some features that distinguish it from other currently available Oracles are:
-A part of the Fees charged in the MOC protocol for the issuance and destruction of tokens (DoC, BPro and others that are generated in the protocol), will be distributed among those who run nodes.
-A portion of the interest paid by users who perform leveraged operations using the protocol.
-A portion of the decentralized token exchange (TEX) fees
-Other Smart Contracts that make use of OMoC.
-MoC Rewards: a part of the MoC to be issued will be distributed among MoC holders that run an OMoC node.
Let’s suppose Alice is a long-term bitcoin holder. Alice will find it attractive to buy BitPros with her bitcoins to get a passive income and free leverage. Alice’s purchase provides liquidity to the protocol.
Bob instead is not risk prone and prefers to buy DoCs with his Bitcoins. Bob’s DoCs will use Alice’s Bitcoins as collateral. Bob may use his DoCs to make payments at a predictable value.
Finally, Carol, who is prone to risk and wishes to trade with her Bitcoins, takes leveraged positions in BTCX, reducing the volatility of Alice’s BitPro and paying her for the leverage.
The following graph illustrates the behavior of the model in terms of bitcoin. It is also based on a starting point price of USD 10,000 per bitcoin, with 14 bitcoins in the protocol, of which 2 are in a 2x leveraged operation, 9 are in BPro and 3 bitcoins are in DoC. To the right of the starting point (when the price of bitcoin is USD 10,000), it is observed how the model behaves after a 100% increase in the price of bitcoin. To the left of the starting point, the behaviour of the model is observed after a 50% price drop.
Within Money On Chain architecture, we distinguish the following Platform users (some users may have more than one role, that is, it may be a MoC holder and a stablecoin holder):
Bitcoin is the most liquid cryptocurrency and has the largest market capitalization and biggest user base. It is also the oldest cryptocurrency and its protocol privileges stability, robustness, and immutability over new features that might endanger network security. Bitcoin also has more cryptographic mining power than any other cryptocurrency. All these characteristics make Bitcoin the safest payment system available.
We believe that Bitcoin’s biggest advantage is decentralization. This implies a unique, little-understood quality: the resistance to rules being changed. In other words, no entity has enough power to change the rules governing Bitcoin without consensus among miners, users, developers, and companies.
The clarity of Bitcoin’s monetary policy is another critical reason for choosing it as collateral over other cryptocurrencies. This policy is immutable: there is a pre-established limit of 21 million Bitcoins and a decreasing rate of emission, which means we can anticipate how the future will unfold. The 21 million token limit ensures scarcity. Bitcoin is deflationary because this supply is reduced when Bitcoins are lost because of hardware damage, to wallets without backups, the death of holders without instructions to heirs, and so on.
For all these reasons, Bitcoin is the most secure, popular, widely used Blockchain in the world. We believe that using its strengths and making them our own is a much smarter, more efficient strategy than trying to compete with it.
Money On Chain solution is different from other stablecoins for the following reasons:
We will issue the Money On Chain Token (MoC), which will have several use cases:
Each time someone uses Money On Chain’s protocol a small fee is paid. Users pay that fee in Smart Bitcoin that will be collected and sold for MoCs in the Money On Chain Decentralized Exchange (TEX). The result of that sale is going to be distributed, according to the rules established in the Smart Contract, among:
MOC’s holders will have the power to vote and veto the platform updates, in a way that any change that might affect the interests of the MoC´s holders, shall not be implemented without a majority of such MoCs´ holders voting in favour of those changes.
Any change to the smart contract may be proposed by any MOC´s holder as long as such holder has at least 1% of the circulating supply. Users can form join voting pools in order to reach this 1%.
Only Staked MoCs can vote.
To be valid, any voting procedure shall require a quorum equal to –at least- twenty percent (20%) of all circulating and outstanding MoCs.
In order to be approved, a proposal shall require the affirmative vote of — at least — the majority of MoC´s holders; provided, however, that a proposal which has obtained negative vote of — at least — thirty percent (30%) of the total amount of the MoCs issued and outstanding at the time the voting procedure expires, In that case the vote shall not be approved and, therefore, will be considered as rejected. If MoC total Market CAP is smaller than total BPro Market CAP, the BPro holders will be able to veto with 30% of total BPro in circulation (only vested BPro tokens will be able to veto).
Our model is subject to several risks, which we propose to mitigate through a series of actions. These risks relate to:
This document represents work in progress and illustrates the intent of Money on Chain to develop and launch the platform and to issue the tokens at the Token Generation Event. This instrument may be subject to changes due to any technical, operational, financial, legal, or regulatory requirements which may be necessary in order to the proper development and functioning of the Money on Chain project.
The implementation of our solution is built on new Blockchain technologies and it is expected that some significant changes will be required to fulfill the project vision and to adapt to evolving technologies. Such changes may be made by Money on Chain without the prior consent of token holders; provided, however, that MoC´s holders will have the right to vote and veto regarding such changes that may affect the terms of the smart contract.
No information in this document should be considered to be business, legal, financial, or tax advice regarding Money on Chain or the acquisition of the tokens referred herein. You should consult your own legal, financial, tax, or another professional advisor regarding Money on Chain and its business and operation, before deciding to invest in the tokens offered pursuant to this white paper. You should be aware that you may be required to bear the financial risk of any purchase of MoC tokens for an indefinite period of time.
No person has been or is authorized to give any information or representation not contained in this document in connection with Money on Chain and its business and operation and, if given, such information or representation must not be relied upon as having been authorized by or on behalf of Money on Chain. This paper represents the final document regarding the Money on Chain´s project and the issuance of the tokens hereunder and supersedes any disclosures, terms, and conditions previously provided by Money on Chain to prospective purchasers.
The roadmaps presented in this document represent Money on Chain’s current view of its product development cycle, business strategy, and future directions. It is intended for information purposes only and should not be interpreted as a commitment on the part of Money on Chain. Money on Chain makes no warranties, express or implied, in this document regarding the accomplishment of the aforementioned steps in each date set forth in the roadmap.
This document contains projections, valuations, estimates and other financial data supplied by third parties. Such third-party information has not been created and is not endorsed by us. The provision of third-party content is for general informational purposes only and does not constitute a recommendation or solicitation to purchase or sell any security or make any other type of investment or investment decision. We are not responsible for the accuracy, reliability or currency of the information supplied by external sources. Prospective investors wishing to rely upon this information should consult directly with the source of the information.
This document contains forward-looking statements or information (collectively “forward-looking statements”) that relate to our current expectations of future events. In some cases, these forward-looking statements can be identified by words or phrases such as “may”, “will”, “expect”, “anticipate”, “aim”, “estimate”, “intend”, “plan”, “seek”, “believe”, “potential”, “continue”, “is/are likely to” or the negative of these terms, or other similar expressions intended to identify forward-looking statements. We have based these forward-looking statements on current projections about future events and financial trends that we believe are relevant to our financial condition, results of operations, business strategy, financial needs, or the results of the token sale.
In addition to statements relating to the matters set out here, this document contains forward-looking statements related to our proposed operating model. The model speaks to our objectives only, and is not a forecast, projection or prediction of future results of operations. Forward-looking statements are based on certain assumptions and analysis made by us in light of our experience and perception of historical trends, current conditions and expected future developments and other factors we believe are appropriate and are subject to risks and uncertainties. Although the forward-looking statements contained in this document are based upon what we believe are reasonable assumptions, there are risks, uncertainties, assumptions, and other factors which could cause our actual results, performances, achievements and/or experiences to differ materially from the expectations expressed, implied, or perceived in forward-looking statements. Given such risks, prospective participants in the token sale should not place undue reliance on these forward-looking statements.