Setting the Problem
Functions of Money
Medium of Exchange
Store of Value
Unit of Account
Bitcoin and other cryptocurrencies using the innovative Blockchain technology have emerged to give a response to the various challenges such as frictions, large overhead costs and lack of speed the financial system with its fiat money is currently facing. Unfortunately, cryptocurrencies prove to be extremely volatile, which limits its use to function properly as a replacement of traditional fiat money.
We provide a Bitcoin-Collateralized Stablecoin using a two token system. To do so we use smart contracts on the RSK Bitcoin sidechain, which allow us to strip the volatility of the Bitcoin into two separate currencies:
Dollar on Chain (DoC), for risk averse individuals
Tokens for Propense Risk individuals (TPro)
The Dollar on Chain (DoC) tokens will be stable against the US Dollar, whereby each DOC token has a value of 1 US dollar. These tokens will have no volatility against the Bitcoin and hence be stable therefore providing a risk free asset. Furthermore these tokens can be used to fulfill the functions of money earlier describe.
The Tokens for Propense Risk individuals (TPro) on the other hand will bear not only the risk of Bitcoin, but also the unwanted risk of Dollar On Chain buyers. The TPro per se hence has a greater volatility than just the Bitcoin itself. The increased volatility results from the sum of the risk of Bitcoin and the assumed risk from Dollar On Chain holders.
The explained risk mechanism guarantees a symbiotically coexistence of both tokens, where the TPro holders, can enjoy a greater appreciation in the value of their assets since the holders of the DoC transfer their gains for the bitcoin rises to the TPro holders in exchange for the stability .
The target group of Dollar On Chain (DoC) are risk averse individuals. The peg against the dollar guarantees stability and therefore a risk free asset.
Tokens for Propense Risk Investors (TPro) bear more risk because of the Bitcoin risk and the assumed risk from Dollar On Chain holders. The high volatility makes TPro tokens interesting for individuals who bet both the rise and fall of the price of bitcoin in the short term.
At the same time TPro Tokens are interesting for bitcoin Holders that are not interested in short-term. High-risk operations can use different leverages to adjust the risk.