Setting the Problem
The financial system and the fiat money it uses are proving more and more inefficient. Frictions and large overheads have led to a system that is barely able to cope with the dynamic business environment of today. It is slow and expensive. While established investors may be used to this system, newer ones—especially the younger generation—are extremely sensitive to these issues.
Any currency, be it fiat or cryptocurrency, needs to fulfill the three functions of money to be accepted in society.
Medium of Exchange
Store of Value
Unit of Account
All these characteristics are compromised when a currency is too volatile: goods prices become unstable, account values fluctuate wildly, and only risk-seeking investors will want to invest. In other words, stability is a desirable characteristic for any currency. Unfortunately, cryptocurrencies have proved to be extremely volatile, and Bitcoin is no exception: its price can change by over 10% in a normal trading day.
To solve Bitcoin’s volatility problem, we will provide a Bitcoin-collateralized stablecoin using a three-party system:
We strip Bitcoin’s volatility into two separate tokens:
- The Dollar on Chain (DOC), is pegged to us Dollar for risk-averse individuals
- The BitPRO, a token for risk-propense Bitcoin holders seeking a passive income in BTC
The DOC tokens will be stable and pegged to the US dollar, such that each DOC token will have a value of USD 1. As these tokens will be entirely stable, they are a volatility-free asset that will perform the three functions of money mentioned above: a medium of exchange, unit of account, and a store of value.
The BitPRO tokens will follow the volatility of Bitcoin’s price and take on the unwanted Bitcoin-related risk of the DOC tokens. BitPRO holders will then be able to sell that volatility to traders looking for leverage in a decentralized derivatives exchange (DEX). BitPRO will thus be even more volatile than Bitcoin itself, but it will earn a passive income from leveraged operations made by traders in DEX.
The symbiotic relationship between DOC holders, BitPRO holders, and leveraged Bitcoin operation traders in DEX is at the heart of our model. Demand for both currencies and DEX operations is a key success factor. BitPRO token holders’ assets appreciate more thanks to DOC holders, who transfer their gains from Bitcoin’s appreciation to BitPRO holders and DEX operations made by traders in return for the stability of the DOC.
We will issue a third token, the Money On Chain Token (MOC). The MOC’s will have three uses:
- MOC holders will have a discount when paying the fees for the use of the platform using MOCs
- They will have the power to vote and veto the platform updates.
- The MOC Holders will be able to run an Oracle that will provide BTC prices and other data to the platform and get a reward for doing this.
The decentralized cryptocurrency exchange for Bitcoin-leveraged operations (DEX) will be open to the Bitcoin community. It will operate BTC/USD swaps, Bitcoin-settled. Exchange fees may be paid in MOC during the operation.
There will be also a decentralized token exchange (TEX), to trade any tokens on the RSK Blockchain.
The target group of Dollar On Chain (DoC) are risk averse individuals. The peg against the dollar guarantees stability.
BitPro tokens are interesting for bitcoin holders that are not interested in the short-term. It will allow BTC holders to earn a rent on their position, and gain free leverage.
The DEX is oriented for traders seeking to maximize earnings on leverage on the derivatives exchange market.
How the Model Works – Example
In this video there are three actors:
- Alice that is a long-term bitcoin holder, and finds it attractive to buy BitPros with her bitcoins to get a passive income.
- Bob instead who is not risk prone and prefers to buy DOCs with his Bitcoins. He may use his DOCs to make payments at a predictable value.
- Carol, who is prone to risk and wishes to trade with her Bitcoins, takes leveraged positions in BTCx.