After more than 4 years of implementing the protocol in mainnet, of experiences, learning, and creation of contents such as the website, the wiki, and the blog, the Money On Chain ebook is published.
Each of these contents fulfills a specific communication objective that serves users at various times.
The website presents the gateway to the Money On Chain world where you can get information about the full range of possibilities the protocol offers and access to the community and learning resources.
In this sense, the wiki plays the role of a step-by-step guide or tutorial, where you can find information on how to access the protocol, configure software and hardware wallets, and obtain tokens.
The blog contains informative and educational articles on the protocol and topics related to Bitcoin and the DeFi ecosystem on Rootstock.
The Money On Chain ebook reflects these topics. It consolidates the information developed over the years into a living document, as it is not written in stone but in PDF and Kindle format.
You can download the Money On Chain ebook by following this link:
As a preview, below you can see the table of contents:
Download the ebook and then leave your comments below, share it on social media, and/or join the conversation in our communities on Telegram and Discord.
In this article we will talk about the bull run, what it is, and the possible scenarios in which Money On Chain can respond in these circumstances.
In the world of bitcoin and cryptocurrencies, the technology is initially seen as an investment opportunity. As a result, several terms from Wall Street, such as bear market, bull market, buy/sell, market cap, and bull run, are used to describe market conditions.
Recently, analysts have increasingly pointed out that a new Bitcoin bull run is expected in the coming months, after the halving event. This is due, among other things, to the possible repetition of previously observed cycles.
As a brief definition, we can say that a bull run is a period in which the majority of investors are buying, demand exceeds supply, market confidence is high and prices are rising (they can last weeks or months).
In this sense, we often say that Money On Chain can be particularly relevant for long-term investors (hodlers) who believe in the potential of Bitcoin and are willing to hold on to their investments despite short-term market fluctuations.
Money On Chain has many variables to consider, but regarding the performance of BPRO over Bitcoin, in general, there are 3 scenarios to take into account in a bull run:
The proposed scenarios can be said to occur in a vacuum, that is, they are theoretical since the variables taken into account are just that, variables, and are not sustained over time. But they serve to illustrate the behavior of the model and what to expect from it.
If you need more detail about how the model works, you can read the following article Deep Dive into Money On Chain.
In this first scenario, we assume that the issuance of DOC tokens remains in minimum quantities compared to the maximum possible according to the amount of BPRO minted (collateral).
What happens in this scenario is that since there is a lot of collateral compared to the number of DOC tokens minted, the global coverage remains high and because of this the BPRO leverage is at low levels. In this way, the performance of the BPRO (percentage difference in price compared to bitcoin) tends to be lower.
In a bull run, the price of BPRO increases more than bitcoin’s, but gently.
For the second, we assume that the issuance level of DOC tokens is half of the maximum amount.
These conditions mean that the global coverage is lower than scenario 1, although still much higher than the collateral of other stablecoins. This is reflected in the fact that the leverage is greater, leading to an increase in the performance of BPRO compared to Bitcoin.
In a bull run, the price of BPRO will grow faster than in the previous scenario.
In the last case, the issuance of DOC tokens close to the maximum possible (regarding the number of BPRO tokens minted) implies that many DOCs need to be stabilized, so the volatility given to the BPRO is greater. In this way, global coverage decreases because there is less collateral for each DOC so leverage increases.
An eventual bull run will cause the price of BPRO to take off strongly from that of Bitcoin due to the leverage, which will also be reflected in the performance of BPRO.
Early adopters will benefit in the next bull run. Beyond this and the conditions of the protocol, betting a few sats on BPRO before a bull run seems to be a decision that will help you rest better at night.
Money On Chain is a protocol created for bitcoiners by bitcoiners. You can say, I’m a bitcoiner so, why should I consider using Money On Chain?
Let's discuss some arguments to answer this question.
At Money On Chain's launch, we wrote:
“When we say Bitcoin-collateralized, we refer to bitcoin as a currency but also to Bitcoin as a network, philosophy, and broader community.” Excerpt from the article bitcoin, the ultimate collateral.
Using bitcoin as collateral, Money On Chain creates another use case for bitcoin increasing utility and perceived value.
Money On Chain contracts run over the Rootstock network. To be able to use rBTC to mint Money On Chain tokens means locking bitcoin in layer 1. Hence, these bitcoins are held out of circulation, which decreases velocity, pushing its price up.
Other stablecoin solutions use fiat money like US dollars or cryptocurrencies such as ETH or USDC as collateral. Using bitcoin means that the collateral is locked in a smart contract, and not in the centralized hands of an enterprise that can be out of operation for many reasons, such as government regulations or prohibitions.
One of the unique characteristics of the protocol is that BPRO holders provide collateral. This means that if you want to mint your stablecoin DOC, you don't need to provide collateral as you do with other stablecoins, but another actor does it for you.
This is a game changer for stablecoins, as its users don’t have to worry about collateral and can operate directly with the protocol to mint DOC using the dapp or a wallet that has it integrated like Defiant, making sure a 1:1 peg to USD.
This other actor is the BPRO holder, this is, a bitcoin hodler that gets really good incentives to offer collateral:
This is one of the main reasons we chose Rootstock to build the Money On Chain protocol, although it is not strictly a Money On Chain feature but a Rootstock feature.
Bitcoin layer 1 does not allow the kind of programmable smart contracts needed by Money On Chain to be a reality, so founders decided to use Rootstock, a Bitcoin sidechain that offers the best of both worlds: Bitcoin, the most secure blockchain network with the only hard money, and Ethereum a blockchain that allows writing smart contracts.
Bitcoin miners using a process called Merged-Mining create blocks with the added security of bitcoin, making Rootstock the most secure Smart Contract Platform and one of the most secure blockchains in the world.
EVM-compatible capabilities make it possible to run any smart contract developed for Ethereum and create models like Money On Chain using bitcoin.
There are more reasons to consider using Money On Chain tokens or you may have another point of view regarding this. Either way, we encourage you to join MOC’s community social networks and express your thoughts.
Every so often in projects, as in life, you have to look back and observe your milestones. This helps us realize how much we have accomplished and how arduous, but rewarding, that path has been.
This is the case of this small exercise through which we, the project team, and the community that has been growing over all these years, pat ourselves on the back.
Let's start at the beginning, actually, the public beginning, since there were many months of design, development, and testing before this.
On October 5, 2019, in Uruguay, the protocol was deployed on the Rootstock mainnet. We celebrated it a few weeks later, holding a first meeting in Buenos Aires in which we made a transaction buying some pizzas with DOC, yes, just like the first known purchase with bitcoin. That's how bitcoiners we are.
On December 12 of the same year, at LABITCONF held in Montevideo, Uruguay, we presented the protocol to the world, sharing access to a Web application. Also on that date, the first phase of the Liquidity Mining program began, which allows BPRO holders to accumulate MOC tokens, based on the liquidity provided.
Throughout this first year (2020), the protocol incorporated liquidity, and at the same time functionalities were developed.
Since Money On Chain is a protocol where a user can operate the “primary token market”, that is, where they can directly create (mint) and destroy (redeem) the tokens, it was necessary until another one emerges, to create a secondary market. Reason why we developed, and in November 2020 implemented on mainnet, the TEX for decentralized token exchange.
The next big milestone occurred in April 2021 with the TGE (Token Generation Event) or initial generation of MOC tokens. It was very important for Money On Chain because it meant the first step towards the autonomous governance of the protocol and therefore towards its decentralization.
At the same time that the TGE was carried out, the next phase of the Liquidity Mining program began, in which MOC tokens are accumulated that can be claimed by users to stake them and accrue more value.
In May 2021 we took the next step towards decentralization, implementing protocol governance, which enabled the submission of proposals and the implementation of the corresponding voting process.
The Money On Chain protocol was designed from the beginning to be fully decentralized. Another important step in this direction that allows independence at the same time, was the implementation of the OMOC decentralized oracles.
OMOC oracles are of great importance for the Roostock network because not only can anyone implement an oracle and compete in the publication of the price of bitcoin, but other apps can consult them. At the same time, they are of great importance for the protocol as they present another use case for MOC tokens, in addition to participation in governance and discounting platform fees.
In September 2021, several improvements were introduced to the protocol such as a new frontend of the web app, functionalities for integrators, and the Non-Liquidation feature, which makes the possibility of liquidation of the protocol much more difficult by introducing different mechanisms and incentives in case of an abrupt drop in the price of bitcoin, known as a flash crash.
Toward the end of 2021, we took two more new steps that brought us even closer to decentralization. The protocol starts taking the bitcoin price from the OMOC oracles and the Voting Machine governs the protocol. This means that decisions regarding the protocol, new features, and updates pass through the lens of the community of MOC hodlers through a voting process.
The year 2022 was a year of consolidation for Money On Chain, despite the passing of the bear market, in which the community grew. At the same time, we continue working to achieve another milestone, in February 2023 the front end was no longer on company servers that could eventually cancel the services, but was now hosted on the IPFS network. These acronyms refer to Interplanetary File System, which in English is Interplanetary File System. IPFS is a content-addressable peer-to-peer network and protocol that enables hypermedia storage and sharing.
A long-awaited achievement that became a reality in April 2023 was the first vote that tested the governance system. The proposal presented by community members was to simplify the model, by eliminating the BTCX position.
With this vote, the decentralization designed and pursued since the beginning of this adventure became palpable.
The Money On Chain protocol has been running uninterruptedly and stably for 5 years. Providing the possibility of having a solid and robust stablecoin with a 1:1 parity with the US dollar and with the best existing collateral, bitcoin.
Sometimes it can be stressful and complicated to enter a crypto ecosystem like Rootstock without knowing all the tools available. That is why it is important to know how to enter and exit at hand, that is, how to obtain smart bitcoin to mint DOC and BPRO.
We are going to analyze some gateways to the Rootstock ecosystem so that you can bring your BTC and transform it to rBTC in the easiest way possible.
Undoubtedly, having this information available to any user can mean an incredible experience, which is why we will describe them in detail, explaining their characteristics, and considering their particular aspects.
The Rootstock Pow Peg, a tool developed by the Rootstock team available to the ecosystem, is an MIT-licensed Bridge that will allow you to easily cross your BTC into rBTC and out of rBTC into BTC. When you use the Rootstock PowPeg you are using the main gateway to the ecosystem and the most decentralized one.
To start go to the 2-Way Peg App, there you will find this interface.
As you can see, it will appear to transfer your BTC to rBTC and vice versa, you can also check the status of your transactions while they are confirmed.
Important: Peg-in (bitcoin to smart bitcoin) and peg-out (smart bitcoin to bitcoin) transactions require a large number of block confirmations. Connections require 100 Bitcoin blocks (approximately 2,000 RSK blocks) and outputs require 4,000 RSK blocks (approximately 200 Bitcoin blocks). So you should not worry if your transaction takes time to execute in both chains, it is the logical process for the level of security you are looking for (we will explore faster alternatives).
+info: https://dev.rootstock.io/rsk/architecture/powpeg/
As an example, imagine that you want to send BTC from your Trezor Hardware Wallet to the Rootstock network. Click on the desired option and follow the steps:
The next option is Fast BTC, developed by Sovryn, which allows access to the ecosystem in a faster but less decentralized way than the PowPeg. With this Bridge you can enter and exit the ecosystem, even go from local currency (FIAT) to rBTC in a few simple steps.
If you already have your BTC in the Bitcoin on-chain network, you could use Fast BTC integrated into the new version of the Money On Chain dApp as explained in the wiki.
In the event that you want to access rBTC from local currency (FIAT) go to https://alpha.sovryn.app/fast-btc/transak using the Transak payment engine you can purchase it.
Connect your web3 wallet within the Rootstock network.
Generate a BTC address by clicking the button.
Here you will see that a BTC address is generated. Deposit FIAT to convert it to Bitcoin and later send it to Fast BTC to convert it to rBTC, all this automatically. You will only see that you receive the rBTC.
(It must be clear that this interface is outdated to the legacy version of Fast BTC. In this version, it was only possible to peg-in. Therefore, it must be verified that the team continues to support it).
In case you use Defiant, the experience of exchanging your BTC to rBTC will be nothing more than the experience of making a simple swap. Defiant provides a more comfortable day-to-day user experience, using the Rootstock PowPeg anyway. Here’s an example:
We assume that you already have BTC in your Defiant wallet.
Go to “Swap”.
Then choose the destination token, in this case, rBTC.
Choose the amount you want to exchange, in this case, through PowPeg. There you will see that it shows the details of the network commissions and how much you will receive. To finish, you just click on continue.
Liquality is another self-custodial web3 wallet that features an interface to connect your Bitcoin to Smart Bitcoin on Rootstock. Here’s a tweet from AndresBTC interacting directly with this wallet and using the Money on Chain protocol.
Krypton Market is a platform that works as a marketplace where you can buy products through this feature, but it also has the option of making exchanges through your local currency (Argentine, Colombian, Uruguayan pesos, Peruvian soles, bolivars, dollars, among others).
Go to https://www.kriptonmarket.com/broker?operation=cash-in&medium=Bank
Create your account in a few simple steps. Choose your local currency, and the amount, select the rBTC option, select the Rootstock network, and paste your destination address (remember to be positioned within the Rootstock network).
In the case that you want to convert your rBTC to FIAT money. Access this link https://www.kriptonmarket.com/broker?operation=cash-out&medium=Banco and you must complete the same fields as in the previous procedure. Only that you must add the number of your bank account in which you will receive your money.
Important: You will see that the platform has a commission for its service since it is duly regulated. It does not have the need to inform governments of user movements, it only uses a database for the purpose of justifying its services.
Related to p2p bots (person to person) we will find options such as @lnp2pbot and @p2p_rsk_bot to trade satoshis on the Lightning Network against satoshis within the Rootstock network. Keep in mind that you must have a wallet for each case.
To do this, you can go to this user within Telegram https://t.me/lnp2pBot write the command "/start" and then "/help" so that the bot can give you all the instructions to buy or sell and configure your offer to your liking.
For example: You want to sell your satoshis (rSats). The correct syntax to write it is:
/sell <amount of sats> <amount of rsats> rsat “rsk”
/sell 1000 1000 rsat “rsk”
Here you can see an example of making a purchase offer: https://t.me/P2PbtcLNrbtc/278 . In addition, in this group, you will find other useful videos that will help you understand the step-by-step.
If you want to see your order, you can find it on this Telegram channel: https://t.me/p2plightning . If you have questions about how the bot works, you can go to this channel: https://t.me/consultasp2p
The bot will notify you when someone is taking your order and you will have a period of 15 minutes to continue with the order process, otherwise, the order will fail and you will have to place it again.
Going through some more centralized alternatives that provide good services, we found OKU Trade and BuenBit which will allow you to access rBTC by trading within their platform. If you are a resident of Uruguay, you can buy your rBTC through Criptala.
It is worth mentioning that all these alternatives have a KYC process that you must go through to trade there.
OKU Trade is a platform based on Uniswap v3 that allows users to swap several tokens from the Rootstock ecosystem, DOC and MOC among them.
In the case of BuenBit, you can buy rBTC through a simple exchange, either in local currency or cryptocurrencies. You can also deposit and withdraw rBTC very easily, let's see some examples:
Here you will see how you can exchange ARS/rBTC.
You can also deposit and withdraw rBTC.
Mt. Pelerin ( https://www.mtpelerin.com/es ) can be another centralized alternative through which you could access rBTC, whether you want to swap between tokens from different chains, as in the case of the following example:
Or for example, if you want to buy rBTC through your local currency.
As you will see, there is a wide variety of possibilities to transfer your Bitcoin to Smart Bitcoin within the Rootstock network. This article is intended to be a simple guide so that you can easily find all the available options in one place.
In most of the tools available, the user experience is pleasant, you may encounter some delays in the confirmation of a Bitcoin on-chain transaction but don't worry, this will depend on how congested the blockchain is at that moment.
In the Money On Chain wiki you have detailed guides on this topic and others related to the protocol and the dApp.
If you have any questions or need help step by step on your way to Rootstock, don't forget that you can always join our Telegram community, where we will help you and welcome you if you are new.
Note: This list is often growing or changing so this article will probably be edited accordingly.
Disclaimer: Money On Chain does not make recommendations, just enumerates possibilities of getting rBTC.
Author: @BTCLegosi
Bitcoin is a revolution. Few people know it yet because the history of Bitcoin is relatively new, only 12 years, compared to the current system that has been going on for several decades.
There may be exceptions that confirm the rule, but it happened to most bitcoiners that they learned about bitcoin and didn't understand it the first time. Perhaps it is because of living inside the matrix for so long or perhaps because there are so many questions that peck at your head like Woody woodpecker, that it is overwhelming and we need time for our mind to settle its concepts.
After a while, when we hear about Bitcoin again, the learning curve is a little less steep. For those who are going through it now, there is a lot of written material, in video and podcasts to find answers to conceptual questions such as What is bitcoin? Why does it have value? What is mining? or What is consensus? and also for others such as What is a wallet? How to buy/sell? and Does it go to zero?
This is why we thought about collaborating with less frequently asked, but just as interesting, questions that have to do with the issuance of bitcoin.
And it is the Bitcoin code that has the answers, some explicitly, others implicitly.
You may be interested in: DeFi4Bitcoin: 11 Key Concepts you Need to Know
A block every 10 minutes?
When we say that a new block is mined every 10 minutes, it is one of the examples of implicit knowledge in Bitcoin, since there is no variable in the code that says 10 minutes, but there is a calculation of the mining difficulty setting every 2016 blocks, about 2 weeks. Why 2 weeks? Because when the difficulty adjustment occurs, it is made by comparing the time it took for the last 2016 blocks with 2016 * 10’= 20160 minutes (14 days).
The difficulty setting makes it easier or more difficult for miners to find the nonce, which is the number miners try to find to mine a block so that it takes around 10 minutes on average to add a new block to the chain.
From this difficulty adjustment and observation, we see that the time between blocks is not actually fixed, but is stipulated in 10 minutes according to the hash rate of the network, that is, the ability of the miners to mine a new block.
Each time this happens and a new block is added to the chain, the miner receives a reward for his work and the fees for the transactions included in this block. This reward began as 50 bitcoin in 2009 and it is reduced by half when one of the main events that make Bitcoin unique happens, especially if we compare it with the current fiat system, and it is called Halving.
What is the Halving?
The halving is the reduction to a half of the reward received by the miner who “discovers” a new block. This reduction occurs every 210,000 blocks, approximately 4 years, and is what answers implicitly another question.
Why 21 million bitcoin?
The amount of 21 million bitcoins to be issued is not written anywhere in the protocol but comes from counting the bitcoins that are issued per block and drops by half in each halving until it is minimized around the year 2140.
A curiosity is that, in fact, it will not be 21 million bitcoin because, in the first place, the issuance follows a curve that is close to 21 million but it will never get there. Secondly, it is because some bitcoins are lost due to issues with keeping the seed phrase (12 or 24 words that a wallet currently delivers in the setup) safe and misinformation.
The year 2140 take us to the last question:
What will happen when the miners stop collecting the reward?
As we already mentioned, in addition to the reward for mining each block, whoever does so also receives all transaction fees included in the block.
So by the time there is no reward, network fees should be enough of an incentive to keep the miners doing their job. At what price will bitcoin be at that time? Will the financial system exist as we know it today?
For sure, nobody knows.
After all, if we could know the future, everything would be different, right?
This article is a re-post from the original published in Money On Chain's Medium.
Ethereum is the most widely used technology platform for building stablecoins. Just under two-thirds of all stablecoins (60%) have been built exclusively on top of Ethereum, according to Blockchain.com. Other platforms used for stablecoins include Bitcoin, NEO, and Stellar.
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
Stablecoins arose because of the volatile nature of other cryptocurrencies. “The first wave of crypto assets, of which Bitcoin is the best known, have so far failed to provide a reliable and attractive means of payment or store of value,” wrote the Bank for International Settlements, an international financial institution owned by central banks. “They have suffered from highly volatile prices, limits to scalability, complicated user interfaces, and issues in governance and regulation, among other challenges. Thus, crypto assets have served more as a highly speculative asset class for certain investors and those engaged in illicit activities rather than as a means to make payments.”
Yet, Bitcoin has often been compared to “digital gold.” Throughout history, gold has been used as money. Bitcoin and gold share many similar attributes. Their overall supply is limited, each can be divided or combined to make different amounts, and both are generally easy to carry around in sufficient amounts for commerce. National governments long pegged their fiat currencies to gold. The Bretton Wood agreement of 1944 established rules for commercial and financial relations between the United States, Canada, Western European countries, Australia, and Japan.
The Bretton Woods system obliged each nation to maintain its external exchange rates within 1 percent by pegging its currency to gold and the ability of the IMF to bridge temporary imbalances of payments.
While Bitcoin’s “digital gold” thesis has captured the public mind, many holders of Bitcoin believe it will appreciate and store value over time, so people spend it less. Stablecoins have proven more attractive for such transactions due to their stable prices.
Bitcoin as Collateral for a Stablecoin
Bitcoin is already heavily embedded in the history of the stablecoin. Tether, established in 2014, is one of the older stablecoins. A ‘tether’ is issued and redeemed via the Omni Layer protocol, which was previously known as Mastercoin, a network built on Bitcoin. Tether is backed by off-chain collateral; that is, US dollars in a bank account.
There are many precedents for a crypto-collateralized Bitcoin. As we went over in our blog, “Stablecoins: What You Need to Know,” a cryptocurrency-backed stablecoin can either be backed by one or a basket of cryptocurrencies. Developers and game theorists stabilize the value of such a stablecoin through mathematics and algorithms.
These types of stablecoins currently require more collateral than, for instance, a US dollar backed stablecoin, making Bitcoin a good candidate as a reserve because of its wide use and a market larger than any other cryptocurrencies.
MakerDAO is the best known project using digital assets as collateral. The project uses ether as collateral and the market value of ether as its value base.
The reason Ethereum has been used mostly for stablecoins, while Bitcoins have not, has to do with the preponderance of smart contracts on Ethereum. Smart contracts can be used to control ether collateral. This function is not inherent to the Bitcoin blockchain.
Such solutions are in the works; most notably, RSK. This smart contract approach taken on Bitcoin involves a second layer built on top of the blockchain. RSK uses the Bitcoin blockchain to custody bitcoins.
This second layer supports the stablecoin asset built based on the Bitcoin blockchain. Bitcoin, and the second layer solution, RSK, can support more functions than just stablecoins, but a wide range of digital products that mirror their real world financial equivalents. These sorts of products have been termed “decentralized finance.”
RSK writes about a stable value asset that might be issued on RSK, which empowers developers to create assets pegged to fiat currency or another stable commodity through the locking of bitcoin as collateral. Holders of Bitcoin might like this because a stable asset could both minimize risk to volatility and increase demand for Bitcoin, since it is now a reserve currency for a stable asset, too.
“The lock of high amounts of Bitcoin reduces liquidity and therefore contributes to the rise of Bitcoin’s value,” reads the RSK white paper. “However, most importantly, these Bitcoin-backed stable tokens on RSK will enable stable-coin micro-payments which allow billions of inhabitants currently underserved by the legacy financial system to participate in the global digital economy.”
This smart contract functionality on top of Bitcoin makes the bitcoin-collateralized stablecoin possible. Bitcoin is the most liquid cryptocurrency and has the largest value and user base. Its robust mining infrastructure helps ensure its security. A clear monetary policy, with 21 million bitcoins to be mined over time and no more, gives the stablecoin a predictable base upon which to base its value.
Satoshi Nakamoto intended for Bitcoin to be a digital currency, although many today believe it behaves more like a digital gold. Since Bitcoin is traded in a global 24/7 market, its value is considered objective based on supply and demand. A stablecoin could be issued based on this value base.
Over the past ten years, the value base of Bitcoin has grown from zero to $200 billion. It’s also been as high as $400 billion. Yet, concerns over Bitcoin’s price being manipulated undermine it as a base for a stablecoin. The CME uses a composite price by Crypto Facility Group. Bakkt’s planned one-day Bitcoin future is settled physically and could help to achieve the price objectivity of Bitcoin.
A stablecoin on Bitcoin could create new dynamics for that market. Approximately 2% of Ether is collateralized at MakerDAO. The total value of Bitcoin used to mint stablecoin is estimated at $4 billion.
The Bitcoin-Backed Stablecoin
Bitcoin’s price volatility is likely to remain for possibly decades. Most international transactions will therefore likely take place with USD as the unit of account. Along the path of hyperbitcoinization, when the world voluntarily begins using Bitcoin as both a currency and store of value, we believe a stablecoin based that uses Bitcoin as collateral will provide users ease of use, transparency, decentralization, and censorship resistance.
There are many arguments for a Bitcoin-backed stablecoin. A digital asset-backed stablecoin minimizes the need for a counterparty compared to a stablecoin with its value backed by a bank account.
We’ve therefore developed Dollar on Chain, a stable token pegged to USD Dollar, using RSK network’s native token RBTC, which is pegged 1:1 with bitcoin. In addition, BitPro maintains bitcoin price volatility, while BTCX represents positions on the Money on Chain decentralized derivatives exchange (DEX).
Participants on this network enjoy a decentralized digital asset platform backed with the benefits of Bitcoin, including a large value base, a network of nodes, and other benefits of the world’s first digital currency.
Learn more by reading our white paper today.
Written by: Justin O’Connell
This article is a re-post from the original published in Money On Chain's Medium.
Stablecoins reside at the intersection of cryptocurrencies and traditional finance. They simplify the transfer of funds between crypto exchanges. Stablecoins make purchases faster and less expensive and are used as a medium of exchange, a means of storing value, and a unit of account. In 2012, Mastercoin proposed a stable-value cryptocurrency, which was later renamed as Omni.
A collateralized stablecoin is pegged to assets such as national currencies, commodities, and even cryptocurrencies. In centralized models, the stablecoin issuers back the value of their coin by holding the asset.
A Stablecoin’s value is pegged, for instance, to the USD at a 1:1 fixed exchange rate. Other stablecoins are pegged to the price of crypto assets, such as Bitcoin and Ether, with algorithms that manage the supply and demand of the coin and the reserves. Regardless of how a stablecoin is backed, its value is in its price stability.
In a crypto-collateralized arrangement, a cryptocurrency backs a stablecoin, while seigniorage tokens are not collateralized by anything other than software, which maintains the price stability. A hybrid stablecoin might blend the three above approaches.
Fiat-backed Stablecoin
Fiat-backed stablecoins are backed by fiat currencies at a 1:1 ratio. Custodians manage the fiat in such an arrangement by holding the proper amount of backing currency in an account. Fiat-backed tokens can be issued or destroyed by the custodian as needed to maintain the peg. Stablecoins today are backed by the euro, Japanese yen, and other fiat currencies. Of course, stablecoins, where funds are held in bank accounts or by third parties, are susceptible to fraud.
A problem with fiat-backed stablecoins is their centralization.
Commodity-Backed Stablecoin
Commodity-backed stablecoins are pegged to a commodity, such as gold or silver. A token could be backed by one gram of gold stored in a third-party custodian’s vaults.
These stablecoins are backed by one or more commodities. The backing commodity must reflect the circulating supply of the stablecoin.
Cryptocurrency-Backed Stablecoin
A Crypto-collateralized stablecoin is backed by a cryptocurrency and sometimes a basket thereof. Certain mathematical innovations were needed in order to make such a stablecoin possible. These stablecoins are considered a more decentralized alternative to other stablecoins.
A major difference between this type of stablecoin and the abovementioned types is the former is handled on blockchain, with smart contracts, where the latter are done in the physical world through bank accounts or gold custodians.
These stablecoins are oftentimes more complex and require more collateral, due to the volatile nature of the backing cryptocurrencies themselves, than the abovementioned stablecoins.
Seigniorage-Style Stablecoin
A seigniorage-Style stablecoin is stabilized by an algorithm. The algorithm could, for instance, control the supply of the seigniorage-style stablecoin. New stablecoins can be minted to stabilize prices if demand for the stablecoin increases.
Libra, JPMorgan Coin & The Stablecoin Market
Big institutions have shown interest in creating their own stablecoins. Facebook’s Libra is a stablecoin, because the social networking site sees stablecoins as a potential bridge between the existing world of government-issued money and a crypto-based future.
Stablecoins are also gaining attention from the likes of JPMorgan Chase Inc. According to Facebook, Libra will be backed by “a collection of low-volatility assets, such as bank deposits and short-term government securities in currencies from stable and reputable central banks.” Libra’s value will fluctuate in the same manner that the US dollar varies compared with the euro or yen from day-to-day. Exchanges will be established so that users can convert fiat for Libra.
JP Morgan says its JPM coin will enable fast money transfers between its corporate customers on an internal, private blockchain. JPM Coin is backed by the U.S. dollars held by the bank.
The Federal Reserve has been advised to consider stablecoins, and the central bank of Sweden is planning a pilot project with an “e-krona” later this year.
Money on Chain: A Bitcoin-Backed Stablecoin
Money on Chain foresees big things for stablecoins, too. That’s why in 2015 we started to work on a stablecoin for the Bitcoin ecosystem.
We chose to design a stablecoin on top of Bitcoin because it allowed us to build a truly decentralized stablecoin. We believe Bitcoin’s decentralization and censorship resistance is crucial to a stablecoin.
We’ve created a stablecoin pegged to the American Dollar (Dollar On Chain) that incentivizes various participants in the Bitcoin systems.
Money On Chain is made by Bitcoiners for Bitcoiners.
Article written by: Justin O’Conell
This article is a re-post from the original published in Money On Chain's Medium.
Stablecoins have been around for a while, with Tether being the predominant for most, if not all, part of their history. This year, however, there’s been a blossoming of projects with the purpose of achieving a stable peg between a fiat currency and a digital token.
The benefits and utility of such stable pegs, aka “stablecoins”, are well known, and each project, including ours, does it part in its promotion and advocacy.
Most stablecoin projects are pegged against US Dollar, but there are also coins pegged against the Australian Dollar, Japanese Yen, Chinese Yuan, Swiss Francs and will likely be one for each important fiat currency out there. The difference between all these lies in the mechanism they use to achieve the stability of the peg, which in turn depends on the type of collateral they use (or no collateral at all in the case of some algorithm-backed ones). Each alternative has different degrees of auditability, compliance, stability, etc.
As spectators and players of the stablecoin landscape, we see the above-described projects “repeating” each other with a varying degree of modifications, but we are also surprised to see that new projects appear every week and none of them is choosing Bitcoin as collateral. We described some of the reasons in a previous article and whose idea has been in our founder's mind for a couple of years before founding MoneyOnChain.
When we say Bitcoin-collateralized, we refer to Bitcoin as a currency but also to Bitcoin as a network, philosophy, and broader community. As part of the philosophy, and besides our model to achieve peg stability by means of a dual-token solution, we are also creating a set of aligned economic incentives for Bitcoin users and “hodlers”, to put these bitcoins, their bitcoins (as well as ours), to work as collateral.
As bitcoiners we look forward to the hyperbitcoinization, but we don’t see it happening in the next few decades, and even if it happens, price stability will take a few more decades, so transactions denominated in a different unit of account will be prevalent, and with the exception of some trades, most international transactions will continue to use USD as a unit of account.
MoneyOnChain will have transparency, decentralization, and censorship resistance like Bitcoin. Furthermore, it will have the benefit of being a stablecoin free from counterparty risk. So, using Bitcoin as collateral has two main benefits for Bitcoin itself.
The first one is that by creating new use cases for Bitcoin, it increases its utility, and hence its perceived value, so the very possibility that you can use Bitcoin for the issuance of “dollars on chain” makes Money On Chain worth its existence.
The second one is that by using bitcoins as collateral to issue stablecoins, the stablecoin will work as a second layer of denomination (used for contracts, payments, and different kinds of trades), but the bitcoins in the collateral will be held out of circulation, so even if the effective supply of BTC will remain the same (wether in a cold wallet or as collateral), its velocity will decrease and ceteris paribus this should push up the price of BTC.
We believe that our project is unique because we will provide peg stability, with a 100% crypto approach leveraging on Bitcoin as a whole, but also giving back to Bitcoin through a feedback loop that will benefit all participants.
If you have any comments or suggestions leave them below or reach us by Twitter at @moneyonchainok.
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This article is a re-post from the original published in Money On Chain's Medium.
In my last article, Argentina’s volatility inspires a Bitcoin collateralized stablecoin I talked about how volatility is extremely harmful for a currency. We concluded that stability is needed to make money execute its functions. Here I want to discuss stablecoins, their possible collaterals, the pros and cons of those solutions and then focus on the Bitcoin collateralized stablecoin.
Stablecoins have emerged in response to the high volatility of cryptocurrencies such as bitcoin, Ethereum and others in order to allow these currencies to fulfill the three functions of money: medium of exchange, unit of account, store of value. Only when these 3 characteristics are met, cryptocurrencies will work properly and efficiently. The ongoing extreme shifts in the price of these currencies make Stable Coins very popular these days.
As the name suggests Stable Coins, are coins that bring stability to the cryptocurrency system. More specific Stable Coins guarantee price stability. The mechanism behind these coins requires that the issuer holds collateral and manages the supply through trade incentives.
The collaterals, which can either be assets or money, serve as a guarantee for the coin to be stable. We can distinguish between three possible types of collaterals for a Stable Coin: Fiat-, crypto-, or non-collateralized.
If a cryptocurrency is Fiat-collateralized the coin issuer will need to hold Fiat money (USD, YEN, EUR, etc.) and can then start emitting coins against this money. The most common exchange rate will be 1:1 and the Fiat money used normally are US dollars. Fiat collaterals are the most popular form for collaterals and bear the advantage of having a simple business model. The dependence on a central party to function as a custodian to store the Fiat money and the necessity for regular audits to ensure the full collateralization should be mentioned as disadvantages.
Instead of using Fiat we can use another cryptocurrency as collateral, in this case, the currency will be crypto-collateralized. The deposit will hence not be in USD, but in cryptocurrency such as Bitcoin, etc. Due to the fact that cryptocurrencies are more volatile than Fiat money, the issuer of the Stable Coin will have to over-collateralize his coins to compensate for the high volatility. Crypto-collaterals hence are said to be more capital-intensive than Fiat collaterals. Furthermore, they are more complex and exposed to Black Swan events. The positive aspects of crypto-collaterals are the decentralization, transparency, the speed of the blockchain to liquidate the Stable Coins, and the possibility to create leverage.
Last but not least there are non-collateralized Stable Coins. The concept behind these coins is that the expectation serves as the collateral. The belief that my Stable Coin will retain a certain value is the backup to this system. The Seignorage Shares represent this concept.
As pointed out Fiat collaterals are the most popular form of collaterals, nevertheless, there are good reasons for using cryptocurrencies as collateral. These benefits result from the crypto-ecosystem and are: decentralization, transparency, transaction speed of the blockchain, and leverage.
Interestingly Bitcoin — despite being the biggest player — has not been explored as collateral. Why so? One of the main reasons is that the technology to make smart contracts with bitcoin as the collateral wasn’t available. Thanks to RSK Labs things have recently changed and the technology to realize such projects is now available.
Money On Chain will use this new technology in order to launch a bitcoin-collateralized stablecoin. At Money On Chain we believe that various reasons make Bitcoin a perfect collateral.
First, bitcoin is the most liquid cryptocurrency, has the largest capitalization and the biggest user base (network effect). Furthermore, bitcoin is the oldest cryptocurrency with brilliant minds leading the development team and the largest cryptographic mining power in the world, which makes it the safest payment system.
The 2 main reasons though are bitcoin’s decentralization and clear monetary policy. The decentralization provides a unique and little-understood feature which is the resistance to the change of the rules. In the Bitcoin ecosystem, there is no entity with sufficient power to change the rules, since the consensus of miners, users, developers, and companies will be needed.
The monetary policy is immutable, has a pre-established limit of 21 million bitcoins and a decreasing emission rate. Discussing a change in Bitcoin monetary policy is unthinkable and allows an anticipation of the future. The limit of 21 million bitcoins ensures a shortage of the asset turning it into deflationary currency since for different reasons some bitcoins are lost forever, therefore, reducing the supply.
All described characteristics make Bitcoin the best collateral for a Stable Coin. Details about our Stable Coin can be found on www.moneyonchain.com
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Written by Olivier Perruchoud, team member of MoneyOnChain.