A Challenger to the DeFi King Emerges With MetaCoin
Also, a "glue" for Ethereum and the real world launched.
Hello Defiers! Here’s what’s going on in decentralized finance,
Ameen Soleimani proposes an alternative to Dai
Developers launch a tool to connect the centralized and decentralized worlds
SKALE expected to be first to launch tokens on ConsenSys Activate network
Another potential bridge to Ethereum being built with Centrifuge
and more :)
The Backbone of DeFi is Getting Competition
The new contender is MetaCoin, a stablecoin proposed by SpankChain and MolochDAO cofounder Ameen Soleimani.
MakerDAO is the most successful project built on Ethereum, giving rise to the entire DeFi ecosystem, Soleimani wrote. So why a new stablecoin if we have Dai?
1. The MakerDAO system’s complexity hides centralized points of failure, which can result in an instant loss of all ETH in the system, he wrote in a Feb. 9 paper posted on ethresear.ch. He argued that MakerDAO has at least four custodians —the Maker Foundation, a16z, PolyChain, and Dragonfly— who have enough voting power via their shares of MKR and could each steal all of the ETH deposited as collateral.
2. With its upgrade to Multi-Collateral Dai and decision to abandon ETH as the sole form of collateral, MakerDAO introduced potential counter-party risk from off-chain assets that can now be accepted in the in the system to back Dai.
Image source: Ameen’s post
Soleimani’s answer to these problems is MetaCoin, which would be backed only by ETH and have a simplified governance system.
“We should keep in mind that decentralization is why we prefer it [Dai] to those other stablecoins backed by banked fiat. When MakerDAO demonstrates a wavering commitment to decentralization, we should explore other, potentially more robust alternatives.”
Here’s what this new stablecoin looks like, compared with Dai.
META/COIN; MKR/DAI: The system is comprised of a stablecoin, called COIN, and a volatile governance token called META, just like the Dai stablecoin and MKR governance token in MakerDAO’s system.
1 USD PEG: COIN, like Dai, is pegged to $1 thanks to a mechanism designed to increase or reduce the supply of coins in the market
BORROWING & SAVINGS RATES: COIN minters will be charged a fee and COIN holders will earn interest, similar to Dai’s Stability Fee and Savings Rate.
SYSTEM SHUTDOWN: If more than 33 percent of the MetaCoin voting power signals to shut down the system, COIN holders are made whole by withdrawing ETH, while COIN minters withdraw the rest, just like in MakerDAO’s Emergency Shutdown, except that in MetaCoin it’s called Happy Ending.
COLLATERAL TYPES: Only ETH will be used as collateral for COIN, while MakerDAO’s MCD allows for different types of assets, including real estate, stocks, and fiat-backed stablecoins to back Dai. This makes Dai easier to scale, but introduces the need to trust assets held in financial institutions and controlled by centralized entities.
DEFINING COLLATERAL PRICE: In MakerDAO, price oracles are selected by the governance system (MKR holders) and submit updated prices every 6 hours. The median of all reported prices for the duration is used to determine the reference price for ETHUSD.
In MetaCoin, the governance system selects several fiat-backed stablecoins (i.e. USDC, USDT, TUSD), and then uses the volume-weighted average price of that basket on Uniswap to determine the reference price of ETHUSD.
SETTING INTEREST RATES: In MakerDAO, MKR holders vote on the Stability Fee, or the interest rate charged to Dai. This governance system also votes on the spread between the Stability Fee and the Dai Savings Rate. These rates are meant to keep the peg to $1, by controlling the Dai supply.
In MetaCoin, MKR holder votes are replaced by an algorithm —a proportional-integral-derivative controller (PID)— which takes the current price of COIN, compares it to the volume-weighted average price of the stablecoin basket and automatically updates the interest rate based on the difference, to keep the peg to $1.
SETTING INTEREST RATES SPREAD: While MKR holders vote on the Stability Fee and its spread between the Savings Rate, in the MetaCoin system the Stability Fee and the Savings Rate are equal —in other words, borrowing costs and deposit rates are equal— but COIN holders pay a 10 percent fee. The result is that there’s a 10 percent spread between the rate COIN minters pay and the interest COIN holders make.
TOKEN-BURNING MECHANISM: In the MakerDAO system, the interest rate charged to DAI minters is sold for MKR in a public auction, after which MKR is burned, resulting in value appreciation for MKR holders. In the MetaCoin system, instead of a public auction, fees earned are used to buy META on Uniswap, after which it is also burned.
LIQUIDITY INCENTIVES: For the algorithm which sets the MetaCoin interest rates to work properly, there needs to be a liquid COIN/ETH market on Uniswap. Soleimani proposes different mechanisms for incentivizing liquidity:
Splitting fees between META holders and COIN/ETH liquidity providers instead of all fees going to META holders
Adding inflation to META and directing it to COIN/ETH liquidity providers
Accepting shares of the COIN/ETH liquidity pool, alongside ETH, as collateral for minting new COIN
VOTING RIGHTS: In MakerDAO, 1 MKR = 1 vote. This voting distribution favors those profiting from the system over those using it, like DAI minters and DAI holders. In MetaCoin, the only things subject to a vote are adding or removing stablecoins from the basket, and shutting down the system. Several parties have voting power:
COIN/ETH liquidity providers
In each case, the equivalent in value to 1 COIN = 1 Vote.
META Token Distribution
The initial distribution of META tokens will go to MolochDAO and MetaCartel DAO members. Outside investors may also be included if additional funds are needed.
The initial distribution of tokens will be split 50/50 between what Soleimani calls “Blood and Sweat.” MolochDAO and MetaCartel DAO members who have funded ETH-aligned grants (a.k.a “bled”) will receive 50 percent of the initial META, based on their share of the total ETH spent on grants.
The other 50 percent of initial META will be distributed based on “Sweat.” The founding team will summon a SweatDAO (a MolochDAO clone) to assign shares based on the relative value of their contributions. If fundraising is required, investors will be permitted to offer tribute to SweatDAO to earn shares.
Just a Start
The goal is that this proposed framework for MetaCoin will serve as a template for other stablecoins. There is no guarantee that the initial conditions of MetaCoin will result in a widely adopted and long-lived stablecoin, but it it’s likely that a “darwinian exploration” will stand a chance, Soleimani wrote.
“Gluers” Launched to Connect Ethereum With the Centralized World
What if CeFi and DeFi could work together? This is the world the developers behind HAL are envisioning.
HAL wants to build a bridge between Ethereum and traditional centralized application. This bridge, or “glue,” is meant to be simple and usable by developers outside of the crypto space, and even by those who aren’t coding experts.
The platform is based on the team’s “Gluing Manifesto,” which states that “Gluers are that magic that will enable us to create an economic system based on an intensive interaction between decentralized and centralized components,” and that “thanks to gluers this industry will reach mass adoption.”
Image source: HAL website
SKALE Will be First to Issue Tokens on ConsenSys’s Activate Platform
Layer 2 scaling network SKALE plans to be the first blockchain network to issue tokens on Activate, a ConsenSys Codefi-backed platform designed to launch decentralized networks in a compliant way.
Users will need to got through a verification and bidding process to participate in the token sale.. Verified users will be able to stake their tokens through third-party validators and earn rewards. Activate requires networks to launch and be usable at or immediately after selling any tokens to launch participants. Users won’t be able to flip tokens, but requires that they be used for their intended purpose.
Build (Ethereum) Bridges, Not Walls
Centrifuge, a decentralized operating system for supply chain finance, launched its second testnet on Partiy’s Substrate with a bridge to Ethereum. Projects building outside of Ethereum are increasingly building connections to the second-largest blockchain as they seek to join the growing decentralized finance ecosystem.
Centrifuge’s Amber testnet, meant for audits and testing beta releases, is built on Parity Technology’s Substrate, a framework for developing blockchain networks, which will allow the chain to connect to the Parity’s Polkadot ecosystem once it launches. The system is bridged to Ethereum with the goal of connecting off-chain assets to DeFi.
Reuters broke news, citing people familiar with the matter, that JPMorgan is in talks to merge its blockchain unit Quorum, a private version of the Ethereum blockchain, with Brooklyn-based startup ConsenSys
Scalar Capital’s Linda Xie writes about under-appreciated the importance of memes to crypto adoption. “If crypto is to truly go mainstream, then the community needs to know how to make memes that will catch on. And that means tailoring them to the many different groups of non-crypto people who could benefit from this technology.”
This tweet showed the great dangers of slippage: Someone lost $250,000 in one trade. Using Dex aggregators, which find the best rate across Dexes and break up trades, can help prevent this.
KyberStatsBot @KyberStatsBot🎆 @KyberNetwork Large Single Trade Alert (>200ETH) 🎆: ⚖️ Pairs: #DAI/#WETH 💎 Size: 2502.853 ETH 💵 USD Size: $566,946 👷 Facilitated by: @bzxHQ Fulcrum 📅 Date: 09 Feb '20, 06:23 PM 🖨 Link: https://t.co/ftn1hQ094q
The Defiant is a daily newsletter focusing on decentralized finance, a new financial system that’s being built on top of open blockchains. The space is evolving at breakneck speed and revolutionizing tech and money. Sign up to learn more and keep up on the latest, most interesting developments. Subscribers get full access at $10/month or $100/year, while free signups get only part of the content.
Click here to pay with DAI.There’s a limited amount of OG Memberships at 70 Dai per annual subscription ($100/yr normal price).
About the author: I’m Camila Russo, a financial journalist writing a book on Ethereum with Harper Collins. (Pre-order The Infinite Machine here). I was previously at Bloomberg News in New York, Madrid and Buenos Aires covering markets. I’ve extensively covered crypto and finance, and now I’m diving into DeFi, the intersection of the two.