Collateral + Utility Backed Stability Reserves

“Stablecoins” are interesting because they attempt to solve one of the most significant usability problems of cryptocurrencies, high volatility.

Volatility can make it difficult to transact, particularly for transactions which occur over extended periods of time, for example transactions which require an escrow period. In these cases the volatility adds an uncertainty cost for both parties.

The general approach to minimizing volatility is the use of an “algorithmic” central bank, which automatically mints and sells tokens in order to collateralize a reserve, and automatically sells collateral in the reserve in order to support a specific price target.

Depending on the system, algorithm can be more or less conservative, in the case of Maker, CDPs are over-collateralized meaning that for every 1$ of DAI there is >1$ of collateral that can be liquidated in order to support the price. If we look at the other extreme you have Basis where there is no collateral, and instead supply is issued to shareholders who in theory have some incentive to support the price target by purchasing bonds.

If we look at how FIAT price stability is generally maintained through monetary policy, we can see that at least in some cases its possible to create a stable currency supported by fractional reserves and bond sales. One reason for this can be attributed to the creditworthiness of the issuer, In the event that reserves are depleted a national government can use force and taxation in order to raise funds to pay debts, and thus so long as the government is deemed unlikely to collapse entirely bonds are generally a safe investment.

In the context of a decentralized stability mechanism, the use of force is not an option, taxation is an option but is limited by the ability of users to fork away any excessive taxation. One possible way for a decentralized protocol to establish credit worthiness is through an established history of utility (or other independent revenue generating activities).

From the perspective of the Aragon Network if we want to minimize downside risk for holding ANT, while allowing holders to capture meaningful value appreciation as the network grows we should plan for independent network services, like the Court, to charge a Network Fee paid in ANT and burned. This fee is reasonable from the perspective of Users and Jurors in the court and unlikely to be forked away because:

  1. An asset that has downside protection, reasonable upside potential and which “splits” to maintain a stable unit of account is ideal for collateralizing agreements. Reducing the opportunity cost for users of collateralized agreements makes arbitration services via the court more practical, so justifying the fee as a way to support that quality in ANT makes the court more useful.
  2. Users and Jurors in the court are likely to be participants of the Aragon Network and hold ANT, so using the court to provide an ANT “sink” would be unlikely to be seen as excessive rent-seeking.

In the future other services similar to the Court could be provisioned by the network, generating additional utility and revenue. As the these independent revenue streams become significant, the network will be seen as more credit worthy, and we can relax the ratio of collateral held in the reserve in order to pass more value appreciation onto holders of ANT. In the event that collateral is exhausted bond sales will be supported by the future revenues of the network, which minimizes the risk that in the event of a crisis of confidence no one will want to buy bonds.


Agree with these points. The currently proposed ANJ token, however, does not allow Court participants to vote with their ANT. This seems to contract your points here of using ANT be to pay for Aragon related things while also allowing holders, who are likely to be participants in the Aragon Network, to use ANT to engage in ANVs.

I’m not sure the relevance here, as the goal wasn’t really ever to allow Staked jurors to vote in AGPs, it was to try and make ANT the ideal asset to use to collateralize proposal agreements.

These are very different goals with different technical challenges.

The goal of making it possible to vote with ANT used to collateralize proposal agreements is motivated by the need to make proposal agreements more capital efficient… because in some ways they would be competing with traditional legal agreements which do require capital lock up at all.

In the short term, I don’t think collateral efficiency will be an issue for proposal agreements, it would be more relevant if we start seeing use cases that have long durations. Initially, the durations of agreements likely will be closely linked to the duration of votes, and so capital efficiency is probably not a huge issue for the success of the court initially and can be addressed in the future if it becomes apparent that it is the bottleneck for further adoption.

Could you give an example how this would work by ARA and ANJ? Because every collateral token is backed 100% by ANT or is this collateral % changing so ARA could be at some point only be backed 20% by ANT?

Bonding curves are not necessarily 100% backed, typically it is a ratio. If you want to get a better understanding of bonding curves I would recommend reading through Bancor’s white paper. We are using the bancor formula as the market maker component of Aragon Fundraising so there is a lot of overlap both on a technical and conceptual level with how they described smart tokens.

As far as how bonding curves and bonded tokens like ARA and ANJ interact with this concept of splitting ANT, im not really sure as this concept is something that isn’t really under active research at the moment. Its not clear whether it will be implemented in the future (up to ANT holders I supposed), and what that implementation would look like in the future.

I’m not really sure why this thread from May of 2018 was dug up a few days ago, but its probably a bit confusing…

I for one am glad it bubbled back up. I don’t think it has that much relevance to ANJ but this was one of the most exciting things from the old WP for me. I understand there were other priorities but think this is something worth coming back to

is splitting the token the process where the connector wight falls to nearly 0% so the way the token get more and more disconnected from the collateral?

The splitting/rebasing mechanism essentially allows for inflation/deflation by adjusting the balances of holders rather than the total supply.

This can be quite disruptive for contracts (like a bonding curve) that expect the balance they are holding to be consistent.

Its a very interesting mechanism and I think it is a really useful tool for token engineering and economic system design… But I would not advocate for anything close to this design for ANT at this time.

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