I have read these discourse on 'stable' coins and find them loosing the plot very early. Lets us consider the FX rate of HKD to USD or JPY to USD. HKD is kept in a narrow range by the Honk Kong Monetary authority using its pool and Bank of Japan concentrates on its 10 Year Bond yield using Yield control. BOJ issues or buys bonds and is reportedly has 80% of the Japanese bond market and a big slice of Equity too.
It has a trillion USD worth reserve to protect the Yield on 10 year bond.
Many other countries like India and China use a basket of currencies as a benchmark to 'manage' the FX rate. THERE IS NOTHING STABLE IN FX RATES. Even USD vs GOLD is unstable.
The requirement is smooth changes not saw tooths ....
The key insight that is missing is leverage. Traditional Finance uses 3X reserve . So if peak trading volume is 1 Billion that the algo or protocol or Central bank should have 3 Billion of reserves or more else it may be attacked
George Soros broke Bank of England as protecting FX meant interest rates were surging and they would hurt mortgages so badly
AFAIK a Algo stable coin is very much doable using a basket ( SDR of IMF?) and the trust in the market that the issuers will issue more as needed. Issue more is the key
I have read these discourse on 'stable' coins and find them loosing the plot very early. Lets us consider the FX rate of HKD to USD or JPY to USD. HKD is kept in a narrow range by the Honk Kong Monetary authority using its pool and Bank of Japan concentrates on its 10 Year Bond yield using Yield control. BOJ issues or buys bonds and is reportedly has 80% of the Japanese bond market and a big slice of Equity too.
It has a trillion USD worth reserve to protect the Yield on 10 year bond.
Many other countries like India and China use a basket of currencies as a benchmark to 'manage' the FX rate. THERE IS NOTHING STABLE IN FX RATES. Even USD vs GOLD is unstable.
The requirement is smooth changes not saw tooths ....
The key insight that is missing is leverage. Traditional Finance uses 3X reserve . So if peak trading volume is 1 Billion that the algo or protocol or Central bank should have 3 Billion of reserves or more else it may be attacked
George Soros broke Bank of England as protecting FX meant interest rates were surging and they would hurt mortgages so badly
AFAIK a Algo stable coin is very much doable using a basket ( SDR of IMF?) and the trust in the market that the issuers will issue more as needed. Issue more is the key