Road to Productive Asset backed money — pt 2

Eventually we want to achieve a system where any asset that meets the benchmarks can be staked into the system and a stable coin can be minted against it.

Such an asset will be backed by a valuable asset, it will be pegged to USD so it can do interesting things such as daily transactions and it can scale in an unlimited manner

The real question becomes how to achieve liquidity for it. How to ensure someone else accepts it in return of something else that has value.

Usually this is done by setting up a liquidity pool on Uniswap or Balancer against another stable coin, with the hope that it achieves parity.

The expectation is that those who have or want the coin can see the value of the underlying collateral and hence will always bring it back to parity. If it refuses to meet parity, then either the collateral is wrong or something else such as enforcement is not achievable effectively. This would require a course correction in collateral selection and the controlling DAO would remove the offending collateral and burn the relevant tokens to get back to parity.

But assuming the collateral is fine, liquidity can be encouraged by incentivizing liquidity providers with governance tokens. This is a well proven technique used by Synthetix as well as Balancer and an industry standard these days.

Beyond that we have another trick up our sleeve.

The pool tokens from the liquidity pools will be accepted as collateral on the OTL. Which effectively means liquidity providers will be able to borrow to provide that liquidity.

The system becomes a series of feedback loops which should propel its adoption and desired objectives.