Obyte launches zero-coupon-like stablecoins aimed at traders and investors

Directed Acyclic Graph (DAG) platform Obyte has announced that it has launched stablecoin capabilities on its network that can be pegged to fiat currencies, financial instruments, and even other cryptocurrencies. The stablecoins are designed to trade with a discount to their benchmark asset or index in such a way that the discount decreases over time – therefore, the stablecoin appreciates.

These characteristics should appeal to investors seeking low volatility as well as traders looking for alternatives to the traditional financial centers. Investors and traders can, within a matter of minutes and without development knowledge, create a stablecoin using an Obyte wallet that can then be traded on a decentralized exchange. Although the product is targeted at traders and investors, their combined activity creates several stable and liquid means of payment more broadly as well.

Stablecoins are issued when a user deposits a collateral on a stablecoin Autonomous Agent (AA). AAs are programs running on a distributed ledger that are designed to orchestrate a programmed, strictly rules-based flow and custody of assets, free from any human intervention. Among the applications that can be developed with Autonomous Agents are decentralized exchanges, prediction markets, synthetic assets, collateralized lending, margin trading, futures contracts, and investment portfolios.

How it works

Stablecoins are issued as a loan and the borrowing user gets both the newly minted stablecoins and retains ownership of the collateral which they can reclaim when they repay the loan. The value of the collateral needs to be higher than the value of the loan to ensure that the loan is properly secured despite volatility of the collateral. If the value of the collateral drops below a certain threshold, the loan recipient must increase the collateral or else the collateral enters into an auction.

Unlike other stablecoin designs that try to achieve stability by regulating the supply and demand (which is often likened to “pushing on a string”), the stability of a Discount Stablecoin is ensured by having a future date when the stablecoin becomes convertible to the collateral. The conversion is done at the exchange rate registered on that future date. Any present exchange rate of the stablecoin is naturally “pulled” to that future exchange rate, much like the price of futures contracts is determined by the expected price of the underlying at some future date. The convertibility is provided by the same AA that issued the stablecoin.

The fact that convertibility becomes available only at some future date justifies a discount in the present price. The discount decreases – and the stablecoin appreciates – the closer it gets to the expiry date. The price trajectory of Discount Stablecoins is expected to be similar to that of zero-coupon bonds.

DAG versus blockchain

Obyte data is stored and ordered using directed acyclic graph (DAG) rather than blockchain. This means users can secure each other’s data by referencing earlier data units created by other users, and also removes scalability limits common for blockchains, such as blocksize issue. Blockless design is simpler because there are no blocks, there are only transactions. Users just add their transactions to the end of the DAG themselves, they don’t have to wait for miners to create a new block and there is no guesswork regarding whether miners will include their transaction in the block.

“Because it is DAG and not a blockchain, access to the ledger is open and consequently, there is no concern that miners could manipulate the result of your transaction,” explained Tony Churyumoff, founder and chief developer at Obyte, speaking to SFM. The way that plays itself out is for example in the case of coins being auctioned off when collateralization limits are breached, a problem that hit Dai quite hard during the mid-March markets sell-off.

“If your undercollateralized loan is auctioned off, the auction is fair,” explained Churyumoff. “Because there is a limited time for an auction to take place, if a miner blocks your transaction or his/her transaction goes before yours, he/she has many chances to win auction…In DAG, there is no such possibility.” He also noted that the programming language of autonomous agents is Oscript, which makes it more convenient and safer to create DeFi apps.

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