Balancer — Stablecoin System Dynamics Model on Netlogo

A Quick and Easy “Stablecoin” — Balancer

Various stablecoin approaches have been tried— with reserve, without reserve, algorithmic, with peg, without peg etc. We present to you our (experimental) version of the Balancer stablecoin, whose price can vary quite a bit — but slowly and steadily.

Balancer Stablecoin System (Balssys) has two coins or tokens. One is a SpeculativeToken (SpeclToken) which can be traded freely in the crypto exchanges, and the other is a UnitToken, whose price is algorithmically determined to vary between 0 and 1 and is designed to change slowly with all types of market conditions. The UnitToken may be used for real world payments.

The structure of the Balancer Stablecoin System is as follows:

1. Both SpeclToken and UnitToken are mintable and burnable
2. SpeclToken can be converted to UnitToken and vice versa — but only through the Balssys smart contract
3. Conversion is a smart contract process by which when one token is burned and an equivalent number (in price) of the other token is minted
4. Price of UnitToken is determined according to the formula Price(UnitToken) = 1 — (nUnitTokens / ((weight * mSpeclTokens) + nUnitTokens)). n and m are the total count of the respective tokens. Weight is a number used to dampen the volatility. Note that the price of UnitToken is not calculated using the price of SpeclToken.

If the number of Specltokens or the weight is set to be very high, the price of UnitToken will rise or fall slowly.

That’s it!

How does it work?

As we see it, the main problem with token economics in general is that the single purpose utility token fails to be a store of value. When a payment is made in a utility token, the rational decision for the acquirer is to sell the token immediately for fiat or for a stable currency.

Payments are meant to be made in the UnitToken as it is more stable. One can expect HODLers of the UnitToken as well, perhaps for the medium term as its price is not guaranteed to stay at a single number, but only to vary slowly.

As the SpeclToken is the only way to make UnitTokens, SpeclTokens will be in demand.

The advantages are:

1. There is no reserve. Balssys has only converter smart contracts and user wallets. Nothing to be hacked really.
2. Black swan events may rampage SpeclToken but will not change the price of UnitToken appreciably

We have created a miniature System Dynamics model of this on Netlogo, just for fun!

The whole system can be built using a fork of Bancor, which uses a similar model except for two things.

1. The base coin is held in a reserve
2. The converter formula uses price of the base coin

Note that even if UnitToken is traded in some exchanges, it can always be arbitraged against the smart contract, which will decide the actual price.

We leave the forking of Bancor to build Balssys to the diligent reader. If we had the funds and the time, we would do it ourselves!

For any questions or clarifications please comment below or reach out to me at rajesh@trilloc.com.

— Cheers! (Rajesh Bhaskar — rajesh@trilloc.com)

Note to Investors: If you would like to invest in TrustChain or in Balssys, we are open to a small investment.

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