Algorithmic stablecoins were one of the most visible experiments in DeFi in 2020, but most of them failed to hold a strict peg to fiat currencies. Foresight’s latest piece looks at a new attempt on-chain: Standard Reserve, which the author translates as “Standard Reserve Bureau.”
Not a stablecoin project, but a bid to keep STANDARD at a basic, steady price
Standard Reserve is not trying to be a stablecoin. Its goal is not to peg the token to the dollar. Instead, the project says STANDARD should maintain a basic, stable price.
The exact price level would be set by the market, according to the white paper. What supports that price is a hard asset with broad consensus. At the moment, that asset is tokenized gold.
Supply is capped at 1 billion
That is another major break from earlier algorithmic stablecoin designs. Standard Reserve sets a hard cap of 1 billion STANDARD.
In the author’s view, those two differences make the mechanism easier to understand and lower the difficulty of the overall design.
Charters, branches, and how STANDARD is distributed
The project lets participants become banks, called “charters.” It has reserved 1,000 genesis NFTs for contributors, and anyone who receives one can become a charter directly. After those 1,000 NFTs are distributed, the system will auction charter status every day.
Each charter can open its own branch. Opening a branch costs STANDARD, and that STANDARD is burned. Each charter can open up to 10 branches.
Branches receive part of the STANDARD that the system issues. The author says that getting a charter and opening as many branches as possible is the way participants can profit from the structure.
ETH flows determine issuance and buybacks
Standard Reserve uses the features of Unsiwap V4 to closely track net inflows and outflows of ETH in the ETH/STANDARD trading pair, and uses that signal to guide issuance and asset handling.
When ETH is net inflowing, the system uses trading fees to buy hard assets, meaning tokenized gold, and accelerates STANDARD issuance. The newly issued STANDARD is then distributed to all branches.
When ETH is net outflowing, the system slows STANDARD issuance and uses trading fees, plus fees accumulated from various operations, to buy back STANDARD and burn it.
Under that setup, once all STANDARD has been issued, the system would move into a deflationary phase, because trading fees would keep being used to repurchase and destroy STANDARD.
Hard assets are meant to provide a floor for market value
The author also says that all hard assets accumulated through the system’s earlier operations would become a floor for STANDARD’s market value. How those assets are handled later would be decided by the DAO at that time.
Standard Reserve has already published its white paper. The team has not sought venture capital and is instead refining the design through community discussion. Foresight says it is waiting to see how the project performs after launch.
Reference: https://www.standardreserve.xyz/whitepaper/#dormancy
Disclaimer: Markets involve risk. This article does not constitute investment advice. Readers should determine whether any opinions, views, or conclusions here fit their own situation, and bear the responsibility for any resulting investment decisions.
