Arthur Hayes, a co-founder of crypto exchange BitMEX, has proposed NakaDollar (NUSD), a stablecoin backed by bitcoin (BTC) and bitcoin derivatives, which would theoretically be deeply liquid and attractive to traders and provide stability if accepted and used by investors and crypto exchanges.
The token wouldn't rely on a centralized entity such as a bank and instead would be supported by member crypto exchanges that list inverse bitcoin perpetual swaps – a derivative product that is traded and settled with the underlying asset.
“We, the crypto faithful, have the tools and the organizations needed to support $1 trillion or more worth of NakaUSD outstanding,” Hayes wrote Thursday in a BitMEX blog post. “If this solution were embraced by traders and exchanges, it would lead to a large growth in bitcoin derivatives open interest, which would in turn create deep liquidity.
“This would help both speculators and hedgers. It would become a positive flywheel that would not only benefit the member exchanges, but also DeFi (decentralized-finance) users and anyone else who needs a USD token that can be moved 24/7 with a low fee,” Hayes added.
Holding a perpetual swap that shorts, or bets against, the price of bitcoin along with $1 worth of bitcoin means the dollar value of NUSD ultimately remains the same – as losses and gains effectively cancel each other out.
Hayes proposed setting up a decentralized autonomous organization with its own governance token, NAKA, to help seed liquidity and allow holders to vote on operational matters. Funding generated from holding the perpetual swap could be funneled back to the DAO.
Both NAKA governance tokens and NUSD would be ERC-20 tokens that live on the Ethereum blockchain, Hayes added.
Demand for stablecoins
Hayes’ proposal comes in response to the growing demand for stablecoins that aren't tied to traditional currencies like the US dollar or euro.
With the rise of DeFi platforms comes a need for stablecoins that aren't subject to the same regulatory scrutiny as traditional currencies.
Stablecoins are an immensely important feature of crypto markets, because they facilitate billions of dollars in trading, lending, and almost all crypto-based services now offered to users.
Tether (USDT) and USD coin (USDC) dominate the centralized stablecoin market, both claiming their dollar-pegged tokens are backed by an equivalent reserve in the form of spot currencies, commercial paper or bonds.
There are then decentralized algorithmic currencies such as frax (FRAX), djed (DJED) and the upcoming crvUSD, which will rely on baskets of locked tokens to maintain their peg to U.S. dollar.
Concerns remain, however, after the demise of Terra’s UST tokens last May. A change in market dynamics at the time caused Terra’s LUNA prices to snap at a breakneck pace, falling 99.7% in less than a week as UST lost its peg and fell to a few cents.
That was because of how algorithmic stablecoins like UST operated. One UST could be redeemed or minted for exactly $1 worth of LUNA at any time. In theory, that helped UST retain its value while creating demand for both tokens.
Traders can continuously buy and sell LUNA and UST to maintain the peg and profit by doing so, incentivizing them to maintain UST’s peg. But although that experiment was ultimately a failure, it hasn’t stopped crypto hopefuls from trying out new iterations of a crypto-based stablecoin.