The PolkaCash Difference
With the barrage of various stablecoin projects on the market today, what makes PolkaCash different?
Different designs and models have been utilized, such as the Asset-based, Crypto-collateral-based, and Algorithmic models. Irrespective of the design, the primary goal is the same, and that is to create a digital currency with an existing fiat peg (such as the USD), thereby significantly improving its adoption as a means of payment. PolkaCash is an Algorithmic protocol, and like other Algo protocols, it relies on rules written in its software code to match currency demand and market supply. However, it is unique in the way it anchors its stablecoin to the value of the USD.
Taxonomy Of The Main Stablecoin Types
Why are Stablecoins in demand? What are the use cases?
Different parties utilize stablecoins in different ways, for different purpose. Some of these applications are:
- As a means of exchange - This is the primary purpose of stablecoins and it is central to cryptocurrency adoption, as it solves the issue of volatility.
- As a Unit of account - Since stablecoins are pegged to fiat, pricing can be done in stablecoins, and overtime, they could become a recognizable unit of account globally.
- Store of Value - Since they are not volatile, stablecoins are fast becoming a popular store of value. They are likely to become even more popular for this reason, considering the negative interest that could be accrued to bank depositors.
- Remittances - Cryptocurrencies have been hailed as a fast and cheap means of remitting funds, with the major downside to their use being their volatility. Efficient stablecoins solve this problem.
- Lending and derivatives - Stablecoins allow you to hedge against the risk of volatility and nullify the need for centralized players existing on the CME and CBOE
- Decentralized applications (dApps) - For businesses that run on smart contracts, stablecoins ensure that operation costs are predictable and infrastructure management is easier.
- Performance management - By removing volatility, stablecoins make it possible for analysts to accurately evaluate and compare projects.
The foundation for an efficient stablecoin
The key success factors of a Stablecoin
As stated earlier, there are several projects that are focused on stable coins but the key question is - How many of these protocols can form a consensus as well as support around 1USD to allow for sustainable staking? In other words, how many of these coins are truly stable? The fact is that most are not. The quest to create a stablecoin that is true to its name led the PolkaCash team to think outside of the box and come up with a protocol that is driven by a simple but reliable system called the Reserve Mechanism. This is a significant improvement from existing protocols and promises to transform the approach to stablecoins. The team is very proud to be pioneering this, and our contributors should consider that we are on the verge of something big.
Introduction of PolkaCash improvement (Reserve Mechanism)
It is true that the simplest explanations are usually the best, and that is a good way to look at the Reserve Mechanism. It is structured like a conditioned reflex, such that when the price of POC is above 1USD, the protocol purchases ETH using 10% of the rebase and stores it in the treasury, and when POC is below 1 USD, the treasury fund is used stabilize the coin at 1 USD again. It is a very simple model as stated earlier but its effectiveness is not in question.
The Reserve Mechanism will repurchase POC appropriately when the POC price is lower than $1. If the price can be returned to more than $1 every time, it will help form a very solid price support and will continue to strengthen the price consensus between investment institutions and the community , also increasing confidence.
The protocol will maintain a 24-hour time base which will weigh the average of the POC-USDC exchange rates as is read from the Uniswap v2 contract and internalize the information for reference by the stabilizing engine. On the one hand, when the market price of POC is above 1USD, arbitragers have the opportunity to sell POC and buy back when the price returns to 1USD; on the other hand, when price is below 1USD, they can buy POC and sell when price goes back to 1USD.
The stabilizing engine is signaled anytime the price of POC is noticed to be above/below (1+ɛ) USDT where ɛ is the determinant of stability.
Why we think PolkaCash is superior to current solutions
The simplicity of this model makes it very sustainable and presents a good opportunity for arbitrage. Also, unlike other tokens whose high price makes maintenance via treasury assets impossible, the PolkaCash model requires very little reserve assets for sustenance. Therefore, it can run itself independent of the whales. Furthermore, the purchased reserve assets will continue to appreciate and when the market value surpasses that of POC, it could form a decentralized central bank, as it has become a 1:1 acceptance project. Therefore, the opportunities are enormous.
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