The stability money, made possible by the tying curves, is a relatively recent phenomenon. A bonding curve is like an automatic market maker, which, simply put, takes in a reserve, such as etherum tokens, and then issues a new token. He adjusts the price himself according to the size of the reserve and the number of tokens already issued. There is a situation where there is no need for a slow and expensive transaction book and where the price of a new token automatically depends on the amount of the token – the more tokens created, the more expensive the algorithm sets and vice versa.
The Obyte platform is a good step forward. They have created the possibility to create a multidimensional binding curve, or model, which takes into account the quantities of several tokens, where one reserve guarantee is input but different tokens are output according to certain rules. For example, the USD-tracking interest rate on stability money will be supplemented by a governance token. The interest token is linked to the GBYTE / USD price and includes accrued interest in addition to the USD value.
To ensure the sustainability of such models, it is often necessary to make ongoing decisions about whether to change certain parameters, such as the interest rate or the oracle that posts the rates. There is a governance token for this, the holders of which can vote for / against changing certain parameters.
With the help of reserve money, it is possible to create, for example, 2 pairs of connected tokens at the same time, one of which is volatile for speculation and the other with a steadily increasing value. In order to ensure the stability of the interest token in trading, a special whip and cookie system has been created – a condenser that regulates service fees and bonuses. This in turn motivates traders to be sensible. If someone’s transaction pushes the price of the token too far from the given curve, the service fees will be higher if they move closer, they will be given a capacitor bonus.
Oracles are used in order for the stability currency to be linked to an external variable: the USD / BTC / XAU exchange rate, Twitter followers, population or other statistical number. Oracle can be configured to listen to a specific number outside the platform and have these values posted to the Obyte DAG public database, where it can then be used by other decentralized applications.
Why is the stability money on the DAG chain better than on the block chain?
In the case of a block chain, 2 specific risks come into play. First of all, we have a third party, the miners. The order of transactions is important in trading – whose transaction is added earlier also has an advantage in trading. Miners here have the potential to play in the middle and manipulate trades because they can manipulate the order of trades. However, on the DAG chain, this is not possible because each transaction is written directly to the network without confirmation by a third party, and the transactions are stored in the order in which they became visible. In the block chain, it is possible to change the priority of transaction fee approval, which again creates an opportunity for manipulation and can be a major threat in trading.
Multidimensional stability money creates completely new opportunities for the design of various financial products and not only for economic governance. For example, it is much easier to create economic incentives or penalties and thus steer society towards better and more sustainable behavior. Ostable.org makes it very easy for anyone to create such stability money.