Arthur Hayes, the co-founder of BitMEX, has come up with an alternative to fiat-based stablecoins that could reduce systemic risk in the crypto market.
In a recent blog post, Hayes elaborated on the importance of stablecoins in the crypto space, and the current state of affairs that is not sustainable due to the centralization and lack of a reputable banking institution to launch their own stablecoin.
The importance of stablecoins
Stablecoins are digital tokens that exist on a public blockchain while maintaining a value equal to one fiat currency. This makes them particularly useful for traders to switch between fiat and crypto without waiting on the slow-moving Western banking system.
At the same time, the current crop of stablecoins suffer from a lack of decentralization and the fact that no reputable banking institution is willing to launch its own stablecoin.
Hayes’ proposed solution is a new stablecoin mechanism called NakaDollar that would be worth 1 USD but would not require the services of the fiat banking system.
The mechanism relies on derivatives exchanges that list liquid inverse perpetual swaps rather than hostile fiat banks to custody USD so that it may be tokenized.
Arthur Hayes’ NakaDollar proposal
The NakaDollar concept would create an organization that exists both in the legacy legal system and as a crypto-native DAO. The DAO would issue its own governance token: NAKA.
The first step would be to fund a sinking pool and create an initial stock of NUSD supply. Subsequently, the NAKAs would be distributed from the DAO in exchange for the provision of liquidity across the DeFi ecosystem.
The member exchanges would hold the BTC and short inverse perpetual swap positions that underpin the 1 NUSD = 1 USD exchange rate.
The member exchange account would be in the name of the DAO, and member exchanges would need to at a minimum offer a Bitcoin-margined Bitcoin / USD inverse perpetual swap.
Advantages of NakaDollar
Using NUSD instead of other bank-dependent stablecoins would reduce the fear that the stablecoin they are using will cease to exist in the future. It would also remove a key source of crypto FUD, which is that stablecoins are a Ponzi scheme.
Wide adoption of NUSD would put an end to the competition between exchanges to create their own stablecoin.
The potential failure of a marginal bank is one thing, but the nearly $100 billion worth of US Treasury bonds, bills, and notes that Tether, Circle, and Binance collectively hold could cause serious market disruption if disposed of in a few trading days to meet redemption requests.
