Arthur Hayes, the co-founder and CEO of the BitMEX cryptocurrency exchange, has proposed the NakaDollar or NUSD, a stablecoin backed by bitcoin (BTC) and its derivatives. If this token is accepted and embraced by crypto exchanges and investors, it could theoretically provide stability and liquidity.
The NakaDollar would not be reliant on a central organization like a bank. Instead, it would be supported by crypto exchanges that offer inverse bitcoin perpetual swaps, a derivative product that is traded and settled using the underlying asset.
In a blog post on BitMEX, Hayes said that “the crypto faithful” have the capacity to back $1 trillion or more worth of NakaDollar, which would lead to an increase in open interest for bitcoin derivatives and deep liquidity for speculators and hedgers. It would also benefit DeFi (decentralized-finance) users and anyone else in need of a USD token that can be moved cheaply and quickly.
Holding a perpetual swap that bets against the price of bitcoin and $1 worth of bitcoin essentially means that the dollar value of NUSD remains the same as gains and losses offset each other. Hayes suggests creating a decentralized autonomous entity with its own governance token (NAKA) to help with liquidity and allow holders to vote on its operations. This DAO could be funded by the proceeds of the perpetual swap.
The tokens used to support NUSD would be ERC-20 tokens based on the Ethereum blockchain. Hayes’ proposal responds to the growing demand for stablecoins that are not linked to traditional currencies such as the US dollar or euro.
Stablecoins are necessary for people to be able to trade in a variety of DeFi platforms without being subjected to the same regulations as traditional currencies. They are also an important aspect of crypto markets as they allow users to access billions in lending, trading and other services.
At the moment, the most popular stablecoins are Tether’s USDT and USDC which both claim to be backed by equivalent reserves in spot currencies, commercial papers, bonds, or other forms of currency. There are also decentralized algorithmic currencies such as FRAX, DJED, and the upcoming crvUSD which rely on baskets of locked tokens to keep their value.
However, the experiment of Terra’s UST tokens failed last May, as its LUNA prices dropped 99.7% in less than a week when UST lost its peg. This was because UST users could redeem and mint $1 worth of LUNA at any time, creating demand for both tokens. This showed that algorithmic stablecoins can be unpredictable.
Despite its failure, this hasn’t stopped crypto enthusiasts from trying out different iterations of a crypto-backed stablecoin. Hayes’ proposal is the latest one, and it remains to be seen if it will be successful.
