Kowala Andromeda: A unique stablecoin network has gone live
This is a new development in the small uncollateralised algorithmically-pegged paired stablecoin neighbourhood.
Kowala Andromeda, in addition to being a solid album name for an Australian Pink Floyd cover band, is the name of the Kowala stablecoin's new mainnet alpha version.
It's one of just a handful of cryptocurrencies to fall into a category that might be described as uncollateralised paired stablecoins.
- Stablecoins are non-volatile cryptocurrencies, typically pegged to the US dollar.
- Paired means a network that uses multiple cryptocurrencies to better absorb volatility and manage incentives. Typically, one of the coins is the volatile speculative one while the other is the stablecoin itself.
- Uncollateralised means a network that doesn't depend on outside collateral or backing to maintain value and a peg but instead aims to create and algorithmically maintain value within its own system.
Tether, for example, is just a collateralised stablecoin. The Tether company supposedly has a bunch of US dollars in a bank somewhere, and then issues the Tether cryptocurrency as backed digital money. This is the simplest type of stablecoin.
Maker is more complex and might be described as a paired algorithmically collateralised stablecoin system. It uses Ether as its primary collateral and its MKR token as secondary collateral. It then algorithmically maintains the value of its Dai coin which is pegged to US$1.
The next generation, whose most prominent examples are probably Kowala, Havven and Basis, aim to get rid of outside collateral entirely through sheer economic engineering, making them some of the more interesting projects in the crypto space. And despite their identical goals, each approaches the problem in quite different ways.
In the case of Kowala, it's coming at it from an angle that incorporates staking while relying on pure incentives to maintain the stablecoin's peg.
"With the distribution of our mCoins, we come even closer to fulfilling the promise of the original Bitcoin whitepaper and creating the infrastructure that this industry needs to go mainstream," says Kowala CEO Eiland Glover.
mCoins, in this case, refer to mUSD. These are the coins which can be staked by "miners," letting them mint new kUSD stablecoins, each of which is pegged to the dollar. As with mining, these rewards are given for the contribution of computing resources to network security and mining blocks.
So in addition to being miners, these mCoin holders also become the network's distributed central bank. And like any central bank, they have a certain amount of control over the expansion and contraction of the monetary supply, with the effect of raising or lowering the value to maintain the peg.
Basically, if kUSD is above $1, then it's been under-supplied. To compensate for this, miners will start getting rewarded with more kUSD to put more into circulation. If kUSD is under $1, then it's been oversupplied and the total supply will contract. This contraction takes the form of slightly higher network fees that see a larger portion of tokens being burned and taken out of circulation.
Glover sees the idea of distributing central bank responsibilities, partly to miners all around the world and partly to algorithms, as an ingredient of economic freedom.
"Such a system will allow node operators around the globe to have ownership of a money supply mechanism that keeps the stablecoin within its target range around one dollar, without that money supply being locked in a vault controlled by a small handful of c-suite executives," he says.
"Andromeda signals the start of a new era of stablecoins, one in which users won’t have to put their faith in cash and gold reserves, the continuous growth of crypto markets, or, most importantly, the whims of a government, in order to maintain a price-peg," says Kowala CEO Eiland Glover. "Our decentralised stablecoin solution makes the Kowala protocol the most trustless anti-volatility project on the market and offers unparalleled monetary liberty, especially to those living in inflationary economies."
It's far from done though, and this is just the alpha launch. Once it's been taken for an adequate spin, the next version, Boötes, will be released. It's expected to arrive sometime in Q3 2018 – so not much longer now.
Incidentally, Boötes is another constellation like Andromeda. Boötes is typically portrayed as a herdsman who corrals his flock with the help of two dogs. In this case, those two dogs are probably mUSD and kUSD, while the flock itself might be Kowala users or the concept of economic stability itself depending on how esoteric you want to get.
Disclosure: At the time of writing, the author holds ETH, IOTA, ICX, VET, XLM, BTC and ADA.
- Happy fifth birthday to Ethereum. What has it learned?
- Binance: World’s largest cryptocurrency exchange launches in Australia
- Bitcoin breaks US$11,000 as gold hits record high and dollar drops
- Eftpos is testing an AUD stablecoin on Hedera Hashgraph for micropayments
- Visa invites crypto aboard as US banks given green light to hold keys