As far as I known, there are several cryptocurrecncy peg mechanism
1)TETHER (100% reserve)
Stable Currency. Tether converts cash into digital currency, to anchor or tether the value to the price of national currencies like the US dollar, the Euro, and the Yen.
WhitePaper here
https://tether.to/wp-content/uploads/2015/04/Tether-White-Paper.pdf
A private money house called ** tether limited** holding a 100% reserve fund.
This scheme is feasible if that private money house is legal and supported by traditional banks.
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bitUSD issued by bitshare(BTS) (>150% reserve)
https://bitshares.org/
We are familar with Bitshare, but their pegging mechanism a bit complicated. Letās explain it(correct me if Iām wrong).
There are 101 signers in BTS system, they give out a āfeed priceā to introduce a proper price for protocol. Only BTS holders can provide bitUSD liquidity.
One BTS holder believe that BTS price will go up, then he/she pledges 200$ value BTS to the protocol and get 100 bitUSD($), the protocol automatically freese his/her pledged BTS and borrowed 100 bitUSD, furthermore the protocol uses 100 bitUSD to place buy order for BTS. ie, system sell bitUSD for BTS. Thus the bitUSD liquidity is provided.
The problem is that the BTS price is volatile and to prevent the pledged BTS value become too low, for example those pledged BTS value drops to 150$, the protocol automatically mandatory liquidation which is a loss for that BTS holder. one month later, protocol always ends this procedure, in spite of what price of BTS ( of course >150$ ) is. If BTS price up, the BTS holder earn money. For example, you mortgage your house for some money and buy a new small house with borrowed money, one year later, all house price up and you sell out the new small house & return your borrowed money, the left is your profit. But if house price down, you lose.
My former suggestion of pledge NSR to protocol and get NBT to provide liquidity with NSR/NBT pair is a bit similar to bitUSD mechanism, this bitUSD mechasimās merit is that all bitUSD is fully backed by cryptoasset, and system donāt need to pay reward to liquidity provider, the bad thing is there are maybe insufficient BTS value to issue enough bitUSD if bitUSD demand is very high, especially few BTS holders believe BTS price go up.
3)Nubits(Zero reserve)
The mechanism is unique, decentralized pool is ready now, Nu DACās fund is kept away from couterparty risk and liquidity providers bring up their own money for liquidity operation and get reward.
This zero reserve mechanism is flexible when NBT demand very high, but I think there are two problems with it
a) the zero reserve cannot give enough confidence to customers, if something bad happens, LPC may refuse to help. We all knowt that when you are rich banks are keen to lend you money but if you become poor, banks shut door to you.
b)DAC must pay reward to LPC, this is an expenditure. Yes, we shift the BTC/NBT pair couterparty risk to our LPC but LPCs are not fool, they WILL demand high reward even the exchanges are completely secure(B&C exchange).
We are not magician, cannot make money from nowhere. The sale of NBT is not our revenue. NBT is just a IOU, you cannot borrow a lot of money and get rich, the IOU is debts. We certainly hope many NBT holders will keep their NBT for ever and never return them for FIAT/BTC. However, will the public do what we hope them to do?
- loose pegging mechanism, still Nubits Zero reserve style, but a modified version, letās call it
ticket scalper scheme I like it very much. Forget about bitUSD mechanism.
B&C DAC always sell BKC at 1$, no guarantee on buy back at all. All sale of BKC is our revenue.
There are probably some people wanna sell their BKC for some reasons. Scalpers now appear, they buy back BKC @ 0.9$, and place sell order at 0.99$ so that they can sell them before official BKC sale.
Scalpers will never raise BKC price above 1$ because BKC from B&C is infinite and thatās different from real world limited cinema tickets. So BKC will never exceed 1$, and it will never drop too low IF B&C promise not to sell them at low price.
There are competition between scalpers, the higher buy back price(eg 0.95$) the more trading oppotunity but less profit per BKC, finally the market reaches equilibrium, I hope the price will between 0.9$ and 1.0$.
Scalpers bring their own money to provide liquidity, they may use B&C and traditional exchange even ripple system if they donāt care about hiding the ID. Scalper even buy BKC at 1$ and sell at 1$ to attrack more customers for better liquidity in their own Ripple gateway.
We can even add anti infaltion to BKC if we lift sell price with USD infaltion rate voted by shareholders. In 2020, BKC price is [1.25, 1.3]ā¦
Furthermore, if BKC liquidity enough, we may use BKC as a basis for NBT pegging, the BKC/NBT pair is the most simple and stable pair I believe.