Creating a Trustless Fiat-Stablecoin
Trustless systems are everywhere in crypto. This is the foundational idea that the blockchain and crypto are built on. If this is so then why do we have to trust stablecoin issuers to correctly allocate the backing of the tokens to ensure the stability of the peg?
At Gypsy, we are developing our own stablecoin (USDG) which aims to be a trustless fiat-stablecoin in which token holders can be ensured of backing and the stability of the peg.
The features a trustless fiat stablecoin would need to have:
Proof of Reserve (Authenticity of the peg)
Live view of backing assets (Authenticity of backing)
Transaction logs (Authenticity of deposits & withdrawals)
Chainlink’s Proof of Reserve
Chainlink's proof of reserve enables the reliable and timely monitoring of reserve assets using automated audits based on cryptographic truth. These act as automated audits to help decrease risk and increase efficiency through oracle-triggered circuit breakers. This provides additional guarantees at the smart contract level that they cannot mint more tokens than assets stored in reserves, ensuring a 1:1 backing for every token.
Live view of backing assets
Proof of reserve allows us to know the exact dollar amount of the backing assets of a stablecoin but it tells us nothing about where those assets are allocated. For this, we need to actually know what assets are backing the coin (U.S. Treasury Bills, Cash & Bank Deposits, Money Market Funds, Commercial Paper and Certificates of Deposit, etc). This information is vital to know both the volatility of the assets and the backing’s liquidity in the case of a bank run.
Transaction Logs
Proof of reserve allows us to know the exact dollar amount of the backing assets of a stablecoin but it tells us nothing about where those assets are allocated. For this, we need to actually know what assets are backing the coin (U.S. Treasury Bills, Cash & Bank Deposits, Money Market Funds, Commercial Paper and Certificates of Deposit, etc). This information is vital to know both the volatility of the assets and the backing’s liquidity in the case of a bank run.
The transaction logs are a point of truth for the movement of funds in and out of the stablecoin. These moments of funds will ensure the authenticity of the fund's withdrawals and deposits. The logs would display which wallet addresses are depositing their money in and out of USDG.
The future of fiat stablecoins
It’s clear that stablecoins are an essential pillar in the mass adoption of crypto. USDG aims to bring blockchain-level transparency to fiat-stablecoins as well as other real-world asset-collateralized tokens. This can be anywhere from a REIT owning income-generating properties or an autonomous network of cars that earn money for transporting the public.
To keep updated with the development of the project, follow us on Twitter and check out our Website.
About Gypsy
Gypsy enables digital nomads & remote workers to gain home ownership while exploring the world. We transition humanity into global citizens through real estate and cryptocurrency.
date published
Nov 19, 2022
reading time
3 min
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