Third, a comparison between DW20 and the decentralized stablecoin DAI

Enter the white paper series3

We start to unveil the mystery of the chainless system and introduce the relevant contents of the white paper. Many programmers have had close encounters with Bitcoin and ended up empty-handed. We are destined to meet each other and believe wealth is proportional to cognition. Our airdrop design does not require you to spend money, but you must spend time reading articles to improve your cognition and contribute to your strength; otherwise, you will miss wealth.”Comparison of the decentralized standard currency DW20 with Bitcoin, the stablecoin DAI, and the standard currency USD” is divided into four sections: the design background of DW20; its comparison with Bitcoin; its comparison with the decentralized stablecoin DAI; and its comparison with the standard currency US dollar.

Comparison of the decentralized standard currency DW20 with Bitcoin, the stablecoin DAI, and the standard currency USD

Third, a comparison with the decentralized stablecoin DAI

1. DW20 has entered the stablecoin stage after passing the first stage. At this stage, the price of DW20 has only fluctuated slightly. The comparison object now is DAI, the leader of decentralized stablecoins. It is a mortgage-type stablecoin issued by Maker Dao, and it is also a decentralized stablecoin. The price ratio corresponding to the US dollar is 1:1. How does it maintain a stable relationship with the US dollar? It has three adjustment mechanisms to ensure the ratio with the US dollar.

1) When DAI deviates from 1 USD, the market automatically adjusts using the mortgage principle, and someone will automatically issue and destroy DAI;

2) Adjust the mortgage interest rate artificially.

3) Issue equity tokens MRK cover in case of failure.

DW20 has no interest rate adjustment and no equity token adjustment. The first adjustment alone is not enough. The DAI’s last two performance problems have occurred in the history of DAI. Corresponding to the latter two adjustment measures, DW20 issued 10% of the stabilization fund to form a market-making fund with a third party to intervene when market adjustment fails. This kind of intervention is the Hong Kong Monetary Authority’s method of anchoring the US dollar. They keep the ratio of the Hong Kong dollar to the US dollar at 7.75-7.85:1. We call it the primary market adjustment method. This method is transparently adjusted, and the rules are stated in advance, fundamentally different from sitting on the bank. We also creatively used this method in the first stage of DW20 to maintain the upward trend of DW20 price amid fluctuations. For specific adjustment methods, readers can refer to the DW20 white paper and Tang Wanchuan’s analysis “Interpreting the Design Features of DW20 Decentralized Standard Currency”, which has a detailed introduction.

2. Both DAI and DW20 have their platforms to rely on. DAI is the means by which Maker Road makes money and is interdependent with its equity token MRK. There is no such profit model for DW20. DW20 and the chainless platform coin CLY are independent, and CLY is unnecessary to support DW20.

3. Maker Dao has costs, so there is a controller as the operation team, and the entire project value is represented by the equity coin MRK. DW20 has no controlling party, cost consumption, and equity tokens not representing the DW20 project.

4. Once DW20 sets a strategy, it remains unchanged. All possible changes are stated in advance. There are very few things where the community can participate in decision-making, while Makers “make community decisions on everything.” In fact, currency requires immutability. Only transparency and immutability can have credibility. This principle is what Satoshi Nakamoto said: “0.1 structure from beginning to end”, which refers to the immutability of Bitcoin, while equity must have variability in order to progress and develop.

Mutability and currency are related, right? There is a paradox in the development of algorithmic stablecoins. The value of equity depends on the growth of the project, which in turn underpins the project. It is a logical flaw in Robert Sams’ “Seigniorage Shares” model. The collapse of South Korea’s Luna project was due to this reason. Fortunately, DAI is very restrained, and the equity token MRK is only used for rescue. Of course, the best way is that stablecoins are not related to equity.

5. DAI is a hybrid mortgage mechanism. In addition to Ethereum, any Ethereum-based asset can be used as a collateral asset to generate DAI on Maker Dao as long as the community MKR holders approve it. For example, WBTC, stETH, etc., can be used as collateral assets. In this way, the project is more likely to be profitable but adds a layer of risk transmission. The collateral of DW20 is only Bitcoin to avoid risk transmission, and the simpler the requirements, the better.

6. The rising benefits of DW20 are absorbed by Bitcoin, not the chainless platform, while MRK absorbs the benefits of DAI.

7. DAI, like the centralized stablecoin USDT, must use the funds users put into the capital pool to make profits. When the object purchased is at risk, DAI is also at risk. The most famous thing is that the stablecoin USDC fell to US$0.88 after the Silicon Valley Bank storm. USDC’s share of the DAI fund pool was about 50% at the time, and DAI also fell to US$0.88. With a capital pool, DAI’s adjustment effect improves, but the risk of being a stablecoin increases. It is right from the profit perspective but unreasonable from the perspective of stablecoin. DAI’s original adjustment mechanism is sufficient. At the same time, it is a secondary anchor to the US dollar, adding a layer of risk transmission. The initial decentralized model has become a hybrid model. The author introduced USDT’s views on DAI in the article “USDT is not far from the second” (chainless.hk): “Although the appeal of decentralized stablecoins is high, history shows that the design of decentralized stablecoins Either it will lead to centralization (eventually backed by a fiat stablecoin) or it will lead to outright failure (the collapse of the stablecoin algorithm).” Of these two sentences, the first one refers to the stablecoin DAI, so DAI deviates from the goal of a distributed stablecoin.

8. DW20 does not have a profitable fund pool, and users decide their funds’ investment direction and profit.

9. Maker Dao uses mortgaged Ethereum to generate DAI, which generally has at least 2% interest income, while DW20 has no interest income except handling fees.

10. DAI’s financial design is too complex. Generally speaking, overly complicated financial design is one of the causes of financial turmoil. At this point, the stablecoin USDT is designed to be simple, and the principle can be explained clearly in one sentence. DW20 follows this principle.

11. DAI is a successful decentralized stablecoin project. According to the original design of Maker Dao, it can reach the standard currency stage, but it does not start by reducing interest. There are also mixed mortgages and capital pools, and the goal of standard currency is getting further and further away. If it does not refer to the chainless model, it will stop at stablecoins.

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