Comments on the comparison between DW20 and Bitcoin, stablecoin DAI and the US dollar (Part 3) -

——Comments on the concept of DW20 standard currency

“Comparison of decentralized standard currency DW20 with Bitcoin, stablecoin DAI and standard currency US dollar” is divided into four sections: 1. Design background of DW20, 2. Comparison with Bitcoin 3. Comparison with decentralized stablecoin DAI, 4. Comparison with the US dollar. This article also comments on this order.

Comparison with decentralized stablecoin DAI

1. After the first stage, DW20 entered the stablecoin stage. During this stage, the price of DW20 only fluctuated slightly. The comparison object now is DAI, the leader of decentralized stablecoins. It is a collateralized stablecoin issued by Maker Dao and a decentralized stablecoin. The price ratio corresponding to the US dollar is 1:1.

The stability mechanism of DW20 refers to DAI, a successfully running project. However, DAI did not develop, allowing stablecoins such as USDT to surpass it. DW20 was designed after analyzing its defects.

The stable relationship between DAI and the US dollar relies on three adjustment mechanisms to ensure the ratio with the US dollar.

1) When DAI deviates from 1 US dollar, the market automatically adjusts using the mortgage principle, and arbitrageurs automatically issue and destroy DAI;

2) Artificially adjust the mortgage interest rate for adjustment.

3) Issue equity token MRK for adjustment and provide a bottom line when it fails.

DW20 has no interest rate adjustment or equity token adjustment. The first point of adjustment alone is obviously not enough. Corresponding to the latter two adjustment measures, DW20 issued a 10% stabilization fund to intervene in the market when market regulation fails. This intervention is the Hong Kong Monetary Authority’s way of anchoring the US dollar. They keep the exchange rate between the Hong Kong dollar and 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, which is fundamentally different from being a banker. Mr. Zhu also creatively used this method in the first phase of DW20, thus maintaining the price trend of DW20, which was rising in fluctuations.

2. Both DAI and DW20 have their platforms. DAI is a means of profit for Maker Dao, and it is interdependent with its equity token MRK. However, DW20 does not have such a profit model. DW20 and the chainless platform coin CLY are independent, and CLY is not used to support DW20. The project Luna, which uses equity tokens as a bottom, exploded. It is not a safe method.

3. DW20 does not change after setting the strategy. All possible changes are stated in advance. There are very few things that the community can participate in in decision-making, while Maker Dao says, “Everything is decided by the community.” Currency requires immutability, and only transparency and immutability can have credibility. Maker Dao does not understand the role of the community in cryptocurrency.

4. Maker Dao operates with a cost-consumption model, necessitating a controlling party as the operating team. The entire project’s value is represented by the equity coin MRK, with the status of the chainless platform coins CLY and MRK being the same, but with no connection to DW20. In contrast, DW20 operates without a controller and cost consumption, ensuring that its price stability is determined solely by the market-making fund and the market. This lack of control and cost consumption provides a sense of security and freedom from external influence.

5. DAI is a mixed collateral 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 the collateral asset. For example, WBTC, stETH, etc. can serve as collateral assets. In this way, the project is more likely to profit but also adds a layer of risk transmission. The collateral of DW20 is only Bitcoin. To avoid risk transmission, the simpler, the better.

6. DAI, like the centralized stablecoin USDT, must take users’ funds into the fund pool to make a profit. When the purchased object is at risk, DAI is also at risk. The most famous is that after the Silicon Valley Bank collapsed, the stablecoin USDC fell to US$0.88. USDC accounted for about 50% of the DAI fund pool then, and DAI also fell to US$0.88. DAI’s regulatory role becomes better with the fund pool, but the risk as a stablecoin increases. It is right from the profitability perspective but unreasonable from the perspective of stablecoin. DAI deviates from the goal of decentralized stable currency.

DW20 does not have a profitable fund pool, and users decide the direction and profit of funds themselves.

7. DAI’s financial design is too complicated. An overly complex financial design is generally one cause of financial turmoil. In this regard, the stablecoin USDT is designed to be simple, and the principle can be explained in one sentence. DW20 follows this principle.

8. DAI is a successful decentralized stablecoin project. According to Maker Dao’s original design, reaching the standard currency stage is possible, but it did not start by reducing interest. Multiple mortgages and fund pools are getting further and further away from the goal of distributed standard currency. If the chainless model is not referred to, it will stop at stablecoin.

9. DAI’s most important role is verifying the feasibility of mortgage issuance, and the shortcomings exposed have been corrected in DW20. The difference between DAI and DW20 is that DAI chose to go left—centralization—while DW20 decided to go right—decentralization. DAI’s ranking in the cryptocurrency market is declining because the market does not favor it as a payment scenario.