Arthur Hayes, the co-founder of BitMEX, has proposed a new stablecoin mechanism that could replace fiat-based stablecoins and reduce systemic risk in the crypto market.
In a recent blog post, Hayes explained that while stablecoins are important to the crypto market, the current state of affairs is not sustainable due to the centralization and lack of a reputable banking institution to launch their own stablecoin.
The need for stablecoins
Stablecoins are tokens that exist on a public blockchain, but that retain a value equal to exactly one fiat currency. They are important to the crypto market because they allow traders to quickly move between fiat and crypto without waiting on the slow-moving Western banking system.
However, the current crop of stablecoins suffers from a lack of decentralization and the fact that no reputable banking institution is willing to launch its own stablecoin.
Hayes proposes a new stablecoin mechanism called NakaDollar that would be worth 1 USD but would not require the services of the fiat banking system.
The mechanism relies on derivatives exchanges that list liquid inverse perpetual swaps rather than hostile fiat banks to custody USD so that it may be tokenized.
Arthur Hayes’ NakaDollar mechanism
The NakaDollar mechanism would create an organization that exists both in the legacy legal system and as a crypto-native DAO. The DAO would issue its own governance token: NAKA.
The first step would be to fund a sinking pool and create an initial stock of NUSD supply. Subsequently, the NAKAs would be distributed from the DAO in exchange for the provision of liquidity across the DeFi ecosystem.
The member exchanges would hold the BTC and short inverse perpetual swap positions that underpin the 1 NUSD = 1 USD exchange rate.
The member exchange account would be in the name of the DAO, and member exchanges would need to at a minimum offer a Bitcoin-margined Bitcoin / USD inverse perpetual swap.
Benefits of NakaDollar
Using NUSD versus other bank-dependent stablecoins would remove the anxiety many traders face regarding whether the stablecoin they are using will exist tomorrow, next month, next year, etc. Using NUSD versus other stablecoins would also remove a central pillar of crypto FUD, which is that stablecoins are a Ponzi scheme.
Wide adoption of NUSD would stop every large exchange from racing to create its own stablecoin in search of a competitive advantage.
The failure of a small, backwater bank run by a bunch of muppets is one thing, but the nearly $100 billion worth of US Treasury bonds, bills, and notes that Tether, Circle, and Binance collectively hold could cause serious market dysfunction if disposed of in a few trading days to meet redemption requests.