Not only stable coins, but also the entire encrypted digital money market has a black hole burning rules. What is black hole burning? Simply put, it is the destruction mechanism of the certificate. Why do you need to destroy the certificate? Because additional issuance will cause inflation, resulting in price dilution.
It seems that the source of destruction is additional issuance. So why should the world of encrypted digital money be issued? It’s like a Pandora’s box, and without restrictions, no platform or system can suppress the urge to issue, just like central banks around the world.
The reason of additional issuance comes from two aspects. One is the annual release of the certificate, because at the beginning of the issue, a considerable number of certificates will be issued to the holder in the form of a lock, but once the lock period is over, they will flow into the market to form a disguised additional issue.
Another additional issue is the platform spontaneous additional issue. It is often due to inadequate rules, too centralized management authority. Such as BM on the BTS of the implementation of the additional program, and his EOS community proposed additional program.
Therefore, additional issuance is a bad behavior in most cases, but it is also necessary in some cases, such as large-scale growth of project ecology.
Since the recent stable currency USDN has been discussed enthusiastically by overseas communities, it seems that it is somewhat different from the similar stable currency in the mechanism of additional issuance and destruction, and has its own unique innovation. So what is the additional issuance and destruction mechanism behind the stable currency USDN?
According to the introduction, the USDN supply is calculated and adjusted according to the change of pass exchange rate (such as the change of USDN exchange rate against the dollar) through the protocol algorithm.
The blockchain creates and distributes new USDN. If the USDN transaction price is higher than $1 In other words, the stable currency USDN abandoned the mortgage model, but transplanted the monetary control mechanism of the central bank in real life through the algorithm.
Specifically, when the rising demand USDN a stable coin causes its price to be greater than that of the anchored currency (E>1), a stable coin is issued; when the demand USDN a stable coin falls and its price is less than that of the anchored currency (E<1), the stable coin is destroyed.
Although this supply and demand mechanism is relatively simple, it should be noted that the USDN is based on the premise of asset endorsement, and its circulation is completely determined by market behavior, which can not only meet demand, but also cause a large price gap. This is also a good balance mechanism in the ranks of stable coins.