The Stability Principle of USDN: Algorithm, Bancor and Currency Supply and Demand
Along with the Defi boom, not only stablecoin market is a good, Ethernet Square is also a prosperity. Although this has made the etheric trading very congested, the handling fee has risen to the sky price, but also cannot deny the market is booming.
USDN is a recent emerging stablecoin, which is a stablecoin NGK.IO the blockchain. The currency has not yet been online, has been in the community to obtain much heat. For market players, a stablecoin stability mechanism is very important, otherwise it is not enough to establish the credit basis of the stablecoin.
So what is the stability principle of stablecoin USDN? What unique mechanism does this emerging currency, which claims to compensate for USDT and MakerDao flaws, what kind of unique mechanism does it have this confidence? Next, I will reveal the stability principle behind the new stablecoin USDN.
All in all, this is a stablecoin that integrates algorithms, Bancor protocols, and currency supply and demand regulation. The so-called algorithm is embodied in two aspects, one is to intelligently regulate the supply and demand of currency in the form of algorithm, the other is to make the dealmaking in the form of algorithm.
The former makes USDN have the characteristics of monetary regulation and control, while the latter forms a USDN Bancor agreement. As a result, the algorithm becomes the core of stablecoin USDN.
Don’t hurry, let’s analyze first one by one. First: how does the algorithm use monetary regulation to maintain price stability? Its core reaction lies in two levels: the first is the principle of market supply and demand, and the second is the mechanism of additional issuance and destruction. The first level is simple, the so-called market supply and demand principle is:
As the demand for stablecoin rises, the price is greater than the anchored dollar (E>1), and the stablecoin is issued; conversely, the stablecoin is destroyed.
If the principle of market supply and demand is the theoretical basis of algorithm realization, then the mechanism of additional issuance and destruction is the practical means of algorithm realization. On the basis of balancing market supply and demand, how to use the algorithm to issue and destroy stablecoins? Here we have to mention two important elements of stablecoin USDN: creditor’s rights certificate and equity index.
When additional issuance and destruction of USDN are required, the system generates something called a USDN voucher, similar to an invoice, used to record stablecoins issued and destroyed; because stablecoins USDN built on a rising market, When all transactions are paid, additional issuance is required.
At this time, the USND equity index will come in handy. It is a USND holding index to measure and distribute the extent to which additional USDN are fed back to the market. Since only the previous holding USDN can have the USDN equity index, the value of the stablecoin is returned (to the holder).
The second is Bancor agreement. Bancor protocol was originally an economic system on ethernet, transplanted into its own system on the NGK blockchain. Bancor is to address a dealmaking need: buy when there are sellers, sell when there are buyers.
Therefore, to stabilize the supply and demand balance of stablecoin USDN requires Bancor agreement. There are some complicated formulas in the NGK Bancor agreement, including Token quantity, value and total market value, reserve balance, reserve fixed ratio and so on.
Because of the complexity, we will not repeat it here. To sum up, stablecoin USDN is an smart contract system which integrates algorithms, Bancor protocols and monetary control means. Besides the algorithm, the most important thing that keeps it anchored with the dollar is the way the STO is issued.
That is, there is supervision behind the USDN, no need to obtain trust costs through mortgage, better supervision is no less than traditional mortgage, and there is a set of stability mechanisms behind the USDN of stablecoins. smart contracts are not lying, really transparent and open, small editor only here to do a general explanation. According to the announcement in the community, blockchain is likely to go online in the near future, and players will have a deeper understanding.