I. The Money

Money's a matter of functions four,

A Medium, a Measure, a Standard, a Store

— Alfred Milnes

According to the current economic teachings, money has three main characteristics: medium of exchange, unit of account, and store of value. This definition may have been correct 100 years ago. Today it is nothing but a lie. From 1913, when the first inflation measurement was taken the US Dollar lost 26 times its value, meaning you need $26 today to buy something you could for just $1 a hundred years ago. This is hardly a store of value. Yet the US Dollar became a world reserve currency and used as a global medium of exchange and unit of account. It is worth mentioning that the US Dollar lost its “store of value” property long before the gold standard was abandoned in 1980 as it has already lost 94% its 1913 buying power.

In fact it would probably be correct to say that the money in the modern economy must gradually lose its value in order to be an attractive medium of exchange. Quite simply when a person holds on to something that loses its value over time, it will most likely try to exchange it with something more valuable. Such a person would not hesitate going to a shop and buying not only things they dearly need, such as pizza, but also things they do not need so much, such as entertainment, or things they don’t need at all, such as a new phone.

Most of the traditional economists understand a value losing property of the money as one of its key properties. After all, the Federal Reserve conducts its inflationary monetary policies not as an act of complete loonacy. Yet, when in 2008 Bitcoin was created, it seems that Satoshi Nakamoto did not fully realize the main use case of the thing he himself created. In the opening sentence of his otherwise brilliant white paper they write: “A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.“

We have an exact date and a name of the person who has proven Satoshi wrong. On May 22, 2010, known now as “Bitcoin Pizza Day”, Laszlo Hanyecz has bought two pizzas from his local Papa John's. At today's prices this pizza is worth ~$ 400,000,000.

If the US dollar is quite hardly a store of value, Bitcoin is most definitely not a medium of exchange. Quite simply one would probably try to hold on to something that appreciates in value over time, rather than buying even things they dearly need, not talking about pizza.

Unfortunately it seems the idea of trying to make cryptocurrency a “proper money” has been dominating the minds of crypto enthusiasts all that time. If Bitcoin developers would understand economics they would not propose something like lightning network in the first place. You should be really crazy to buy a cup of coffee that could be worth millions in the next few years.

There is now a whole range of different cryptocurrency projects with all sorts of money supplying models. Some following Bitcoin with highly restricted monetary policy, some will mint coins over time with something that would resemble a 2% inflation target of US Federal Reserve. This is probably the reason Nikolai Durov in the first EVER Whitepaper proposes a 2% emission target for EVER blockchain. We believe all these approaches are quite opportunistic and are not based on a sound economical model. There is no way an asset can be both a store of value and a medium of exchange at the same time. If so, why would someone propose an inflationary target for a store of value or trying to constantly increase the asset value to encourage its use as a medium of exchange?

The predominant use of cryptocurrency today is a store of value. With the introduction of smart contracts in particular and the notion of a distributed verifiable computation, in general, additional use of the native platform cryptocurrency started to emerge. When a developer is contributing to the code of one of those smart contract platforms, they effectively become participants in the success of that platform. Holding the native token and developing applications on the underlying platform makes such a developer an active participant, which in turn produces more use cases. This is clearly indicated by the DeFi movement, for instance. Naturally, these use cases are related mostly to investment. Indeed, smart contracts introduce a possibility to extract further value from an asset one stores on the blockchain, without a need to sell it. This falls within the concept of value storage perfectly. The stability of an asset and required for such stability lack of volatility — does not. Thus for many use cases, which require a stable medium of exchange, the basic property of blockchain’s native token represents a limiting factor. In fact for most use cases where a consumption is a centerpiece, for instance paying someone for performing a work.

This limitation has been one of the leading driving factors for creation of a cryptocurrency pegged to some real life asset price. Usually to the US dollar.

There are two types of Stable Coin designs used today: one is a stable coin backed by real world assets, such as USDT and another, such as Maker DAO — backed by cryptocurrency itself.

We do not consider a stable coin backed by real assets to be of any interest. Generally speaking they are just as bad as having coins on centralized exchanges. They are completely untransparent, centralized, bulky and generally suck.

Of the cryptocurrency backed stable coins, all of them require separate governance tokens and over collateralization to provide for a catastrophic scenario of dramatic price fall of their reserve asset. They rely heavily on 3rd parties to provide an oracle data feed of current prices, which represents an attack vector and a point of failure, regardless of how good the oracle network is.

In general the approach is Layer 2 protocols as now fashionable in Ethereum and which we regard as not tightly-coupled which limits the level of services and security guarantees one should expect from a modern blockchain system.

In this work we not only propose a mechanism of a stable coin, but a monetary system of two interconnected coins within a Everscale blockchain that will enable both use cases: the store of value/participation and a medium of exchange. Instead of trying to sit on two chairs simultaneously let’s have two chairs and use them appropriately.