New Bloc Investment Research: Deriving 2021 Algorithmic Stablecoins from BAGS
The author of this article is Barry, a strategy analyst at New Bloc, with 5 years of trading experience in the foreign exchange gold market.
The author of this article is Barry, a strategy analyst at New Bloc, with 5 years of trading experience in the foreign exchange gold market.
DeFi has developed rapidly in 2020. In the past year, the number of wallets participating in DeFi has increased from 58,000 to about 200,000 now, a year-on-year increase of 466%.
At the same time, the transaction volume on the Ethereum chain has also increased from US$21 billion in 2019 to US$270 billion today, an increase of 1178%. The top 10 DeFi applications contributed 87% of the transaction volume on the chain. At the end of 2020, the total locked value in the Ethereum DeFi ecosystem reached an all-time high of $13 billion.
With the rapid development of DeFi, the spring of algorithmic stablecoins may be coming. Below we will introduce the algorithmic stablecoins that are currently being discussed by people.
AMPL is an algorithmic stable currency that has attracted widespread attention at the beginning. It has increased by more than 100 times from the lowest price in 2020. Its mechanism is that when the market price of AMPL exceeds the constant value of $1, additional tokens will be issued to the market, and when When the market price of AMPL falls below $1, it will deflate, and eventually the price can fluctuate around $1 through supply control.
The mechanism of AMPL also brings some hidden dangers. For example, through additional issuance or reduction, it only changes the supply, but the determinant of changing the price is not only supply but also demand. If the main demand of AMPL in the market comes from arbitrage or speculation , then when the price is lower than $1, the AMPL in the hands of investors will be reduced, and the speculative demand will also be greatly weakened. When the price drops sharply, arbitrageurs may suspect that the game mechanism itself chooses to cut out the position, and finally forms deflation + plummet double risk.
Basis Cash is an improved algorithmic stable currency. Basis Cash has three tokens, namely BAC (Basis Cash), BAS (Basis Share), and BAB (Basis Bond). The purpose of BAS and BAB is to stabilize BAC at $1 , to stabilize the price of BAC through the game among the three tokens, and keep it fluctuating around $1.
When the BAC price in the market is higher than $1, Basis will allow BAB to be redeemed to increase the supply of BAC to the market, and eventually the BAC price can return to $1; when the market price of BAC is lower than $1, users BAB can be purchased with BAC, where the price of BAB is 1 BAB = 1 BAC.
When the BAC price is lower than $0.95, the contract will open the BAC to BAB channel (BAB price = BAC price ^ 2). When the BAC price is higher than 1.05 US dollars, the BAB exchange BAC channel (1 BAB=1 BAC) is opened. The vision is to rely on internal games to stabilize the price.
Basis Gold is the first algorithmic stable currency project on the Huobi Ecological Chain (HECO). Similar to BAC, there are three tokens in the agreement, namely BAG (Basis Gold), BAGS (Basis Gold Share) and BAGB (Basis Gold Bond ). BAG and BAGS can be obtained through mining, where BAG is anchored at $1 as a stable currency, and BAGS holders can obtain the premium income generated by BAG after inflation by participating in the pledge.
BAGB is a bond issued when the price of BAG is less than $1 to repurchase BAG. When BAG returns to $1, BAGB holders can exchange BAG 1:1. The Basis Gold protocol not only guarantees economic resilience, but also can fully attract a wide audience, and the distribution of tokens is absolutely fair and free from human intervention and control.
At present, the price of BAG is higher than $1. Since BAGS holders participate in the pledge, they can obtain the premium income generated by BAG after inflation. As long as the price of BAG continues to be higher than $1, it will be beneficial to BAGS, and there will be more growth. A large amount of funds enter the market to hold BAGS.
If the BAG price is much higher than $1, the inflation level will be higher, and holding BAGS will also benefit more. As more and more people hold BAGS, its price will rise further.
But when the price of BAG starts to fall but is greater than $1, deflationary expectations begin to appear. Although BAGS can still obtain inflationary benefits, as the previous holders of BAGS have a large number of profit-making positions, they may start to consider cashing out.
In the ongoing boom of DeFi, the continuous innovation of algorithmic stablecoins may be further recognized by the market. The person in charge of the Huobi ecological chain once said that algorithmic stablecoins are a young track, and the key to success lies in whether they can quickly pass deflation cycle.
As the first algorithmic stablecoin to debut on Heco, Basis Gold has established a strong community consensus and successfully passed the test of the first cycle. With the rapid development of the cryptocurrency market, the application scenarios of Basis Gold will gradually increase. The demand for BAG will inevitably increase, and its currency price will rise accordingly. BAGS, which benefits from inflation, will also increase. further up.
