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Description
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https://archive.devcon.org/archive/watch/6/designing-autonomous-markets-for-stablecoin-monetary-policy/
We discuss the design of primary (i.e., minting and redemption) market mechanisms for non-custodial stablecoins. We first introduce a new analytical tool, the *redemption curve*, which represents the redemption price as a function of redemption pressure. We use it to discuss historical de-peggings (e.g. in DAI, UST). We then describe a new dynamic redemption curve with desirable robustness properties and show how to implement a primary market based on this curve. The system is part of Gyroscope.
Speaker(s): Ariah Klages-Mundt, Steffen Schuldenzucker
Skill level: Advanced
Track: Cryptoeconomics
Keywords: Stablecoin Design,AMMs,Protocol Controlled Value
Follow us: https://twitter.com/efdevcon, https://twitter.com/ethereum
Learn more about devcon: https://www.devcon.org/
Learn more about ethereum: https://ethereum.org/
Devcon is the Ethereum conference for developers, researchers, thinkers, and makers.
Devcon 6 was held in Bogotá, Colombia on Oct 11 - 14, 2022.
Devcon is organized and presented by the Ethereum Foundation, with the support of our sponsors. To find out more, please visit https://ethereum.foundation/
A
A
A
So
imagine
you
want
to
build
a
stable
coin,
so
you
have
a
you,
have
a
cryptocurrency
and
you
want
to
keep
it
stable
and
in
some
senses
it's
always
going
to
look
like
this.
You
have
some
kind
of
reserve
of
assets
and
then
people
can
mint
and
redeem
coins
against
that
assets
and
that's
going
to
stabilize
the
price
right.
If
the
price
is
too
high,
they
can
they
can
meet
new
coins.
B
A
Me,
the
primary
Market
mechanism,
the
thing
that
grants
access
to
these
assets
and
that
intermediates
between
mintus
and
redeemers,
which
are
basically
Upchurch
and
the
asset
Reserve.
Now
what
are
these
assets?
Well,
that
depends
on
your
design.
It
could
be
many
different
things
in
a
sanyaraj
shared
design.
A
It
could
be
it's
basically
an
equity
share
in
a
sense
for
something
like
a
basis
design,
it's
something
like
a
bond
and
in
a
reserve
back
design
at
some
portfolio
of
other
assets
and
by
the
way
this
is
a
design
we
are
using
for
gyroscope
it's
reserved,
backed
now.
There
are
different
situations
we
need
to
look
at.
A
A
The
the
numbers
are
like
60
or
like
the
PSM
usdc,
then
you
have
another
20
of
LP
shares
against
usdc
and,
of
course,
in
that
situation,
something
you
need
to
ask
is:
are
there
many
risks
associated
with
that?
So
for
usdc,
for
example,
there
could
be
some
regulatory
risk
which
may
amount
to
counterparty
risk
censorship
risk
and
so
on.
A
Kind
of
the
goal
of
gyroscope
was
to
build
something
like
a
PSM
2.0.
So
how
might
you
improve
on
this
design
and
I?
Think
there
are
like
two
ways.
The
first
thing
is,
you
may
want
to
diversify
your
reserves.
You
may
not
want
to
hold
only
usdc,
and
the
second
thing
is
to
implement
something
like
a
programmatic
risk
control
that
reacts
autonomously
to
market
conditions
so
that
that
kind
of
can
be
seen
in
two
parts.
A
The
first
one
is,
if
you
have
indicted,
different
PSM
vaults
are
independent,
but
you
probably
want
to
coordinate
them
somehow
to
react
in
the
same
way
to
Market
strategies
and
the
other
one
is
to
price
the
stable
coin,
depending
on
market
conditions,
especially
when
the
system
should
the
system
become
under
reserved,
and
this
is
kind
of
where
we're
going
so
kind
of
to
to
build
such
a
system.
There
are
like
many
different
challenges
and
I
just
want
to
give
you
like
the
the
super
quick
overview.
A
How
do
you
generate
details
on
the
whole
structure?
You
probably
want
to
price
these
things
with
oracles
and
so
on.
These
are
all
things
I'm
not
going
to
talk
about,
but
questions
we
still
had
to
answer
for
gyroscope
and
today,
I
want
to
answer
this
mechanism.
Basically,
the
question
is
someone
comes
to
your
system.
The
system
may
be
under
reserved
or
illiquid
to
some
degree.
They
want
to
redeem
a
stable
coin.
What
is
the
amount
of
assets
you
offer
them.
A
A
You
have
two
axes
on
one
axis:
you
have
the
Redemption
level,
which
is
basically
the
amount
of
stable
coins
that
are
getting
redeemed
and
on
the
other
axis,
you
have
the
Redemption
price
that
the
mechanism
offers
to
the
Redeemer,
and
now
we
assume
now
we
look
at
what
happens
when
people
redeem
more
and
more
in
market
conditions,
don't
change
for
the
beginning,
so
nothing
happens.
No
prices
change,
but
people
just
redeem
more
and
more,
and
ideally,
of
course,
what
you
want
is
this
curve.
A
You
can
always
redeem
at
the
dollar,
because
then
you
always
stabilize
your
pack
at
exactly
a
dollar
and
the
higher
your
curvature
here
is
the
less
you
support
the
peg
as
more
and
more
people
redeem
kind
of
the
default
that
is
also
happening
for
pack.
Fiat
currency
is
that
you
try
to
support
the
pack
as
long
as
possible
until
your
reserve
is
empty,
and
then
you
don't
support
it
anymore
and
and
kind
of
my
argument
will
be
that
maybe
this
Redemption
curve
is
not
ideal
and
many
other
Redemption
curves
aren't
ideal
either.
A
For
example,
the
attack
on
the
British
pound
in
the
90s
was
basically
a
continuous
outflow
from
the
from
the
British
pound.
Basically
a
continuous
Redemption
of
pounds
against
other
assets
until
the
central
bank
was
no
longer
willing
to
support
the
peg,
and
then
you
see
this
this
kind
of
drop
where
some
people
made
a
lot
of
money.
I
think
the
recent
crash
of
the
pound
is
probably
not
like
that.
A
I
want
to
look
at
one
like
design
case
study,
which
would
be
Fey
the
original
design
of
Fae,
which
was
also
not
very
successful
in
its
original
form,
and
so
Faye
had
these
direct
incentives,
which
basically
means
the
the
more
of
Peck.
The
whole
system
is
the
worse
the
price
you're
getting
and
that,
if
you
kind
of
look
at
it
leads
to
a
Redemption
curve.
That
is
very
Steep.
A
And
that
looks
about
like
this,
which
means
that
your
pack
is
not
going
to
be
stabilized
very
long
and
then
they
removed
the
direct
incentives
and
then
their
Redemption
curve
looked
much
much
less
steep
and
we
can
see
kind
of
the
effect
of
these
like
steep
Redemption
curve.
Here,
I
hope
this
is
kind
of
visible.
This
is
like
the
price
of
a
after
launch,
and
it
had
like
a
like
a
huge
price
drop
with
a
lot
of
volatility.
A
I
should
probably
talk
about
the
the
elephant
in
the
room
or
maybe
not
elephant
anymore,
Sunny
Road
shares
and
the
way
I
think
about
Sanyo
shares
is
essentially
that
you
redeem
at
one
dollar,
but
your
backing
is
an
endogenous
asset.
That's
basically
very
very
tied
into
your
project
itself,
and
this
can
lead
to
some
negative
feedback
spirals.
A
A
A
A
First,
we
thought
about
what
are
actually
disadrata
for
a
good
Redemption
curve.
What
do
we
really
want
and
then
I'm
going
to
show
you
one
such
curve
that
satisfies
the
Digital
Data
and
then
I'm
gonna
talk
to
you
about
how
to
actually
Implement
that,
because,
as
you
remember,
the
Redemption
curve
assumes
that
no
Market
condition
changed
over
time,
and,
of
course
that
doesn't
happen
in
reality.
So
this
step
from
picking
a
curve
and
then
implementing
is,
is
making
it
Dynamic,
and
this
is
going
to
lead
to
this
type
of
dynamic
bonding
curve.
A
First
thing:
I
want
to
I
want
to
note
is
that
probably
your
collateralization
should
be
should
stay
above
some
lower
bound.
Your
Redemption
shift
Redemption
curve
should
not
exhaust
your
reserve,
if
that's
at
all
possible,
and
the
reason
for
that
is
to
enable
the
system
to
recover
later
you
if
you
exhaust
your
reserve,
you're,
basically
destroying
your
your
system
and
that's
bad,
and
then
you
probably
also
want
the
Redemption
price
to
stay
above
a
lower
bound,
if
that's
possible,
to
support
the
peg
at
least
to
some
degree.
A
A
You
probably
don't
want
these
abrupt
crashes
and
I
would
say
that
the
main
reason
for
that
is
to
prevent
speculation,
because
these
kind
of
discontinuous
crashes
are
something
people
could
speculate
on
very
easily
and
that
could
also
lead
to
like
all
kinds
of
Market,
upheavals
and,
and
then
this
is
like
a
little
bit
of
a
bonus,
but
you
want
your
Redemption
curve
to
be
easy
to
use.
So
probably
what
you
want
is
you
want
the
execution.
A
If
you
redeem
a
certain
amount
of
a
certain
amount
of
stable
coins,
our
stable
coins
can
be
called
dials.
I
told
you
for
that,
you
probably
want
that
to
be
easy,
and
especially
you
don't
want
there
to
be
an
incentive
to
subdivide
your
redemptions
and
to
be
somehow
clever
about
the
way
how
people
redeem.
A
You
probably
want
your
the
reserve
exhaustion
to
take
a
long
time,
unless,
of
course,
you
reserve
just
the
scratches,
so
the
system
should
also
kind
of
think
about
what
what
happens.
What
happens
tomorrow?
What
happens
when
the
system
runs
continuously,
you
should
be
able
to
regain
your
pack
and,
of
course,
you
need
to
implement
the
whole
thing
on
chain.
A
Yes,
the
first
math
equation
so
before
I
show
you
how
we
implement
this
I
have
to
introduce
this
nice
equation.
We
assume
that
the
Redemption
pressure
is
computed
as
a
Time
discounted.
Some,
if
you
don't
care
about
that,
that's
totally
fine
and
now
I'm
going
to
show
you
one
simplified
design
that
satisfies
almost
all
of
the
desireata,
and
this
is
a
simplified
Redemption
curve.
We're
not
using
this,
but
it's
good
for
explanation.
A
So,
what's
a
curve
does
is
that
we
support
a
price
of
one
dollar,
so
people
can
redeem
at
a
price
of
one
dollar
up
until
a
certain
amount
of
redemption.
So
on
this
axis
we
have
redemptions
and
then
we
are
gonna
drop,
the
Redemption
price
so
that
the
Redemption
price
is
equal
to
the
collateralization
ratio,
and
this
is
a
sustainable
way
of
doing
it.
A
A
You
can
actually
configure
a
trade-off
that
exists
here.
Of
course,
the
longer
you
support
a
pack
of
one
dollar,
the
lower
your
eventual
collateralization
is
going
to
be,
but
it's
something
that
you
can
choose
exactly
so
so
we
have
like
the
long-term
survivability
of
the
system,
because
you
might
actually
want
to
do
this
like
this
would
be
like
the
equation.
A
But
of
course
the
problem
is
that
this
is
like
this
ugly
discontinuous
jump
that
I
mentioned
before,
and
so
what
we
really
do
is
that
we
introduce
a
linear
segment.
There
looks
like
this:
where
the
price
would
first
be
a
dollar,
then
it
would
decrease
as
more
and
more
is
redeemed
and
then,
if
it,
if
it
has
reached
a
point
where
we
have
a
sustainable
collateralization
ratio,
it
would
just
give
you
that
price
and
if
you
want
to
do
that,
the
mouth
to
do
this
looks
like
this.
A
But
it's
like
it's
fine
right.
It's
fine
they're
like
case
distinctions
and
fractions,
but
it's
not
that
bad,
and
one
thing
you
you
can
see
here
is
that
governance
can
configure
this
using
some
hyper
parameters.
So
you
can
say
what
is
the
minimum
collateralization
that
I
want
of
my
system,
and
this
is
something
that
governance
would
set
because
it's
actually
a
meaningful
parameter.
A
A
We
have
some
kind
of
initial
collateralization
of
the
system,
which
we
call
an
anchor
rate
or
we
could
we
label
this
like
ra,
and
then
you
start
from
there.
The
curve
tells
you
what
happens
when
you
start
at
zero
Redemption
pressure
at
the
anchor
rate.
Nothing
changes
in
the
market
to
implement
that
we
need
to
live
in
a
situation
where
the
market
will,
of
course,
change,
and
we
can
still
use
this
curve,
and
this
is
what
I'm
going
to
talk
about
today.
A
So
the
goal
is
make
the
whole
thing
dynamic,
make
it
react
to
the
current
market
state
and
I'm
gonna
show
you
how
to
do
it,
hopefully
in
a
picture
and
how
we
do.
It
goes
as
follows:
I
showed
you
this
curve
and
if
you
know
your
anchor
collateralization,
which
is
on
this
axis-
and
you
know
a
certain
amount
of
redemption
pressure
and
you
can
go
and
integrate
the
curve
from
before,
and
it's
going
to
tell
you
what
your
collateralization
at
that
point
is
going
to
be
and
that's
up
here
and
now.
A
If
we
do
that
for
all
possible
sorry
anchor
values,
we
get
a
three-dimensional
surface
and
what
we
just
discussed
was,
if
you
know
this
and
this
you
can
compute
this,
but
it
turns
out
that
you
can
also
do
it
in
reverse.
So
if
you
know
the
current
collateralization
of
the
system
on
this
axis
and
the
current
Redemption
pressure
here,
which
is
something
that
you
can
just
observe
in
in
real
time,
then
you
can
actually
compute
this
initial
collateralization
ratio,
which
of
course,
at
this
point,
is
a
purely
it's
purely
a
modeling
tool.
A
But
it
tells
you
if
nothing
had
happened
in
the
market
and
we
are
now
at
the
state.
Where
should
we
have
started
if
this
model
was
true?
Okay,
so
so
many
complicated
words
here,
and
so
basically,
this
theorem
says
that
you
can
reconstruct
that
it's
a
monotonistic
argument,
it's
it's
fine
and,
and
so
then,
once
you
have
the
initial
State,
we
can
offer
Redemption
prices
based
on
based
on
this
Redemption
curve
as
a
model
and
that's
pretty
convenient,
because
it's
a
way
to
respond
to
current
market
conditions.
A
It's
completely
autonomous
governance
only
has
to
set
meaningful
hyper
parameters.
It
doesn't
have
to
do
anything
in
the
moment
and
it's
it's
completely
predictable
for
other
people.
So
everyone
knows
what's
going
to
happen
so
yeah
this.
You
have
this
huge
transparency
advantage
over
a
system
where
governance
would
just
come
in
and
then
make
a
vote
and,
of
course,
other
Market
participants
have
no
idea
what
the
outcome
of
this
vote
is
going
to
be
now.
I
should
probably
talk
about
implementation
because
you
might
be
looking
at
the
theorem
and
you're
like
yeah.
A
A
The
theorem
is
that
you
can
actually
detect
in
which
region
you
are
based
on
only
the
current
market
state,
and
then
it
turns
out
that
once
you
know
in
which
region
you
are
Computing
like
this
value
on
this
axis
is
very
easy.
It's
basically
solving
quadratic
equations,
then,
and
that
brings
us
to
the
algorithm.
So
we
detect
the
region
based
on
the
current
state.
We
reconstruct
the
anchor
State.
We
take
that
as
a
model
and
we
compute
our
Redemption
amount,
which
is
basically
integrating
over
this
exact
curve.
A
A
Right,
so
this
system
has
a
number
of
interesting
properties
and
I'm
going
to
show
you
just
just
like
two
one
result
that
you
get
like
very
easily.
Is
that
there's
no
incentive
to
split
up
redemptions
and
like
mathematically?
That's
because
you're
Computing
an
integral
and
you
can
always
split
up
an
integral
in
different
parts,
and
it
doesn't
matter
if
you
compute
the
parts
of
the
whole
thing
so
mathematically,
it's
not
very
interesting.
A
You
have
a
path,
efficiency
result,
which
is
basically
that-
and
this
is
like
a
little
bit
more
interesting-
that
the
protocol
state
is
going
to
improve
over
time.
So,
if
you
implement
the
system,
your
reserve
does
not
crash
completely
to
zero
and
people
just
come
and
redeem.
Then
your
system
is
going
to
recapitalize
itself
over
time
and,
of
course,
this
is
exactly
what
we
want.
We
want
long-term
survivability
of
the
system,
and
this
is
what
this
looks
like
and
now
I
want
to
conclude.
A
A
If
the
stable
coin
design
is
actually
solid,
I
showed
you
a
design
for
one
desirable,
Redemption
curve
and
then
I
showed
you
how
to
make
that
Dynamic
and
make
it
react
to
market
conditions,
and
if
you
want
to
kind
of
be
be
involved
into
how
we
actually
do
these
things.
We
have
implemented
this
in
gyroscopes
Dynamic
stability
mechanism.
A
Gyroscope
is
our
new
stable
coin
launches
planned
towards
the
end
of
the
year,
and
hopefully
all
these
properties
are
going
to
make
a
gyroscope
very
robust
if
you're
interested
in
the
paper-
and
you
should
scan
this
QR
code
and
if
you
want
to
get
in
touch
with
us,
you
can
go
here
or
follow
us
here.
Why.
B
A
Let
me
just
just
jump
back
to
the
slide,
so
the
should
I
give
the
honest
answer
or
the
line
no
I'm
going
to
get
the
answer.
So
if
you're
honest
answer
is
because
it's
easy
to
implement
because
and
like
the
reason
is
that
this
is
linear,
so
it's
integral
it's
quadratic
and
solving
quadratic
equations
is
easy
and
solving
anything
else
is
is
hard,
so.
C
I
have
more
of
a
philosophical
question:
in
the
last,
let's
say
two
or
three
centuries,
the
tenancy
in
the
state-backed
currencies
has
always
been
to
leave
Beijing
to
go
toward
the
free
voting
money.
Why
do
you
think
that
in
the
crypto
economy
we
are
seeing
a
Resurgence
of
Peg
money
that
seem
to
be
quite
prevalent.
A
I
think
my
intuition
is
that
people
think
in
USD
or
in
some
other
fiat
currency
that
is
not
really
represented
in
crypto.
Maybe
at
some
point
we
have
a
crypto
native
currency
that
that
doesn't
need
a
pack,
because
it's
very
stable
against
other
Fiat
currencies,
but
I
think
we're
not
there
yet
and
that's
why
we
need
to
represent
some
some
kind
of
measure,
some
kind
of
numerator
that
people
are
familiar
with
and
that
matters
in
people's
lives.
Yeah.
D
Let
me
just
add
a
little
bit
to
that,
so
it's
a
common
strategy
when
you're
kind
of
like
developing
a
new
economy
to
do
something
like
a
currency,
Peg
and
it
seems
to
work
well
in
those
situations,
because
people
want
to
use
a
more
trusted
unit
of
account
like
a
dollar
and
so
I.
Think
that's
has
a
large
influence
here,
but
I
also
just
want
to
note
that
the
the
autonomous
monetary
policy
that
we've
been
developing
can
be
more
General
than
just
maintaining
a
a
currency
Peg.
D
Yeah,
so
that
the
gyroscope
design
contains
a
number
of
other
like
lines
of
defense
and
sort
of
ways
that
that
the
reserve
could
replenish
over
time,
and
so
basically,
this
monetary
policy.
The
idea
is
to
buy
the
system
time
so
that
those
other
mechanisms
might
be
able
to
kick
in.
Some
examples
of
that
is
basically
like
reserve.
Assets
are
deployed
in
Risk,
segregated
ways,
but
they
can
still
potentially
earn
some
yield
and
so
there's
sort
of
a
tendency
to
increase
collateralization
over
time.
D
Because
of
that,
and
then
there's
also
sort
of
this
idea
of
forward
guidance
from
the
the
the
monetary
policy
itself,
like
basically
the
as
the
out
level
of
outflows.
This
like
time
discounted
sum
that
Stefan
was
saying
decreases
over
time,
then
there's
upward
pressure
on
the
peg
from
the
reserve
assets
again
kind
of
according
to
this,
this
policy
and
then
there's
other
mechanisms
too.
You
can
check
it
out
in
our
docs
and
happy
to
talk
more
after
after
this
as
well.