Stablecoins Based on Proof Of Work

Hey everyone, Just wanted to spark a discussion about this idea and see what you all think. Would there be any interest among the Bitcoin and Proof Of Work crowd for a stablecoin that actually uses Proof Of Work? The concept would ditch oracles, governance, reserves, and even complicated algorithms, yet still manage to keep things stable. It would have its own independent monetary policy. To make this work, we’d have to tackle the impossible trinity concept, which can actually be done in crypto, especially with Proof Of Work. Check it out here if you're curious: https://en.wikipedia.org/wiki/Impossible_trinity So, is a completely open Proof Of Work stablecoin something that could catch the community's attention? Thanks a lot, looking forward to hearing your thoughts on this.

Hi Scott. Welcome to Bitcointalk!  Sure, the concept of a stablecoin on PoW could be very interesting, however I think most people would dismiss this idea because it would not really be stable in the first place. How would you achieve stability? What would it be pegged to? How would it maintain a peg without intervention? Nothing about PoW alone implies stable purchasing power. Most stablecoins are just a fiat proxy. And those that are not, are proxies of other pegged value reserves.

Hey, The idea sounds good, but unfortunately only at first glance. I don't see how there can be a truly stable currency without some form of reserve, collateral, redemption mechanism, oracle and/or algorithmic stabilization. Since you already exclude reserves, oracles, governance and algorithms, the only obvious remaining mechanisms would be collateral and/or redemption (even if both are very close to reserve). Is that what you mean, or are those excluded too? Because if they are also excluded, I don't see where the stability would come from. As stated, the definition sounds internally contradictory. You probably have to compromise somewhere. You can say "but real country currencies are not backed by anything!", but they are backed by more than nothing. They are backed by state power, taxation, central bank policy, legal enforcement, markets, and often some form of reserves, even if not 1:1. If we are talking about crypto, there has to be some logic, some code. For PoW, there are nodes, consensus rules, an algorithm everyone agrees on. The scope of "algorithm-free" should also be specified. What exactly is supposed to be algorithm-free? The peg mechanism, the monetary policy, the issuance, or the consensus mechanism? Because PoW itself is algorithmic. Even Bitcoin is not stable. It is fair, open, decentralized, and checks many boxes, but it is not stable in price or purchasing power. On the other side, maybe I got it wrong. If there is a real concept behind it instead of just words, I would like to hear it and discuss. The main questions for me are: If there is no reserve, where does the stability come from? What is backing it? What is it linked to? How do you prevent volatility? If there is no oracle, how does the system know the target price? If there is no governance, who reacts when conditions change? And what exactly is the purpose of PoW in this idea? Removing governance?

Hello Scott. Welcome to Bitcointalk. I think ordinary people and ordinary regulators have built a very strong association between the word "stablecoin" and centralised, oracle-based, collateralised digital securities such as USDT and USDC. The usage of the word "stable coin" might trigger scrutiny and demands to disclose collateral, governance, "proof of USD stability" and etc. I think, the proper "MICA complied" term for this concept is a "simplified price discovery coin".

POW stable coin sounds so terrible. The up and down of its backing asset will not able to maintain its peg. I give you an example a stable coin called APX usd. This stable coin used Bitcoin credit owned by Saylor as its peg through backing it with Saylor's preferred stock STRC. It's now depegging because the dump of Bitcoin, which is also dumping the price of STRC used to back it went down. So i think POW stable coin will never work. The most important thing in the stable coin is the stability of its peg. That's why it's being called stable coin.

If the Bitcoin premium is based on the cost of producing "new" coins, my first approach would be to force a cap on the mined block reward or stabilize energy consumption (I think it's a protocol adjustment). This is interesting because it mentions no currency backing.

Explain this to even know what kind of stable coin you are talking about? A stable coin with zero value, is that what you are proposing? It has to be independent like the value is coming from the demand and supply or it has to be pegged with gold, fiat or even water but backed by nothing and you call it a stable coin?

So my shot almost hit. I imagine it will be complicated, figuring out how to truly balance energy consumption while maintaining a stable supply. Normally, stablecoins cannot be produced continuously, even if strict block reward adjustments are implemented, because energy is infinite. Furthermore, the purchasing power of stablecoins is never stable over time.

Nope. While I understand the concept and why people may think that this could work, in theory it looks good but in practice it would not work. Proof of Work would not be a concept that would align with stablecoins because it would give power to "someone", not like one person, to some people, but the ones who do the proof, will be the ones who have power over others, and that is exactly why nobody would want something like that. We are not printing money, so where does the reward comes from?

Can you elaborate on this concept? I am not a coder, so if you can dumb it down a little bit Like where's enough liquidity to absorb the trade pairs supposed to be coming from? Maybe i am ignorant to understand, but energy doesn't magically turn into value just because it did with bitcoin. If it would, then every PoW coin would be profitable.

Possible proof of work stablecoin on Bitcoin network could be an interesting concept and the problem is that we likely have a speration between interest and real adoption, there are a few things like trust on the third party involvement that comes from stablecoin like government involvement something that most bitcoinair won't b interested in based on the fully decentralized network provided with Bitcoin.

From your perspective, what networks, solutions and proposals are the closest to your vision? What is your prior art? What makes your proposal stand out?

I don't think that can be a solid foundation for a "stable" coin, because the proportion of the "newly produced" coins gets smaller and smaller, so the "stability" effect - if it exists! - will also diminish over time. The only exception is if you include an asset into the currency system that leads to a real shrinkage of supply in some situations (e.g. via some kind of proof-of-burn mechanism). The concept of an "energy referenced" coin is quite old. I don't know if you have seen the discussions about it in 2013-14, but you can find info in these threads: StableCoin [StableCoin] Welcome and Introduce Yourself.... The energy referenced type of coin is called "MordorCoin" in this discussion. There were also concepts like Encoin, GEM and Decrits.

I think the biggest challenge with building a truly decentralized stablecoin is maintaining its peg without relying on a centralized issuer. With a proof-of-work cryptocurrency, you can't easily control the supply, and you certainly can't control the market. A large holder can dump a massive amount of coins and temporarily manipulate the price. That's a major obstacle to keeping a stable value. To maintain a stable price, you either need centralized control over issuance and redemption, like USDT, or enough collateral and market mechanisms to absorb large price swings. DAI is one decentralized stablecoin that has done a pretty good job of maintaining its peg. Even so, most people, including me, still prefer USDT because it has been very stable in practice and is accepted almost everywhere that accepts crypto.

I don't know how a PoW stablecoin with no backing could even work. The biggest flaw about it is people thought just because you mined a coin and wasted some electricity, you'd think the market perception would value the coin the same as the energy consumed. In truth that isn't true, if you wasted $1 usd to mine 1 PoW stablecoin, the market won't necessarily give it value. There is simply no way for a PoW stablecoins to happen in my opinion. Your best chance is to create another L1 PoW and overcollateralize stablecoin with the coin mined. But, that's another time bomb waiting to explode since most coins are going to zero.

I'd like to hear more about your theory. I skimmed the link you quoted but I don't really understand how crypto achieve it and how it makes a stable coin network possible based on PoW with no great incentive. I can see crypto achieve a system where no central governance is present, not sure about the algorithm free part of your theory though.

And finally, I thought about one thing: What motivates miners is a greater future return on their energy cost expenditure. If mining costs $1,000 per month just to produce $1,000 in op coins, that's making something simple more difficult.

That's a good point. Stability or pseudo-stability of decentralised coin can come only with wide adoption and network effect. You need to solve blockchain scalability problem, first. Stability can come as a bonus, as a cherry on top. It's doubtful that single formula can fix that. Dear topic starter, where is your proposal?

You are missing the point. The only truly stable forms of money are gold and Bitcoin. Bitcoin is more stable than gold because its supply is fixed and predictable, while the supply of gold can still be increased through mining.Fiat currencies are not stable and cannot be stable by design. They are created to lose value over time. Therefore, tokenized fiat currencies like USDC or USDT are also unstable, because they inherit the same loss of purchasing power from the fiat money they represent.

The idea is very interesting the biggest question is how it can maintain stability. If the mechanism can maintain a stable purchasing power and secured by proof of work then it will be a meaningful contribution. It will definitely be interesting to see when the market conditions are extreme how it can maintain stability. It is may not impossible but why would people make a stable coin without a benifit for themselves where the stable coin that are backed by fiat currency which can be printed unlimited why would anyone decentralize stable coin where there is not much benifit for those who made it.