The growing cryptocurrency market (now around US$600 billion in aggregate market cap) is more than just a speculative craze. It is the tip of the spear in a vast transformation of the global economy, incorporating what can justly be described as the crypto-economy. The internet revolution of the 1990s successfully integrated the online economy into the global economy. Analogously, the cryptocurrency revolution of this decade will successfully integrate the crypto-economy into the sphere of global economic activity.
The crypto-economy represents the next generation of finance, destined to replace most current systems for payments, banking, currency exchange, stock markets, credit and debt markets, commodities markets, international trade, shipping, warehousing, inventory control, even the issuance of currency itself -- traditionally the exclusive province of nation states. The legacy system is not only corrupt to the point of putrescence, but is also centralized, anti-competitive, and top-down. The new crypto-economic system is decentralized, competitive, and bottom-up. The legacy system is highly politicized, while the new system is essentially postpolitical.
What are the monetary engineering goals for a privately issued currency in the crypto-economy? Goals should be simple, and non-conflicting.
We've identified these goals:
- Supply of the currency should be adequate to provide the float necessary for ongoing economic activity conducted in the currency, plus other uses such as loans, savings, investment, and R&D.
- Demand for the currency should be adequate to allocate supply.
- Net growth should occur from the bottom up, not from the top down.
- Exchange rates, measured against a basket of fiat currencies, should exhibit long-term stability.
Supply is increased (new coins minted) in three ways: by coin sales into the market, in exchange for fiat currencies or other accepted cryptocurrencies; by coin creation in the context of the operation of certain DApps; and to pay for labor undertaken for AF projects. The first minting function, coin sales, is described below. It is noteworthy that this is not an ICO, because there is nothing “initial” about it. The sale is uncapped and ongoing, limited only by market demand. The second function, minting in a DApp context, is limited in scope and typically tied to an insurance function.
On the demand side, the AF will foster the development and deployment of DApps and other portals where OTO/Lyra can be utilized. Initially, some of these will be developed in-house; but it is intended that third party licensees will ultimately develop and operate the vast majority of them. We also expect that once there is a large quantity of our coins in circulation, it will become useful outside of our own wallet ecosystem, and thus become an accepted form of payment generally. At some point it may even become useful for modulating cross-border capital flows.
The AF will monitor all of these data points: rates of new sales, monetary growth in DApps, total coins deployed within DApps, currency velocity within both the voucher system (OTO) and the Ascension blockchain (Lyra), the willingness of users to hold balances, and price history in secondary markets. It will then correlate these data with long-term exchange rates versus a basket of other cryptocurrencies (private or even governmentissued), to use as a feedback signal in order to arrive at a bias for net expansion or contraction of the supply, and to determine the rate at which this should occur.
The AF will retain certain reserve levels in various currencies such as BTC, arising from the proceeds of its wholesale sales. Since on a blockchain coins are never actually removed from circulation, whenever the board determines that circulating Lyra should be reduced, the AF will tap these reserves to buy back coins, which it will then hold until circumstances warrant their resale into the market. Naturally the reserve buffer must be well diversified, in order to avoid a situation where a rapid change in market cap by one component asset would exert a disproportionate effect.
For the same reason, rebalancing of the reserve components will be undertaken at regular intervals. Since the AF has no goal or mandate beyond relative price stability (for example, economic stimulus or full employment), its monetary engineering efforts will be steered exclusively by the market rather than by politics.