BitMEX Founder Arthur Hayes Proposes New Bitcoin-Backed Stablecoin – Here’s How It Works
BitMEX co-founder and crypto veteran Arthur Hayes proposes an idea for a new Bitcoin (BTC)-backed stablecoin.
In a new blog post, Hayes tells his 67,000 followers that the collapse of crypto-friendly bank Silvergate suggests there is a need for a token that is worth $1 but doesn’t rely on the traditional banking system.
“The goal is not to create a decentralized fiat currency. MakerDAO is great, assuming it’s actually decentralized, but for $1 of value, it requires locking >$1 of crypto value. It removes more liquidity than it adds, which is net negative for the system What we need is a mechanism that allows you to unlock $1 worth of crypto to get $1 worth of a stablecoin.
Hayes suggests “Satoshi Nakamoto Dollar, NakaDollar, NUSD,” and lays out how it might work.
“1 NUSD = $1 Bitcoin + Short 1 Bitcoin / USD Inverse Perpetual Swap.
A Bitcoin inverse perpetual swap (eg Ticker: XBTUSD on BitMEX) that is worth $1 Bitcoin paid out in Bitcoin has the following payout feature:
$1 [divided by] Bitcoin price in USD
If Bitcoin is worth $1, the Bitcoin value of the perpetual exchange is 1 BTC, $1 / $1.
If Bitcoin is worth $0.5, then the Bitcoin value of the eternal exchange is 2 BTC, $1 / $0.5.
If Bitcoin is worth $2, then the Bitcoin value of the perpetual swap is 0.5 BTC, $1 / $2.”
In short, Hayes proposes an idea where a stablecoin is linked to both the value of Bitcoin and the value of short Bitcoin in the perpetual markets. In theory, the two values should cancel each other out during price swings to maintain the $1 stick.
To elaborate on his idea further, Hayes shows an example of how the stablecoin would stick to its peg in a scenario where BTC’s value dropped from $1 to $0.1. According to the crypto capitalist, the profits made by the stablecoin from shorting BTC in the perpetual markets will cancel out the losses that come with the decline in BTC’s value.
Meanwhile, an increase in BTC’s value will also invalidate the stablecoin’s losses from its short position, effectively holding the peg.
BTC is trading at $24,258 at the time of writing, up 8% on the day.
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