BCH collateralized Dollars for Stable Utility

Hello, I wanted to quickly note down how I envision a simple concept of how to print private money, that is soft-pegged to the dollar, with special focus on long term holders as BCH-backed Dollar issuers.

This Blogpost will be a conceptualized method of creating a stablecoin, that is minted by individual holders and companies directly and backed by collateral of BCH.
For the record, while I don't think it would work on the Simple Ledger Protocol, I still borrow from the basic ideas of it so that we might see if future improvements, smart contract platforms or any alternative method could be applied to this generalized idea.

Hodler turned Issuer

It's quite simple, if you are a determined BCH holder, you can start "minting" 1 $ tokens, which are backed by a BCH collateral generally higher, than the 1$ you're backing. You sell the token for 1$ each and also promise to buy it back for the same 1$.

To provide the backing, and thus really mint your token, you put your BCH in a time-locked address, let's say 2 years. In that time the buyer can use as BCH$ and redeem the token with you in USD. When the 2 years are over, the token holder still holds the token, but you are allowed to take out part of the backing (should the price have risen) up to a pre-specified level of collateral, that still encompassed the 1$ worth of spending power.

The token holder still has about 3$ worth of backing with the updated mint and you got to collect back the appreciated BCH.

That other holders and companies compete with you in issuing such BCH$ tokens ensure a balance in the properties of the token, such as time-lock duration or collateral amount or features that go for something completely different.

The benefit of this for the BCH$ user is clear, but for the BCH holder, it may be a way to still hold custody of their BCH, while "letting it work" for them. While not reaping high interest through lending, they benefit rather by being a minting company, that collects fees upon redeeming or issuing their BCH$ tokens.

This is the general idea of BCH-Collaterized-Dollars.

What's it like for the BCH$ user?

As a BCH$ buyer and user essentially gets a Dollar worth of money, that is neither backed by a national fiat currency or any other real-life asset, but rather by BCH itself locked away in a smart contract. He will have a BCH$ token for spending, which is pegged and anchored to that locked up BCH. Those will be minted by different companies, businesses, and individual holders, all with their own rule-sets and perks. Some of those coins can be more suitable for savings, some more for payments. Some may yield the holder dividends, some may charge for better customer experience and so on. But they are all redeemable for 1 US-Dollar each.

A user can also look through a catalog of different mints of essentially the same BCH-Dollar, backed by different amounts of BCH and with different features such as the time locks on it. He can set up his preferences for accepting or receiving but also settle coins periodically with other users based on each individual's preferred issued mint they want to hold. I mean, it's supposed to be the internet of money and I think applications like this fit the bill well. Just saying.

The BCH$ user could also win rewards for redeeming early mints anchored with more BCH against fresher mints that are backed with less. Or he maybe wants to save more and will pay a premium for receiving old minted coins, that are worth more than the BCH$, as it gives him more confidence, that these particular BCH$ will be redeemable in the future.

What's it like for the BCH Holder and BCH$ issuer?

As a holder or issuer, you essentially sell BCH backed Dollars for your customer's savings or commercial use. You will setup the terms in advance, which includes how much BCH you are going to back it with and which features it has. Has it a time lock and how much time is left before some of the BCH get unlocked? Or can it be held indefinitely as a collectible? How much more than 1$ of BCH is it backed by to ensure less risk? Which company or person does it represent? Do you give out rewards or dividends to incentivize users to provide you the particular BCH you prefer to unlock? How do you ensure, that you can buy back the BCH$ in case of an 80% BCH market crash? etc.
If someone wants to redeem BCH$ you keep your promises based on the previously agreed terms indicated by the features of the BCH$ mint itself, which essentially means you buy back the BCH$ token and gain back access to the underlying BCH anchored to that Dollar.

Viable? Achievable? Possible? Not sure, but...

Thinking about it, it doesn't sound like a big deal to me if someone would sell $10.000 worth of BCH$, backed by $30.000 worth of BCH while holding $300.000 in BCH, that he promises to buy back the tokens with even in a destructive bear market. An individual or a company with a good reputation can easily lock up part of the money that they are going to hold on to anyway and sell pegged tokens to people or maybe distinct organizations, that want to utilize stablecoins.

The best example for someone who could have a good use for such tokens would be BCH House Ghana, which would be open to buying such a coin, as long as certain criteria are met. While a couple of $10.000 mints might not sound much in the grand scheme of things, such amounts might easily suffice for the time being for the activity around the BCH House. And I believe there are a lot more people, who can chip in a lot more so that not only there is room for a gamified competition going on between different sets of BCH-backed Dollars, but also plenty of connectivity for an international market of circles upon circles of value transfer networks all interchangeably using a set of BCH$ minted and issued by different private institutions and individuals for different purposes.

Ensuring low risk

The BCH holder mints at about the same time he enters the BCH market. He also only mints those BCH, that he is willing to hold on to no matter how hard the price is tanking. If the BCH Holder has 10% of his BCH in a cold wallet and hodls through the storm, he can mint 3.3% of it into BCH$ and service the user communities in other places, who need those dollars for spending and short-term savings. That BCH collateral is as good as in a non-custodial cold wallet but nonetheless is being utilized and gives a small passive income to the BCH holder. If the price tanks and the underlying backing does not suffice to cover the 1$ worth of spending power, then other savings in fiat or BCH should be available to make the BCH$ issuer keep his promise. BCH$ users are advised to vet the issuer and most of all not accept issued mints, that consider an exchange rate at a high price and subsequently not backed by enough BCH reserves.

Users could also require (or companies provide) to cooperate with other BCH$ services to ensure liquidity for swapping or redeeming those tokens. Smaller issuers might also compete with features useful for a niche user base or subset of markets.

That's it

I really was thinking a lot about the history of the Dollar to get behind a question that was bugging me, about the measurement the Dollar represents and also how to recreate a working analogy to real privately issued dollars, that next to being in market competition and complete blockchain transparency, benefits from all the qualities of digital value transfer and cryptographic security, providing opportunities for gamification and automated reward systems to increase the competitive aspects of the coin for users to chose from.

All of this might very well be too naive and not well thought out, but this is what I came up with and I would like to know, what people think about the general idea of a Precious-Crypto backed stablecoin. And if today's protocols or maybe coming features or projects like Mitra by Tobias Ruck would be able to do it? If anything about it can be edited to make it work or if I got the economics of it wrong, regardless of the technology behind it, please feel free to tell me.

Thank you for reading! 💚
Koush