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OpenDAO – Empowering Global Economy on DeFi – Non-USD Stablecoins!
Across the world, governments fail to deliver promises they make to the people, while institutions like banks have free rein to currency printing and manipulation. The wealthy have access to more productive uses of their capital, but the average person needs to spend their money. When we can save to invest some for our future, the barriers to entry have been huge.
Investing over the internet has brought some new opportunities to people, but the options are still somewhat limited. We have to sign up for different websites, provide proof of identity with a government ID, and make a large deposit. The risk of falling into scams or throwing away money to bad platforms is huge for us, when we have saved money to invest. Sometimes, it can feel better to just throw away money to get something we want than risk it for nothing.
Decentralized Finance or "DeFi" has opened up a wealth of possibilities. Anyone can generate a cryptocurrency wallet and submit transactions to the blockchain. Ethereum was a huge development, using this technology to make complex processes operate in a decentralized manner.
In a traditional market, a bank or institution needs to hold a reserve of capital to ensure the trading they're allowing. That's why the investing app Robinhood had to shut down GME trading and even began autonomously liquidating users' leveraged positions. Fortunately for the large institutions with short positions – who could still access the market – this, pardon the pun, 'stopped short' the run and prevented heavier losses.
This process which screwed the 'little guy' was 100% legally necessary.
Robinhood has control over trading due to regulations imposed by governments. These things aren't exactly bad, they are designed to keep apps like Robinhood from exposing users to assets that don't actually exist. It's just unfortunate, but so predictable, that the unequal access imposed by economic and political circumstances has led to such unequal outcomes.
You probably already know this, but as average people, our disadvantages in the economy go deeper than an investing app.
For example, traditional loans are made out by banks. These banks have reserves of capital, and complex national laws govern the required size of those reserves in relation to the amount of money the bank has circulated.
The relaxation of British banking regulations in the 1900s led to economic collapse in the 70s, specifically in regard to the amount of money banks were able to loan with their existing reserves of capital. A similar scenario happened in the United States, in what has been dubbed the 2008 Housing Crisis.
Nobody can just up and change the rules in decentralized finance.
Liquidity pools allow all of us to provide our currency as a backbone for trading. In decentralized finance, the rules of providing liquidity and the way you will earn returns on it is written into the contract, and the contract is running on millions of computers.
UMA is a protocol layer of smart contracts which can mint and maintain synthetic assets which track the value of another asset. It's designed to function as a derivatives market on the blockchain, decentralizing several modes of investing which are often locked behind KYC, institutional requirements or large minimum deposits.
The protocol in action: yDollar contracts
For the last few months, UMA's y-dollar contracts have allowed individuals to mint a synthetic asset with BTC or ETH – both in wrapped forms for use on Uniswap – as collateral. You get another asset at a certain ratio, which can sometimes be slightly favorable to you if the markets are buying the y-dollar, or can act as a small 'fee' to take out your loan in other circumstances.
The y-dollar as synthetic asset is unique in that it is designed to act as a 3-month rolling collateralized loan. At the exact time of expiry, the stablecoin is redeemable for exactly $1 of the underlying asset.
Perpetual contracts are rolling out
Now, the perpetual contracts have been audited and are going into the final stages. These will be the basis for continuous stablecoins which can be minted on a variety of assets, maintaining peg with a 'priceless' mechanism that doesn't necessarily rely so heavily on oracles, which has been a weak spot in other similar projects.
OpenDAO is another DeFi project which has worked with UMA rather closely in the last few months, as both teams grew their communities and got contracts finalized and audited. UMA Protocol's perpetual contracts have been audited. On the protocols UMA maintains, OpenDAO is submitting many additions to bring new stablecoins to the market. You'll be able to mint stablecoins on many popular assets, even including a name or two from the top 100.
Real-world assets brought to DeFi
More importantly, once the market grows with sufficient interest and liquidity, the protocol can handle a variety of different assets! Several members of the core OpenDAO team have worked in real estate in their careers. Earlier stages of the project included tests with an in-house "cashbox" contract which facilitated decentralized liquidity for a Real Estate Investment Trust. Over time, these kinds of opportunities will be more numerous and integrated into the familiar synthetic asset mechanism we've discussed.
Stocks are another exciting possibility. Rules could be built into contracts, with stocks as a synthetic asset, to make all kinds of derivatives on DeFi. You could take out a loan with your shares as collateral or go long on TSLA, without giving up any private information or control to a company. It's all over Ethereum with your keys in your hand.
A stablecoin backed by the world around you
The "final form" of this protocol will be exemplified in the USDO stablecoin. This synthetic asset will track the value of a dollar. You could say OpenDAO's vision for USDO is similar somewhat to MakerDAO's DAI, but with a simpler pegging mechanism.
Where the value of DAI is backed largely by ETH, USDO will have BTC, ETH, and other on-chain assets, along with many off-chain assets, too! This stablecoin should be more stable and resistant to destructive drops in collateral ratio which impact an asset's ability to maintain peg.
Beyond this point, the team has deliberated crafting stablecoins pegged to the value of other national currencies. Nations with large populations of tech-savvy individuals would be targeted. This could be a gateway to integrating global populations into decentralized finance.
National stablecoins could open up new possibilities
As decentralized finance grows, use cases like a crypto Forex market could easily emerge. OpenDAO is poised to jump into this market with a lineup of stablecoins for national currencies like the Indian Rupee and Malaysian Ringitt.
Though the USD does serve as a primary or secondary currency in many countries, The United States is losing some of its global dominance. Obviously, people prefer to transact in their home currency, and it can often be easier to settle transactions that way. Many conveniences and opportunities could be made available to people across the world on blockchain, if their national currency were available on DeFi.
Other blockchain projects are making strides into the global economy, but they are starting slowly as there is not a lot of liquidity available to the experiments. OpenDAO is building a market for the more popular, on-chain assets first, so future additions to the protocol will be able to gain sufficient liquidity and grow into their use cases.
New opportunities are opening up every day for us on decentralized finance. This technology is still in its infancy, and we have a lot of experimenting and growth ahead of us. I believe empowering people with these financial tools equitably over DeFi could be a great force for global equality.
What do you think of these amazing new technologies that are being developed on the blockchain? Do you think they will lead to an economic revolution? Leave a like if you liked the article, and comment below what you thought!
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