Needed: A Stable Cryptocurrency
The blockchain start-up Kowala has launched the Alpha version of their stable cryptocurrency main network. They offer a stable cryptocurrency, pegging it to the US dollar. They have designed a solution to automatically mint or burn their stablecoin according to market demand.
Cryptocurrencies are popular; however, you can’t use them for daily transactions. There are several obstacles to cryptocurrency adoption. One such obstacle is price volatility. Frequent price fluctuations make merchants wary about adaption. How will they accept cryptocurrencies when there is no stability in their price? The reality is that crypto traders often consider cryptocurrencies as investment instruments, whereas daily transactions need currencies!
There are efforts in the blockchain-crypto ecosystem to roll out stablecoins. For example, MakerDAO has partnered with Wyre to eliminate crypto volatility. DAI is the stablecoin of MakerDAO. We need to see how DAI succeeds, because it uses Ether as a backup vault. Their solution locks up cryptographic assets in smart contracts on the Ethereum blockchain. The assests need to be diversified, because Ether itself is subject to volatility. There are other stablecoin projects too — the blockchain investment platform STASIS has launched EURS, a stablecoin pegged to the Euro.
A practical, stable cryptocurrency solution will require pegging it to a market-leading fiat currency. The network needs to constantly monitor the price of that fiat currency and automatically regulate the supply, providing more coin when the price is up and reducing coin when the price is down.
Kowala is attempting exactly that with the Alpha version (named Andromeda) of their stablecoin network.
Automated Price Stability
Kowala uses an Ethereum blockchain network; however, it’s a high-speed network with Proof of Stake (PoS) consensus algorithm. It uses two crypto tokens. The first one is the mUSD token, which provides mining rights to holders. One needs to stake a minimum of 30,000 mUSD tokens to earn mining rights.
The second token is kUSD, the stable cryptocurrency. It’s pegged to USD, so the goal is to maintain the price of 1 kUSD equal to 1 USD. The network needs an information feed for the USD price, and they will use an oracle system for this starting at the beta release. The oracle system will monitor the kUSD price in relation to USD.
When kUSD price is higher than USD, it means the demand for kUSD is high. The system needs to pump in more kUSDs, so it automatically increases the minting reward. When kUSD price is lower than USD, then it indicates that supply is more. The system stops block rewards and the protocol program burns kUSDs. The entire process is automated.
Kowala features a fast blockchain network. Market demand will drive the number of kUSDs, hence there is no predetermined limit. Your money isn’t locked in another network, which ensures a high degree of decentralization in the stablecoin context. The cryptocurrency hardware wallet Ledger already supports Kowala.
Kowala fully complies with US Securities and Exchange Commission (SEC) regulations. They distributed mUSDs for their Andromeda mainnet launch to early investors only, and they are all accredited investors. The company will not hold any public token sale. They are launching their Beta version of the mainnet (called Boötes) in Q3 of 2018. During beta, they will allow minting of kUSD in that mainnet, in addition to listing it on crypto exchanges.