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International Conference on Financial Cryptography and Data Security

FC 2021: Financial Cryptography and Data Security. FC 2021 International Workshops pp 136–145Cite as

Red-Black Coins: Dai Without Liquidations

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Part of the book series: Lecture Notes in Computer Science ((LNSC,volume 12676))

Abstract

A number of Ethereum projects for stablecoins and synthetic assets use the same core mechanism for fixing the price of an asset. In this paper, we distil this shared approach into a primitive we call red-black coins. We use a model to demonstrate the primitive’s financial characteristics and to reason about how it should be priced. Real world projects do not use the red-black coin primitive in isolation but lay on other mechanisms and features to provide fungibility and to reduce exposure to price drops. One mechanism is called liquidation, however liquidation is hard to analyze as it relies on human behaviour and could produce unintended economic consequences. Therefore we additionally develop a design landscape for extending the red-black coin primitives and put forward a research agenda for alternatives to liquidation.

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Notes

  1. 1.

    https://compound.finance/markets.

  2. 2.

    https://docs.synthetix.io/litepaper/.

  3. 3.

    https://www.kava.io/.

  4. 4.

    https://docs.umaproject.org/.

  5. 5.

    https://github.com/bitshares.

  6. 6.

    CoinGecko API: https://api.coingecko.com.

  7. 7.

    GitHub: https://github.com/GreatSoshiant/Monte-Carlo/tree/master/Code.

  8. 8.

    https://www.coindesk.com/28m-makerdao-class-action-lawsuit-arbitration.

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Acknowledgements

We thank the reviewers who helped to improve our paper. J. Clark acknowledges support for this research project from the National Sciences and Engineering Research Council (NSERC), Raymond Chabot Grant Thornton, and Catallaxy Industrial Research Chair in Blockchain Technologies, and the AMF (Autorité des Marchés Financiers). J. Clark and M. Mannan further acknowledge NSERC funding through Discovery Grants.

Author information

Authors and Affiliations

  1. Concordia University, Montreal, Canada

    Mehdi Salehi, Jeremy Clark & Mohammad Mannan

Authors
  1. Mehdi Salehi
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  2. Jeremy Clark
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  3. Mohammad Mannan
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Editor information

Editors and Affiliations

  1. University of Michigan–Ann Arbor, Ann Arbor, MI, USA

    Matthew Bernhard

  2. Computer Science and Mathematics, Stirling University, Stirling, UK

    Andrea Bracciali

  3. Imperial College London, London, UK

    Lewis Gudgeon

  4. Norwegian University of Science and Technology, Trondheim, Norway

    Thomas Haines

  5. Ithaca College, Ithaca, USA

    Ariah Klages-Mundt

  6. Department of Computer Science, Georgetown University, Washington, WA, USA

    Shin'ichiro Matsuo

  7. Imperial College London, London, UK

    Daniel Perez

  8. Dipartimento di Matematica, University of Trento, Trento, Trento, Italy

    Massimiliano Sala

  9. Imperial College London, London, UK

    Sam Werner

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© 2021 International Financial Cryptography Association

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Salehi, M., Clark, J., Mannan, M. (2021). Red-Black Coins: Dai Without Liquidations. In: Bernhard, M., et al. Financial Cryptography and Data Security. FC 2021 International Workshops. FC 2021. Lecture Notes in Computer Science(), vol 12676. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-662-63958-0_12

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  • DOI: https://doi.org/10.1007/978-3-662-63958-0_12

  • Published:

  • Publisher Name: Springer, Berlin, Heidelberg

  • Print ISBN: 978-3-662-63957-3

  • Online ISBN: 978-3-662-63958-0

  • eBook Packages: Computer ScienceComputer Science (R0)

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