For the most part, Dai has been the only crypto-native stablecoin within the DeFi ecosystem. While others like USDC have garnered a fair amount of traction within the space, they are largely centralized, fiat-backed that go against the core ethos of decentralized, permissionless finance.
As such, Dai has established itself as the de-facto permissionless stablecoin within the DeFi ecosystem. It’s been massively successful, so why propose a new alternative?
MetaCoin outlines a few potential drawbacks with the Maker design. First is Maker’s centralized point-of-failure which could result in the loss of all ETH locked within the system in a single transaction. In short – if a single entity had enough MKR, they could leverage it’s concentrated voting power to steal all of the collateralized ETH within the system (along with all of the ETH/DAI liquidity). As it stands, there are four entities that could pull off the heist today – the Maker Foundation, a16z, Polychain, and DragonFly.
The only reason this has yet to occur is that all four of these entities have invested significant capital (both financial and human) for Maker to succeed. Therefore, it is unlikely for any of these entities to collapse the system and destroy their investment, despite that the incentive is greater to do so. Regardless, it does highlight the reliance on the trust of these four custodians for Maker to continue to succeed.
The other major Maker criticism outlined in the specification is the introduction of new collateral types with Multi-Collateral Dai. By introducing different collateral types, like the Basic Attention Token (BAT), the system requires a high degree of trust for these assets to accrue value and succeed in the long term. To use BAT as an example, while it’s fairly liquid, the token largely relies on the Brave Browser and Brave as an entity to succeed. This idea also holds true for other off-chain assets, such as real estate and equity. By allowing these types of assets to be collateralized, there’s a degree of trust required by different counterparties in order for the collateralized assets to maintain their value.
This was not true in Single Collateral Dai (SCD) as only Ether – a trustless asset – was allowed to be collateralized. The notion of a stablecoin only collateralized by a trustless asset drives attractive attributes to the underlying asset – namely the ability to remain permissionless and trustless. The only other trustless crypto-native asset in existence is Bitcoin.
MetaCoin offers a new alternative for DeFi users as a trustless, permissionless stablecoin. Anyone in the world with an internet connection will be able to access stable value in the form of MetaCoin’s stablecoin, collateralized by a single trustless asset.
MetaCoin Design Choices
As an executive summary, here are some of the key design choices with MetaCoin.
- A dual token model: governance token (META) and stablecoin (COIN)
- Ether-only collateral
- Uniswap oracle on a basket of fiat-backed stablecoins
- Algorithmically set interest rates
In terms of similarities, both Maker and MetaCoin leverage a dual token model. The first token, a volatile governance token will be used to govern the basket of fiat-backed stablecoins used in the Uniswap oracle. In addition, META will be used to govern whether or not a system shutdown is necessary with highly similar fallbacks for COIN holders. Lastly, both systems leverage a stability fee and a savings rate for its borrowers and holders.
MetaCoin focuses solely on a single-collateral type, Ether, while interest rates are algorithmically set rather than dynamically through executive votes. With Maker, MKR holders are consistently governing the system’s borrow and savings rates through data-driven and incentive-driven decisions. In MetaCoin, META holders do not have the right to vote on the different interest rates as they are determined algorithmically by a PID controller.
The PID controller takes the current price of COIN and compares it to the volume-weighted average price of the fiat-backed stablecoin basket on Uniswap. The controller will then adjust the interest rates based on the difference to ensure COIN maintains its $1 USD peg. More specifically, if the controller finds that the peg is below $1 USD, it lowers the interest rates to drive an incentive for more people to buy (bringing the peg back to $1), where if it’s above the peg, the interest rate is increased to drive an incentive for less people to borrow.
In terms of incentive design, this is identical to Maker’s except the execution of these incentive decisions. Maker’s is human-driven while Meta’s is machine-driven. This draws the attribute of a human governance-minimized stablecoin.
There’s also a few other interesting design choices with MetaCoin. The first is rather than having an auction for MKR on the excess interest accrued to Dai minter, MetaCoin surplus fees are used to directly purchase META on Uniswap to burn.
MetaCoin has taken a page from Synthetix‘s success and implemented native liquidity incentives for Uniswap’s COIN/ETH pair into the protocol. While the exact design hasn’t been completely fleshed out, there are a few proposals included in the specification. In short, liquidity incentives can be subsidized by the following:
- Splitting surplus fees between META holders and COIN/ETH Liquidity Providers
- Adding native inflation into META to direct towards LPs
- Accepting shares of the Coin/ETH liquidity pool as collateral for minting COIN
All three of these are interesting possibilities and it does show that the MetaCoin founding team is prepared to leverage Uniswap’s permissionless liquidity protocol to its fullest.
Lastly, MetaCoin is allowing a more diverse range of ecosystem participants to govern the overarching system. Rather than strictly allowing for MKR holders to govern the Maker system, MetaCoin is allowing COIN minters, COIN holders, COIN/ETH liquidity providers, and META holders to all have an equal right to vote on the platform.
The initial META token distribution will be split 50/50 amongst MolochDAO and MetaCartel contributors as well as a new MetaCoin-specific DAO, SweatDAO. With that, 50% of the initial tokens will be distributed to MolochDAO and MetaCartel members who have funded ETH-aligned grants. Rather than simply distributing them pro-rata to shareholders of each DAO, MetaCoin will distribute META tokens to those who have “bled” for the greater success of Ethereum. As such, 50% of the initial META will be distributed based on the member’s share of total ETH spent on grants.
The other 50% of initial META will be distributed to the SweatDAO, where tokens will be given based on the amount of “sweat” contributed. In other words, SweatDAO members will receive a proportional amount of META based on the value of their contributions. If any fundraising is required, prospective investors will be able to offer tribute to SweatDAO in return for META.
The introduction of MetaCoin proposes a new, streamlined alternative to Dai in which the tokens are not competitive, but simply offer different design choices. All in all, the announcement of MetaCoin is a net positive for the DeFi ecosystem as the industry will have more than one option for a crypto-native, permissionless and trustless stablecoin.
In the coming year, we’ll be keeping a close eye on how MetaCoin fits within the broader DeFi narrative and how it’s introduction affects Dai’s market share within the stablecoin space at large.
For anyone interested in learning more about MetaCoin, feel free to read through the official specification here. If you’re looking to get involved, feel free to visit the official Telegram channel here.