How to Build More Robust Stable Assets

Introduction

In this tutorial, we will explore the topic of building more robust stable assets. We will delve into the perspectives of Slobodon Sidaric from Sea Labs and Layer Zero from Maker DAO, who specialize in stable assets and stability mechanisms. They will provide insights into the definition of robustness and how it can be approached from different angles within the stability protocols. Additionally, we will examine the stability mechanisms employed by Maker DAO and Celo’s Mentor protocol, highlighting their similarities and differences.

Background and Roles

Slobodon Sidaric - Sea Labs

Slobodon Sidaric works on the mentor team at Sea Labs and is focused on developing Mentor 2.0 and enhancing the stability of cellostable assets. With an economics background, Slobodon’s transition to stablecoins has been driven by the unique challenges and incentives involved in this field.

Layer Zero - Maker DAO

Layer Zero, representing Maker DAO, is involved in the legal aspects of the project. Maker DAO is a decentralized protocol for issuing stablecoins, with each user being able to obtain credit in the form of the stablecoin DAI. Layer Zero’s role is to implement strategies for mitigating legal risks and enhancing the protocol’s legal resiliency.

Understanding Maker DAO’s Stability Mechanisms

Maker DAO operates as an overcollateralized stablecoin system. Users can create credit by collateralizing their assets and obtaining DAI, which is burned when the debt is repaid. The protocol supports around 50 different collaterals, each with its own risk parameters. Maker DAO is designed to be self-custodial, ensuring users maintain control over their collateral. The protocol aims to decentralize its operations by establishing autonomous core units responsible for various functions.

Exploring Mentor Protocol’s Stability Mechanisms

The Mentor protocol, represented by Sea Labs, supports multiple stablecoins tied to different fiat currencies. Instead of a borrow and repay mechanism, Mentor employs a buy and sell model for stablecoin transactions. The reserves backing the stablecoins are fully transparent and collateralized on-chain, similar to Maker DAO. The protocol emphasizes community participation and aligning incentives in the long run to enhance stability.

Defining Robustness in Stable Assets

For both Maker DAO and Mentor, robustness is a crucial aspect. Maker DAO views robustness as resiliency and focuses on decentralization and permissionlessness at the technical layer. They measure different aspects of the protocol to identify and mitigate centralization risks. At the organizational level, Maker DAO has been decentralizing its operations through the creation of core units. The project also addresses legal risks through initiatives like insurance projects and self-insurance funds.

Similarly, Mentor prioritizes robustness by emphasizing decentralization and permissionless features at the protocol level. They aim to align incentives and ensure stability by involving interaction providers who lock funds and maintain stability. Additionally, Mentor explores collateral options to reduce risk exposure for stablecoin users while still providing liquidity.

Challenges and Alignment in Governance

Both Maker DAO and Mentor face challenges related to governance and community participation. Maker DAO highlights low participation in governance as a risk, and they are actively working on improving community engagement. Mentor aims to align incentives and create committed parties by structuring interaction providers and collateral mechanisms. The organizations strive to navigate these challenges through transparent discussions and initiatives.

Future Directions and Collaborations

Both Maker DAO and Mentor are driven by the vision of providing decentralized stable assets to individuals and promoting financial sovereignty. They share common values with a focus on empowering individuals in developing countries. Collaboration and alignment with upcoming regulations are seen as vital for achieving these goals.

Conclusion

Building more robust stable assets requires a multi-faceted approach that addresses technical, organizational, and legal aspects. Maker DAO and Mentor exemplify how stability protocols like Maker DAO and Mentor are approaching robustness in stable assets. Both protocols prioritize decentralization and permissionlessness to ensure the resilience and long-term stability of their stablecoins.