An Attempt To Stabilize The Token Markets
STABLE is the first project aiming to reduce the inefficiencies existing in digital tokens markets and stabilize them, thus driving their much wider acceptance.
STABLE IS A PROJECT AIMING TO REDUCE THE INEFFICIENCIES EXISTING IN DIGITAL TOKEN MARKETS
Coinist was recently fortunate enough to chat with the folks at STABLE, a project which seeks to close market inefficiencies between exchanges / tokens within the same token. Let’s jump into the interview.
Hi and thanks for joining us today guys. Can you begin by introducing the STABLE project to us?
Hi, STABLE is the first project aiming to reduce the inefficiencies existing in digital tokens markets and stabilize them, thus driving their much wider acceptance. Cryptocurrencies prices instability is preventing a wider adoption of this vital innovation, as potential new users are deterred by the volatility. Price drops of more than 10% in one hour do happen.
There are couple of types of inefficiencies manifesting themselves in digital token markets that STABLE project will attempt to close, such as: inter-exchange inefficiencies (premium/discount of the same token at various exchanges), temporal inefficiencies (various borrow/lending rates on different exchanges), liquidity based inefficiencies (during quick and dynamic price shocks liquidity may dry up and bid/ask spread may widen), excess volatility based inefficiencies, etc.
The goal of the project’s team is to stabilize the token markets and, at the same time, ensure a relative stability of the STB token value over time. The team expects to deliver the annual volatility (variability) of project’s net assets and therefore STB token price that is much lower (about 5-10 times lower) than that of other major digital tokens such as i.e. Bitcoin, Ethereum, etc.
For our readers who might not be familiar with how token stabilization works can you walk us through a typical cryptocurrency transaction (with high volatility) and then walk us through a typical Stable transaction (lower volatility).
The easiest cryptocurrency transaction (very volatile) is to buy Bitcoin, Ethereum or any other token outright and to hold it. This is a simple and typical strategy in the financial world, the so called “Buy & Hold” strategy. But such an approach has one, but very important drawback – price instability. Movements of more than 10% up/down within couple of hours are not rare and over several months drawdowns of 60-80% have been recorded. A lot of people are afraid of such a huge volatility which is 5-10 times higher than equity investment in US blue chip companies listed on New York Stock Exchange, not even mentioning bonds.
Our approach is different – we will not be a passive holder of digital tokens and will not be choosing “interesting tokens that could appreciate in value over time”. We are not token-pickers, all of the trades will be executed based on the size of inefficiency to be found. The majority of cryptocurrency transactions made as part of the Stable project will have a simultaneous buy and sell transaction at the same time. Therefore, they will be riskless or bear only low risk.
In order to show you our strategies trading style, please look at the details of one of our latest trades, performed for our private portfolio. Recently we had one major event, which delivered positive results with very little risk: bitcoin hard fork. Good results were achieved with a strategy that bought bitcoin and at the same time took an opposite (short), equal in value position in bitcoin futures and/or swaps. Therefore, we bought outright bitcoin and at the same time we sold bitcoin futures (so we had bitcoin price risk at zero level). In this scenario profits could be realized regardless of the direction (up or down) bitcoin price would take following the fork. As the value of Bitcoin Cash distribution was as much as 10-15% of Bitcoin immediately following the fork, substantial profits were realized with very low risk. The reason for that was that the outright bitcoin position “earned” newly created Bitcoin Cash, while the short position/opposite position in derivatives was not subject to any value being subtracted (as it was not technically possible to charge a negative amount of Bitcoin Cash). Several weeks after the fork Bitcoin Cash was worth about 6-7% of Bitcoin, which is a reasonable estimate of the level of low risk profits that could be achieved from this one event. At the beginning of such trades we are always thinking about elimination of particular token inefficiency and take very little price risk.
Can you explain to us in more detail what the functionality and utility of the STB token is?
One of the primary goals of the STABLE project is the creation of a digital token, which is much more stable in value than other popular tokens. If the goal is achieved by the project team, holders of the STB token will enjoy all the benefits of digital tokens such as speed of transacting, global transferability and anonymity, coupled with much lower volatility of prices across time. The activities (trading strategies) employed by the Project Team should bring economic benefits, which, net of costs, should increase the value of the Project and, therefore, the STB token price.
What I found interesting about your project from a management standpoint is that you’re not keeping any STB for a “developers fund”. Instead you charge a small fee of 2.5% of net assets / annum plus a 20% success fee. This success fee is taken based on increases on the value of the STB token. To me, this seems like a great way to incentivize your team to make STB work and it helps inspire confidence in project backers. But let’s take a moment now and dig deeper into what real world activities would cause the price of STB token to increase or decrease in value.
The more inefficiencies we find and close, the more the STB token value will increase over time. The more unstable and inefficient the crypto markets are, the better for STB token holders. STB token can decrease in value due to exchange hack (we will implement proper risk-control tools in order to minimalize impact from such an event). Another situation that will not be good for STB token holders is when the crypto markets are very calm for a long period of time. STB token likes un-stable markets. As the cryptocurrency sphere is very young and very dynamic, we think it will take many years before it matures. STB token’s value may also temporarily decrease in value, if the inefficiency on which we traded increases after we establish position, rather than progressively dissipate. In our experience, it usually takes several days for the inefficiencies to disappear, in rare occasions it extends to several weeks.
Can you tell us more about your decision to work with the Ethereum platform. What made you decide on Ethereum vs. Other blockchain platforms available?
Ethereum is the second biggest digital token based on capitalization. We found its Solidity language as an effective tool to program the STB token and all the rules related to ICO financing.
How have you found the experience working with Ethereum so far? Has it been a fairly frictionless process? Does the technology provide all of the features you desire to make Stable the project you want it to be? From the perspective of the development team, are there some areas within Ethereum that you think could use improvement?
Ethereum platform is great for building basic smart contracts. It needs improvements for interoperability with external data and for multicurrency management. For ethereum tokens we use ERC223 standard extension.
Trading algorithms that drive STB token “inside” of course will be build outside Ethereum Virtual Machine.
Thank you for taking the time to chat with us today. To our readers, if you want to lean more about Stable please visit their homepage here: https://stable.foundation/
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