Stable token technology is evolving at a rapid pace. With stable tokens like Facebook's Libra, Gemini Dollar and Tether, fiat currency collateral stored in standard banks is all that's keeping the price stable. An improvement was made in the case of MakerDao's DAI, where an on-chain mechanism stabilizes DAI's price toward its target value whenever fluctuations in ETH occur. Even DAI is limited though, in that users can only create CDPs for DAI itself. This means we can only make DAI stable, nothing else. What if there was a way to mint your own ERC-20 token, pegged to any asset of your choice?
Enter the PEG Protocol. With PEG, users can easily create a stable version of any token. The PEG protocol ensures that every issued stable token is backed by a sufficient quantity of its collateral, while allowing any actor to profit by enforcing safety margins.
PEG implements mechanisms that iterate on the functionality of DAI, with a key advancement: Any asset can be used as the stable token's collateral. For instance, someone can create a stable version of Basic Attention Token (BAT) pegged to the US dollar. As BAT is deposited into a PEG-integrated smart contract, BAT:USD is minted, allowing users to borrow against the value of BAT.Learn more about the PEG Protocol Model
The need for seamless stable token creation highlights a growing reality of today's cryptonetworks: users who want access to a network don't necessarily want to speculate on its underlying token. While there are certainly users seeking both utility and price elasticity, well-designed networks should give their users a choice.
PEG gives networks the ability to segment between speculators, who hold the network's potentially volatile token, and real users, who utilize the network's stable token to access or contribute work on the network. Usage of the stable token drives the price of the volatile token, since the volatile token is required as collateral, in order to mint new stable tokens.
As a first use-case, PEG is launching USDB, a stable version of BNT (Bancor's Network Token) pegged to the US Dollar.
We chose to stress-test PEG by launching a stable version of BNT because Bancor represents a classic example of a cryptonetwork where users could greatly benefit from being able to contribute work (i.e., provide decentralized liquidity) using a stable token.
While Bancor is best known as a mechanism for exchanging tokens, unlike most exchange tokens, BNT is not a token for traders. Rather, BNT is a token to facilitate liquidity. Users stake BNT in order to create Bancor liquidity pools or to contribute liquidity to existing pools. These pools — for example, Bancor's DAI pool is DAIBNT — utilize BNT as an "intermediary" token, stored within each pool, through which conversions are processed. Each conversion generates a fee for the pool's liquidity providers, in proportion to their respective contributions, creating an incentive for "community-driven liquidity".
Looking forward, USDB could be used to create new Bancor liquidity pools — for instance, a 'DAIUSDB' pool. In this way, USDB would allow users to plug into Bancor pools and generate fees from conversions without direct exposure to BNT, potentially improving returns for liquidity providers.
As liquidity providers connect to Bancor through USDB-based pools, more BNT would need to be bought and used as collateral, in order to mint the USDB needed for such pools. USDB-based pools could theoretically create even greater buying pressure on BNT than BNT-based pools. In short, USDB demonstrates the potential of stable tokens to serve the needs of both speculators and real users.
Following third-party audits of USDB and feedback from the community, we are excited to expand the PEG Protocol to additional networks and blockchains, and to see PEG evolve as the de-facto framework for stable token creation and management.