Alchemint is a decentralized price-stable cryptocurrency management system run on the NEO blockchain. In short, it's a stablecoin enabled via smart contract technology. I attended Neo Dev Con in San Francisco back in January and one thing that caught my eye was this bullet on the slide Piyosh Chaplot of Neo Global Fund presented. It showed the project 'Alchemint.
Why do we need a stablecoin?
In order for cryptocurrency to become currency of choice it's going to have to conquer the volatility battle. With rapid Bitcoin price increases everyone is going to hoard Bitcoin as an investment. This decreases spending but increases savings.No one in their right mind is going to buy a $5 cup of coffee with Bitcoin if they believe it's going to 10x in the next month. When price is declining, holders reasonably sell it as fast as they can. Similar to hyperinflation, the value of their 'currency' falls and purchasing power declines.
The case for why Bitcoin isn't a currency
Wild volatility does not make for a good currency. Bitcoin is increasingly viewed more and more as the digital version of gold - a store of value, and not a currency. Bitcoin's total supply is fixed. No new Bitcoin will be created once the block rewards disappear many decades from now. Deflationary economies encourage hoarding. As mentioned above, Bitcoin is increasingly viewed a store of value, not as an everyday medium of exchange.
Properties of cryptocurrency should exhibit three characteristics:
Even real currency isn't free
If anyone was ever curious how much it costs to product fiat currency. The Fed doesn't simply "print" money without spending (link).
| Denomination | Cost of production |
|---|---|
| $1 and $2 | 5.6 cents per note |
| $5 | 11.0 cents per note |
| $10 | 11.7 cents per note |
| $20 | 10.0 cents per note |
| $50 | 12.9 cents per note |
| $100 | 13.2 cents per note |
Centralized approach: Tether
I found this quote on page 7 I really enjoyed.
we recognize the technology of the whole industry is not mature enough, and Alchemint's technology is not the greatest in the world. However, we have a untied and pragmatic team that has a common philiosophy and works in harmony. With a good starting point for technology, the rest is to improve continuously in the progress of development.~Page 7, Alchemist English whitepaper
The closest analog I can find to Alchemint is a decentralized version of the U.S. Federal Reserve. Similar to the Fed, Alchemint can reduce money supply by issuing a series of IOUs with digital assets (NEO) as collateral. In much the same way the Fed can issue bonds in exchange for your hard earned USD. Alchemint will also be able to generate SDT tokens as you mortgage your NEO using smart contracts.
There are some differences between the Fed and Alchemint. The public will be able to view the size of collateral in the Alchemint system at all times. Additionally, the smart contracts it deploys is run simply through code without the intervention of a centralized party or undue influence from malicious players. Imagine the Fed Chair secretly under the influence of an interest group. No such scenario exists with Alchemint.
Smart Assets Reserve (SAR)
The most critical part of the Alchemint system is the Smart Assets Reserve (SAR). SAR is a smart contract to generate the mortgaged digital assets mentioned above. Individuals can create SDT with the following steps:
Alchemint devised a solution for the devaluation of NEO and SDUSD. The liquidation mechanism mentioned above attempts to resolve this. Much like a bank is required to have reserves on their balance sheet against the loans they posted, a borrower in the SAR will need to increase their collateral to meet the liquidation requirements. In this way, each borrower is incentivized to calculate how much additional NEO they need stashed away as potential reserve. If the borrower fails to meet this reserve their collateral will be posted to auction.
Refer to Alchemint's whitepaper to find out more about the Oracle - the network's real time price evaluator for liquidation thresholds.
Alchemint feedback mechanism
Initially, SDUSD is set to 1:1 with USD. As SDUSD deviates from this threshold a feedback mechanism will be triggered. The solution Alchemint proposes aims to incentivize the market to arbitrate the SDUSD:USD ratio until it reaches equilibrium at 1:1.
In the beginning, there was NEO
Alchemint will accept NEO as the only form of collateral at first. Over time, Alchemint will expand to other digital currencies. In my view, this makes sense a multi-protocol world. Neo may not be the only game in town in the long view.
SDT Token
Participants in the private and public sale of Alchemint will receive SDT token. SDT tokens are used to pay commission/interest when borrowers redeem their principle of the SAR. SDT holders will also have voting powers to decide risk management characteristics of the system. 70% of total SDT tokens will be sold. When SDT is paid to redeem principle, that SDT will be burned.
SDT cheat sheet (as I am writing this I have had to edit STD to SDT several times!):
Stablecoin should start from solving the problems of stability of currency, payment and settlement, and become the bridge between the real economy and the digital economy in order to pay an important role in the trends of block chain technology in future.~Page 41, Alchemint whitepaper
Core team
If you're going to invest in Alchemint you should have a series of critical questions:
I'm bullish on the need for a stablecoin. Alchemint's approach to decentralize (as much as it can) governance and risk management measures is a good choice as long as the governance nodes know what they are doing. I am concerned retail investors hoping to receive SDUSD tokens will overextend themselves without understanding reserve capital will be needed to meet liquidation thresholds - but perhaps over time participants will learn along the way. Their roadmap of eventually bringing on more than just NEO as a digital asset as collateral shows me they are NEO agnostic despite having first come to my attention at Neo Dev Con. One of these days, a former high ranking Federal Reserve official is eventually going to join a stable coin team further cementing the legitimacy of such a project. Watch out for this token, I think it will be a worth substitute to centralized solutions such as Tether.
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