SCRT as a focal currency

Motivation

While there are definitely several factors as to why Luna and UST were successful, in my opinion there’s one reason in particular. The Luna <–> UST burn-to-swap mechanism essentially means that they were able to flip the supply-and-demand invariant on its head. Normally, selling one currency for another has a negative price impact on the currency sold, since it reduces the demand for that currency (finite demand pool, where some of that demand is met, equals reducing the overall demand).

With Luna, the ability to burn that coin in return for UST, does the exact opposite – it reduces the overall supply of Luna, which increases the overall demand.

Overview

Recently, I’ve been thinking on how to replicate that model with SCRT in a way that makes sense. As many people know, Cosmos is a multi-chain ecosystem, and recently, a lot of different projects and chains have been airdropping to each other. Clearly, airdropping is a powerful mechanism to connect two ecosystems together, but what if we could also create an economical mechanism that ties SCRT with other coins – for the long run?

I see this especially with new chains that share an interest with SCRT, for example projects that heavily utilize privacy-enhancing-technologies like MPC, FHE and ZKP. Since in SCRT we want to explore more technologies, it only makes sense to create tighter integrations with these ecosystems. Also, since SCRT is by far the largest ‘tech-heavy’ chain in Cosmos, it also makes sense for any such new chain to partner with Secret directly.

In my mind, SCRT would become the focal currency of these ecosystems, where burning SCRT could mint, in a slippage-free way, another currency (as an example, let’s say these coins are MPCCoin and ZKPCoin), and vice-versa.

Another cool possibility is to not really burn any partner coin that is received, but instead, treat that as part of Secret Network’s community treasury – those coins (which are out of circulation) could be staked or used to provide liquidity, earning rewards that can then be sent to the community pool. The network’s community would therefore start having a basket of multiple currencies – all of which are heavily related/partnered with the Secret ecosystem.

Technical considerations

TBD, but since SCRT is already out this likely requires a hard fork that issues new non-circulating SCRT to a contract or module. That SCRT can be minted when burning one of the selected cryptocurrencies. Any cryptocurrency we partner on this would need to have a similar mechanism on their end (easier in a new chain).

Doing things in this way may screw up staking rewards since the overall supply would increase, in which case the network would need to agree to fix any parameters (like inflation) to the ‘true total supply’ which does not count these coins. If this is too complicated or undesired then a slightly more elaborate hard fork is required where SCRT is truly minted/burned on demand.

First candidates

  • Stablecoins – it’s key that at least one stablecoin is supported as well. I would suggest we try to do this with both UST and Silk. Since both of these tokens are out, we may need to figure out a workaround, like asking for a starter liquidity from Terra and the Shade teams, and use Hydro’s Curve-AMM to actually help with closing the loop

  • Partner coins – There’s at least one MPC project that wants to collaborate with Secret but would still serve as its own Cosmos L1. This could be a great example

  • Other coins can be added over time, using community governance

Sorry for the relatively quick/messy post. This is very much an early work in progress I wanted to share with the community to get feedback and ideas on.

Guy

16 Likes

LUNA is also made on COSMOS SDK so there is possibility that we as a community can flip $SCRT token into focal currency. And being an admin you know the drill, TERRA Luna brought new projects and DAO and rewarded it’s community via stakedrops and mostly not via angel investors. People got hyped and started to stake more to get tokens in return. This over-all improved the position on LUNA in blockchain ecosystem and you can now see the difference and it’s huge community and multi billion dollar evaluation. Even copying steps & methodologies of LUNA can give a huge push as well as boost to $SCRT currency.

:full_moon_with_face:
secret1csxg2wwqm9vzjdmpzv6tk3n5fsdcuxw523s72k

1 Like

Excellent thoughts on the subject, and there are some great things to consider here in ensuring that SCRT can successfully capture more of the value it creates, capitalizing on being the glue that holds together a group of novel applications, use-cases, and assets.

From the Hydro side we are ensuring that our AMM is structured in a way that sets up consistent buy-pressure into the SCRT token from other Cosmos L1s, and more models like that in other dApps could certainly help.

What I think is most beneficial and novel about Hydro’s Protocol-Owned Liquidity is that it sets DRO holders up to be owners/managers of a sizeable portfolio of many different assets. There are two ways I think we could better go about this on Secret Network directly.

  1. Use Hydro! (yes, plug I know, but we and many other communities can and should do this). By deploying community funds to impermanent-loss free pools (no trading necessary) our community pools, ecosystem funds, etc could get DRO on its balance sheet, and even manage it to stake and earn the various other L1s, or sell it back for SCRT, to create riskless growth, and/or a diverse balance sheet of its own.

  2. Use the ecosystem fund and/or community pools as investment in the projects that are being built out. Yes it’s awesome and necessary that we have ecosystem grants that can facilitate the growth and development of new products. They could, however, come with a caveat, or be more generously given if the caveat is accepted, that the community pool is allocated a percentage of the new token or capital raised by the project being incentivized.

Right now SCRT is being given out as free money to projects who have the goal of creating as much value for their own token/project that they can. The growth of these projects provides more utility and demand for SCRT which IS good, but they aren’t necessarily focused on increasing the price of SCRT. Hydro is, but that’s because the protocol itself will earn significant SCRT through its design, and facilitating SCRT price growth will directly grow the DRO treasury and raise the revenue. New L1s or products that use SCRT for gas but not as part of their direct business model will create tons of value and awareness, but won’t necessarily gain from SCRT’s valuation increase. If anything it could just make gas prices higher for them.

Airdrops to SCRT holders and stakers is a great start! If you can figure out a solid and consistent method for burning SCRT to create value through a supply sink that would also be fantastic! Interconnecting communities and gaining directly financially through more aggressive and reciprocating deployment of funds might be an easier step towards ensuring the connection of products built in alignment with Secret Network aim to grow it, and ensuring the reward for the network should they massively succeed in the manner we hope and expect. Furthermore for the products it’ll help ensure that Secret Network and their community care about their growth and success, as the network/community itself is directly invested, and stands to gain from their growth (as will be the case for all supported L1s on Hydro).

4 Likes

Burning $SCRT in Return for stableSCRT - stable coin is pretty impressive dea tho. Now imagine combining airdrop + burning and getting stablecoin in return.

I won’t recommend you to partner with anycoin. Instead build your own stable currency if ain’t there. :full_moon_with_face:

Haven Protocol is similar to Secret in that they also have viewing keys. It’s xUSD is a private algorithmic stable coin soon to have ThorChain integration. They are also working on a wrapped coin likely to be on EVMOS (not yet decided). The privacy is built on Monero. Have you considered xUSD?

One of the ‘quick fixes’ to address this issue is to incorporate sSCRT into Silk sabilization mechanizm, similarly to what Terra did with Bitcoin, i.e. Shade would still be a primary stabilization coin, but sSCRT could work as ‘gold’ reserve and second stabilizing pair. Shade protocol is already there, build on top of Secrete notwork, it would make sense to use it and help them grow fostering Secret network ecosystem development at the same time. Yes, Silk will have low liquidity at the beginning but it could be a good start.
Michal

UST is equivalent to an algorithmic stablecoin that has been pledged all the time. So far only Terra has succeeded. The success rate is too low, and the development of the public chain is the key. Or over-collateralization like RUNE is not bad.

Why are stablecoins so trendy among blockchain projects?

Isn’t the whole point of crypto not to be tied to fiat :thinking:

I just started investing in Secret Network recently and am by far not an expert or as experienced as the people in this forum. But I created this account here for the sole purpose of commenting on this proposal.

You clearly didn’t understand how the relationship between UST and Luna works and I pray to god, that you don’t try to replicate this system based on your understanding of the terra network. The terra ecosystem only thrives, because there is demand for the stablecoin (largely thanks to Anchor atm). But Luna itself is not deflationary. You can always mint 1$ of Luna by burning 1 UST and this is the reason why UST holds it peg. The minting process, which works in two directions can be used to arb any deviation from the peg. Luna is then burnt, when there is buy pressure on UST and it tries to deviate from the peg. You can then mint 1 UST with 1$ worth of luna and sell it for 1.01 f.e… If there is huge demand for UST, you effectively burn Luna and make riskless profits. That’s whats happening right now. But this whole process could be reversed as well.

I do not see the point in replicating this system by pairing SCRT with other non-stablecoin currencies. Those currencies are not pegged to anything, so why should someone have an incentive to burn SCRT and mint another token or do it the other way around? And what benefit has the other project? If there is a major negative event on Secret network, then everyone would leave SCRT and mint their token and create endless inflation?

The idea behind SCRT network is awesome. What is lacking are more projects, which get known throughout the whole IBC cosmos and beyond. Please don’t try to implement this. I’m really afraid here.

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Gotta say I don’t understand this. I’m all for making partnerships with other chains, but I don’t know if it makes sense to tie Secret to another coin so directly. The reason Luna <> UST works is the closed loop. You can only go back and forth between the two and its controlled by one set of governance. If we had a similar mechanism with another chain their governance would effect us.

If we want more utility for SCRT. Maybe OPEN can run off the same SCRT and users will have to decide on which chain to stake and participate in governance.

UST is only an asset for the holder. For the issuer (i.e., the Terra protocol), it is a liability. Terra burning LUNA to mint UST is akin to the protocol taking out a loan to execute a share buyback.

If the value of LUNA increases before those obligations are called in, it was a worthwhile venture. However, if the price of LUNA declines, Terra must still satisfy those IOUs (but at a deflated valuation).

Overall, I expect this mechanism to lead to higher price volatility in LUNA vs. an asset that doesn’t have this sort of mechanism.

The thesis for Terra would be that the value of offering stablecoins such as UST and others offsets that risk premium of higher volatility.

Would that tradeoff be worthwhile for Secret? I personally don’t think so. Second-movers historically struggle in crypto.

I think there’s more value to be captured by Secret partnering with these protocols like Terra. Let them take the risk while Secret provides privacy-as-a-service.

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This is not about turning Secret into Luna and competing with UST, but adapt/adopt some of the mechanisms Luna has in order to increase utility and demand for the Secret token.