It’s no mystery that volatility is still, and will probably always be, the biggest and more concerning issue with cryptocurrency. With the prices of the top assets in the market varying for over 10% at certain weeks, it’s understandable that most investors are extremely cautious about entering the market, and those who enter are always looking for alternatives to reduce risks.
One of the early solutions to this problem was the creation of stablecoins, which are linked to an asset that fluctuates outside of the crypto sphere, making them less volatile than the ones that store value by themselves. The most popular stablecoin, Tether, is linked to the U.S. Dollar, aiming to maintain a value as close as possible to $1.00 by balancing supply and demand of the tokens, others are tethered to assets like gold and diamonds, baskets of different cryptocurrencies, or entirely algorithmic.
Given that the most stable model is indirectly centralized, because the assets they are linked to are managed and audited by big institutions, some argue that the current state of stablecoins is not as promising as it seems. BlobFlow is aiming to solve this problem by taking stability one step further.
The Simple Take
Inspired by other tokens which balance out their value from a basket of other assets, giving each one of those assets a percentage that is recalculated periodically to keep the price stable, BlobFlow designed a system that not only builds a basket of stablecoins, reducing volatility even more, but also makes the basket composition determined by the holders of a special governance token.
The Blob token will be the one tethered to a “perfect basket” of collateral, which will contain a mix of the most stable and reliable coins, chosen directly by the holders of the Flow governance token.
In order to be able to vote, users must hold the Flow tokens for a minimum of 1 year and a maximum of 4 years, replicating the Silicon Valley founders’ stock model, which assures that the voting users are indeed interested in the correct functioning of the basket, while avoiding possible monopolies during the decision making process. The basket composition will be decided by monthly votes while more important decisions, like the peg target, are voted quarterly.
Adapt to Succeed
The monthly process of redefining the basket’s contents is done during the first week of the month in three steps: the Proposal (day 1), where vested Flow token holders submit their proposals for consideration, the Selection (days 1-3), where token holders vote on which issues should be considered, and the Voting (days 4-6), where voters either agree or disagree on every ballot item and majority winds.
For more important decisions, another step is required: an additional voting round known as the Ratification, where only Flow token holders who have held their tokens for 2 years minimum have access. Both processes take a few days for the creation of the new smart contracts, which are implemented on day 10 of every month.
When the peg target is changed, the whole basket needs to be changed to contain stablecoins that can more suitably achieve the target, which will enable a smart contract for old Blob tokens to be converted into new Blob tokens.
Given that we already have evidence of the effectiveness of “basket” tokens and tradable indices in reducing volatility in comparison to the assets they encompass, which is why BlobFlow looks like a promising project to take stability to another level, while fixing issues linked to traditional stablecoins.