BitMEX Founder Proposes Innovative Stablecoin Mechanism Tied to Bitcoin called NakaDollar (NUSD)
BitMEX co-founder Arthur Hayes has proposed a new stablecoin mechanism called the NakaDollar (NUSD), which he claims will provide a USD equivalent without touching fiat currency or a stablecoin that exists in crypto. The mechanism is based on a Bitcoin inverse perpetual swap, which has a payoff function of $1 divided by the Bitcoin price in USD. To create one unit of NUSD, an individual would need to deposit one Bitcoin on a derivatives exchange, such as BitMEX, and short one XBTUSD swap.
Hayes explains that the swap relationship between Bitcoin and the Bitcoin/USD inverse perpetual swap is so fundamental and important that he must go through the maths every time he talks about it. This relationship allows users to synthetically create a USD equivalent without encumbering more crypto collateral than it creates in fiat value, unlike the MakerDAO stablecoin.
The NakaDollar would rely upon derivatives exchanges that list liquid inverse perpetual swaps, rather than fiat banks to custody USD to be tokenised. As a result, the solution would not be decentralised, and the points of failure would be centralised crypto derivatives exchanges. Hayes excluded decentralised derivative exchanges as they are not as liquid as their centralised counterparts and rely on feeds from centralised spot exchanges.
Hayes proposes the creation of a NakaUSD DAO, which would exist in both the legacy legal system and as a crypto native DAO. The DAO would have an account on all member exchanges and issue its own governance token, NAKA, with a finite amount created at inception. The first raise would fund a sinking pool and create an initial stock of NUSD supply. Subsequent fundraising would be used to increase the supply of NUSD and replenish the sinking pool.
The sinking pool would be used to mitigate the risk of socialised losses, which can occur when the liquidity on the exchange where these derivatives are traded is thin. Hayes states that socialised losses are unlikely but not impossible, and therefore the sinking pool would need to be funded with sufficient reserves to cover any potential losses.
Hayes’ proposal has garnered attention within the crypto community, with some experts questioning the feasibility of the NakaDollar. Concerns have been raised about the reliance on centralised crypto derivatives exchanges and the potential for socialised losses. Additionally, the complexity of the mechanism could deter mainstream adoption.
Hayes’ proposal comes at a time when stablecoins have faced increased regulatory scrutiny. Stablecoins are digital currencies that are designed to maintain a stable value relative to a specific asset, such as the US dollar. They have become increasingly popular in the crypto space as they offer the benefits of cryptocurrencies without the volatility associated with them. However, concerns have been raised about the lack of transparency and regulation surrounding stablecoins, particularly those that are not fully backed by the asset they are pegged to.
Hayes’ proposal for the NakaDollar offers an innovative solution to the stablecoin problem, but it remains to be seen whether it will gain widespread adoption. The reliance on centralised crypto derivatives exchanges and the complexity of the mechanism could limit its potential appeal, particularly in the face of increasing regulatory scrutiny.
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