Adaptability of Monetary & Fiscal Policy in the Era of Smart Money
By アレクサンダー.eth
Introducing the Ubiquity Dollar: the decentralized bank of the play-to-earn, and crypto gaming sector of the metaverse, featuring its namesake algorithmic stablecoin.
A thread on the importance of the adaptability of monetary & fiscal policy in the era of decentralized finance.
While designing the Ubiquity Dollar, one of our primary objectives was to maximize the adaptability of our monetary and fiscal policies. Could you imagine if the United States Federal Reserve created their first and last policies in the early 1900s and we still had to adhere to them?
In the rapidly evolving and adversarial landscape that is decentralized finance, we believe that it's necessary to be able to respond to all destabilization vectors (including those which have not been invented yet) swiftly, efficiently and with precision.
Any sufficiently advanced technology is indistinguishable from magic.
When I think about futuristic money, I think of it possessing the following properties: secure, global, private, instant, superfluid, sovereign, and most importantly: smart.
So what is “smart” money? It means knowing the right thing to do at the right time.
Today I’m excited to shine a spotlight on our transfer hooks, which provides the Ubiquity Dollar with the greatest potential to become real life "smart money".
For programmers, you can think of these as being token transfer "middleware" where the DAO can inject arbitrary logic inside of any transfer of Ubiquity Dollars, based on an address whitelist system. Most smart contract based tokens can be programmed to customize their behavior in seemingly inconceivable ways. But this generally requires to first deposit the tokens inside of another smart contract "wrapping" or "staking" them before the smart contract can manipulate them.
But what about situations when you are swapping the tokens or simply sending them to another user on the network? In any implementation I've seen, it isn't feasible to wrap the tokens, and then intercept and adjust their behavior within the same transaction of the DEX swap or user send. These are where transfer hooks can demonstrate their utility the best.
The protocol is able to jump in and do the right thing at exactly the right time.
As a pegged stablecoin, the Ubiquity Dollar's primary utility is to remain at its pegged value of $1.00 United States Dollar.
Like FRAX's AMO (Algorithmic Market Operations) design, the Ubiquity Dollar has a modular architecture to guide stabilization. While designing the Ubiquity Dollar, we independently came to an incredibly similar solution to their AMO design so hats off to FRAX as we truly think its (almost) the best possible architecture for a pegged stablecoin. However, the one key difference is how the AMOs are invoked. FRAX appears to invoke their AMOs via a multisig while ours piggy back off of user transactions, trustlessly.
“you're trusting the multi-sig to move around the funds for the benefit of the protocol. it's the same case with the Ohm forks controlling the treasury. Except in those cases, it's not usually even a multi-sig and just an EOA, which is why rugs are so common”
Sam, correct me if I'm wrong but I spent a couple of afternoons surfing your AMO docs, transaction histories, and source codes to come to this conclusion.
Just-In-Time, Trustless AMOs
We believe that our approach is better because it allows the Ubiquity Dollar the opportunity to course-correct at the atomic level (which is every time a state change is introduced in our economy) nipping price destabilization in the bud.
The Ubiquity Dollar protocol is young, but we are not worried about the future because of the flexibility we allowed ourselves now in future strategy design. We have the luxury to experiment with new strategies, allow them to more precisely adjust things, and immediately replace if they don't do the trick.
Besides if it came down to it, we theoretically could build a FRAX AMO adapter to augment our transfer hooks with their strategies. Full disclosure: we don't have any plans to do this as there's a whole war-chest of other primitives we created that we will leverage (and are completely unique to the Ubiquity Dollar protocol) such as our Debt System which allows us the opportunity to build completely new categories of stabilization strategies not possible in any other protocol!
Our planned stabilization strategies, in the context of transfer hooks, have the objective of dampening Ubiquity Dollar sell pressure by simultaneously "padding the sell" with collateral from our treasury, while thinning out the uAD single sided liquidity on the market.
In the future we could always add more esoteric stabilization strategies such as arbitraging from the most favorably priced market on behalf of the user.
Other Use Cases of Transfer Hooks
We only scratched the tip of the iceberg of the possibilities with transfer hooks, but see this article for more on this topic!