No matter where you are, the simplest way to come into possession of Stable Tokens is, of course, to borrow them. In order to personally borrow them, you only have to have a certain guarantee. What would be logical in the world of cryptocurrency is to guarantee and deposit a second crypto currency for borrowing the first at a negotiated proportion and on a decentralized network which can execute this for all users equally by using independent Smart Contract.
PERSONAL LOAN WITH LIFO COLLATERAL
In that way we get a Stable Token personal loan with LIFO collateral ETH , by the agreed proportion — repo rate. That represents the unique method for any user on Ethereum decentralized network to execute collateral of its ETH for Stable Token through the Smart Contract.
This personal loan would be transacted by the agreed proportion, e.i. repo rate. In case that Stable Token is pegged to USD in proportion 1:1, then the repo price would be iETH Price Index iETH/USD and pegged exclusively for the specific user, that is, its public address. During this procedure, personal collateral would create-mint, through Smart Contract, specific number of new Stable Tokens, that would, in this case, automatically receive value 1:1 in relation to USD. In this initial process of creating Stable Tokens, converted value is the same as the value of USD, and it cannot be changed over time. With this procedure of initial creation, Stable Tokens confirm their fixed value that simultaneously represent the possibility to make payments with them for various goods and services.
The procedure of closing the personal loan position is simple and it creates the possibility to make a refund of borrowed Stable Tokens with the release of the guarantee — ETH stocked by the LIFO method (last in first out). That means that the user can have multiple active personal loans, and perform closing starting from the last opened loan made at the repo rate and proportion that was valid on the public Smart Contract with the safe custodian that is not privately owned.
Characteristics of this theory are:
1. the system is always backed (the number of Stable Tokens minted is the same number that can be retrieved at any moment),
2. the system has neither a surplus nor a shortage, because it is based on a constant proportion of exchange and not on a collateral.
3. market cap of the collateral would not be calculated by the current market rate but as a sum of all personal collateral prices.
4. expiration date of the loan would be unlimited as well as the amount that can be borrowed.
5. the price of Stable Tokens is derived based on the constant proportion of trade volume ETH/USD and is expressed in proportion ST/ETH, which means that ST:USD is always 1:1 at each calculation of the loan,
6. If a user performs a loan repayment, he executes a buyback of the personal collateral ETH which is calculated by the LIFO method, and therefore in every future moment there is a personal extra gain or loss,
7. Personal extra gain happens if the current market trade volume ETH/USD is bigger than the one calculated at the moment of personal loan ST/ETH (ETH/USD — ST/ETH = personal extra gain).
8. Personal extra loss happens if the current market proportion of ETH/USD is smaller than the one that is calculated at the moment of the personal loan ST/ETH (ST/ETH-ETH/USD = personal extra loss)
9. According to this theory, stability is always guaranteed 1:1, but the client has to additionally pay for the extra loss or to receive extra gain at the time of the loan repayment.
Dear readers, hope you enjoyed this article. Follow CP_Processor for more exciting stories :)
Join us, support this idea and project and be an active participant in creating your own future. Together, we can change the world!