According to surveys by Forbes, Bloomberg, Fidelity, and Deloitte, the main barrier to financial institution adoption of blockchain technology is the risk of volatility. The rapid growth of the space has been associated with large price crashes creating fear for new investors.
Stablecoins, such as Tether, provide a centralized option for stability with a price meant to be closely pegged to 1.00 USD. Such centralized coins developed issues with transparency, lack of significant incentives, and under-collateralization. All of these issues made them less appropriate for use in a decentralized finance (DeFi) setting. There are no decentralized, incentivized, yet fully-collateralized stablecoins that can faithfully maintain their pegs… until now.
STABILITY IN DeFi
Historically, the first generation of decentralized stablecoins attempted to use elastic supply models. An example of a classic first-generation decentralized stablecoin is AMPL. When the price of AMPL was above a peg of ~$1, the supply increased to lower the price and when the price was below $1, the supply decreased to increase the price. The fatal flaw for these first-gen tokens was that they created massive positive feedback loops where when the price was high and the supply increased, more people bought to gain profit and when the price was low, everyone sold for fear of losing tokens. This is inherently the opposite goal of these models.
The second generation of decentralized stablecoins built on the first generation and added the concept of “seigniorage” to models of elastic supply. This concept from the article by Robert Sams proposed one token to remain stable and a second token to act as an “off-ramp” for any volatility of the stablecoin. This second token is sometimes used for governance or to act as a “share” of the ecosystem. Examples include ESD, DSD, and Dollar Protocol. The flaw in these tokens being that they accept initial volatility at extreme levels with the assumption that they will become stable over time. However, there is no guarantee that the market will not allow for volatility to return and decouple the stablecoin from its peg. Notably, these “stable” coins have ranged from $0.06 to $2.20 when supposedly pegged to $1.00. As the token becomes more stable, there is less incentive to join the ecosystem and less growth.
THE APOLLO SOLUTION
We have created the third generation of the decentralized stablecoin, built upon the above existing concepts while expanding them to solve the above flaws. We note that seigniorage is incomplete. This is because while there is an “off-ramp” for the volatility of the stablecoin, there is no separate “on-ramp” for the volatility associated with growth and incentives. All the current models have the volatility associated with entry into the ecosystem tied directly to the stablecoin.
We are proposing a model of complete or “true seigniorage” where we have a token (Apollo Growth; AOX) that acts as an “on-ramp” into the ecosystem and absorbs volatility as new users enter. This token feeds into our vault which collateralizes our stablecoin (Apollo Stability; AOY) completely. This stablecoin is adjusted in supply with every transaction to match the collateral and maintain a faithful peg to 1.00 USD. Any excess change in supply is off-set using our “off-ramp” token that acts as a long term “share” and governance token (Apollo Share; AOZ). This share token receives rewards from our growth token also and can feedback into the stablecoin if necessary (if both AOX and AOY are below peg).
This is a complete model of seigniorage relative to all existing models, especially the current seigniorage models below.
The current models seen above report that early volatility will give way to long-term stability, but there is no way for the model to prevent a return to a volatile state. Furthermore, once achieving any stability, the incentives for growth are lost also and the ecosystem dies. In comparison, Apollo allows both of these functions to shine without compromise while feeding into the same ecosystem as below.
ADDITIONAL BENEFITS OF THE APOLLO ECOSYSTEM
With current second-generation stablecoins, they compromise growth and stability by combining them into the same token. By separating these functions into two unique tokens that are connected by a third token, we allow them to co-exist while being individually maximized.
Apollo Growth is pegged to a novel, weighted basket of diverse stable assets (below) including the top 7 fiat currencies, the GDPs of the wealthiest 7 countries, and 7 widely traded commodities. These assets are normalized to “1” then weighted based upon their growth/decay over the past year and their standard deviation relative to their mean. This diversity allows for our peg to more accurately reflect current global wealth. Therefore, even if certain nations, metals, or currencies are inflated or suffer an unforeseen disruption, there is balance.
The fixed stable token is known as AOY and will be pegged to USD initially, but we will have additional stablecoins collateralized by our vault pegged to CNY, EUR, etc. These decentralized, fully-collateralized, self-governing, faithfully pegged tokens will be used for our future DeFi lending platform (Delphi). These stablecoins will also be utilized by other DeFi lending solutions accruing interest over time. The shares token known as AOZ will act as an intermediary for growth in the entire ecosystem allowing for long-term, larger-scale investors to benefit passively.
A few of the digital assets that we are seeking to disrupt are:
Tether: Market Cap $20.92 Billion (third-largest digital asset)
USDC: $1.15 Billion
Dai: $1.16 Billion
Binance USD: $895 Million
Maker: $562 Million
AMPL: $214 Million
Empty Set Dollar: $195 Million
Reserve Rights: $175 Million
We have combined the best parts of each of these models to create the ideal digital currency that is both future proof and innovative. It is a native digital currency, created from the blockchain out, rather than trying to shoehorn legacy systems into the blockchain space. Apollo is a self-governing, decentralized, blockchain volatility solution. Apollo is a currency for the future.