Contracts Release 3 will include CIP-33, which updates the Reserve smart contract to support stabilizing multiple currencies. It also adds the Celo Euro (cEUR) as a second stabilized value digital asset to the Celo Network.
When deploying new stable tokens like cEUR there is an opportunity to specify an initial token allocation.
This is a useful feature. First, Mento is only able to expand or contract the supply of stable tokens at a limited rate, and starting with non-zero demand but zero supply may make it difficult or expensive for arbitrageurs to quickly close that gap and mint the requisite cEUR into existence, which in turn could temporarily affect the stability characteristics of cEUR in the early days.
Second, this is an opportunity to leverage more of the capital in the reserve. According to celoreserve.org, the reserve is currently >10x over collateralized, which far exceeds the necessary margin of safety. Minting an initial supply of cEUR allows the protocol to make effective use of more of the capital being held by the reserve.
Finally, there is a clear opportunity for an initial supply of cEUR to be put to use in the form of grants given out from the Celo Foundation and the Community Fund. The Celo Foundation is on track to give out approximately $6MM of Celo currencies in the form of grants over the first year of the Celo network. Furthermore, a CGP was just made to allocate ~$2MM equivalent of CELO from the Community Fund to be given out in grants.
I’d love to kick off the discussion about what initial cEUR balances should be specified as part of this release. I would propose that both the Celo Foundation and the Community Fund should be allocated an initial supply of cEUR.
The Celo Foundation can use these funds to support the development of a Euro-based ecosystem (predominantly in Europe and some African countries), by giving out community grants in cEUR to foster development on Celo in these regions. Similarly, the Community Fund could use an initial allocation of cEUR to give out grants for protocol development.
Concretely, I’d like to propose: 6MM cEUR going to the Celo Foundation, and 2MM cEUR to the community fund. Based on current values the reserve will remain >10x overcollateralized.
I would love feedback on this wherever folks are happy to share it, either in this forum post, #celo-governance on Discord, or in the community governance call on Thursday (invite link).