For a start I’m going to address two of the ‘elephants’ from the first page.
From the FAQ paper:
The duty-of-care to the end user is critical for Celo because of its focus on underserved communities. Robustness of cStables is the highest priority. From the wider economy, conditions for robustness against financial shocks are well known. Money should be backed by capital reserves, where these reserves consist predominantly of a single asset: Short-dated government bonds. Short-dated government bonds are the only asset which reliably strengthens during times of financial stress (risk-off sentiment). Without an analogous asset, robust risk management in crypto is impossible, because effectively hedged portfolios cannot be constructed. This is a major challenge for decentralised stable coin reserves, which cannot include e.g. tokenised sovereign bonds, since bonds are classified as securities under US law. Including centralised stable assets such as USDC in the Celo reserve is a sensible short-term measure, but availably of such assets cannot be relied upon in the longer term. PoD catalyses transformation of Celo token into the crypto analogue of a short-dated government bond. PoD does this by driving liquidity on exchanges using incentives.
Cambridge Cryptographic’s assessment that the government bonds are the only asset that strengthens in times of financial stress is a reasonable assessment IMO, at least as far as the context of this discussion.
What has been left out of the FAQ’s specifically, is why.
Here in the USA, with regard to government bonds, we regularly hear the following phrase: “Backed by the full faith and credit of the United States.”
To be blunt here, Celo does not enjoy the credit rating, nor the taxing authority of the US government and those two factors alone are the reasons that government bonds are considered safe.
No market incentive nor any fancy software mechanism can can fool any reasonably smart investor into thinking Celo is safe by comparison.
The assumption posited and comparison made within Cambridge Cryptographic’s argument that Celo stable coins might or should be considered similar to or even in the same class as government bonds is disingenuous at best.
The other glaring problem with Proof of Deposit is that ‘if it works as advertised’ it will create a huge and ongoing cost to the Celo protocol, that cost is expected ‘per Cambridge Cryptographic’s estimates’ to be about 5% on all outstanding stable coins.
With roughly 100 million dollars worth outstanding today, that’s $5 million yearly.
The transaction volume needed to support that expense is beyond immense, nearling the point of being completely unbelievable.
I have asked for modeling, it has not been provided.
The other possibility that has not been discussed is that the Celo transaction fees at $0.001 mechanically limits the interest payable to an incredibly small inconsequential number.
Again without realistic modeling …