Hi folks, @inlumino just posted a very interesting whitepaper on Near’s reserve design, that is very relevant here:
- Post over on the Proof of Deposit discussion.
- Near whitepaper: Decentral_Bank_Full_Whitepaper_v__1_0 (1).pdf - Google Drive
Remarks on the Near Reserve vs Celo Reserve
- The USN design and Near Reserve is very similar to what we have at CELO.
- One difference is that Near explicitly talk about stable capital in their reserve. Indeed the reserve has been seeded, at genesis, with $1 of USDT and $1 of NEAR for every $1 of USN (so they are starting from a ratio of having full stables backing, and then will move away from that thereafter, where USN is swappable with $1 of NEAR [same as cUSD being swappable with $1 of CELO).
- It’s very interesting that NEAR choose USDT given the widespread perception that USDT is the riskiest of backed stables because of low public disclosure of USDT reserves
- The USN whitepaper dedicates a full page to the topic of a “Death Spiral”. Note in particular this paragraph:
My view is that claiming a death spiral won’t happen based on “simulations” and “historical data” is just naive. A similar narrative is present in Celo Reserve documentation. What ultimately matters for avoiding a death spiral is that there is collateral in the reserve that is closely correlated with the Stables. I recommend listening to Sam Bankman Fried (founder of FTX) on this week’s odd lots podcast. I don’t remember the timestamp but what he roughly says is that “If you have a basket of stables that are collateralised by a basket of volatiles, those stables will blow up”.
In short, I think the Near reserve will face parallel issues to the Celo reserve with respect to ensuring safety (avoiding a death spiral) when there are strong drops in Celo/Near prices. I can’t publicly find the Near reserve dashboard yet, but I think Near will have the advantage of higher stables backing in their reserve (although of course it’s possible that USDT might depeg in the worst of crashes).