Upcoming CGP: Increase target level of stable holdings in the reserve

Trust is an important thing John but the risks are endemic across everything that is crypto backed, including stable coins.

IMO if BTC and ETH drop 80% then all the ‘stable’ coins are going to probably de-peg and be taken down as collateral damage. They almost exclusively derive value from each other rather than from the real world.

Like it or not everything crypto is hanging on BTC’s reputation in the world.

IMO until each of the various projects in crypto find a way to derive value from real world interactions and assets we face the crypto crash reality.

Sooner or later crypto has to leave their backyard and venture out into the wild.

There is a meaningful chance that the reserve would become undercollateralised. That does not necessarily mean cStables would de-peg, but one would have to assume de-pegging risk would increase.

Finding a low volatility (relative to fiat) natural asset that is tokenizable and with comparable liquidity to assets currently in the reserve is not an easy feat. I have the same questions myself and am setting up some time to speak with members of the climate collective.

I don’t think outsiders understand how Celo’s reserve works. I would expect people associate some risk with cStables - because it’s crypto, but I doubt that retail users understand the collateralisation of the reserve.

There is a sort of mis-match in risk-profiles, because most Celo holders hold Celo as a risk asset. That there may be a small probability of cStables de-pegging (and taking down CELO with it) is perhaps not as much an issue to expected value calculations for CELO as to expected value calculations of someone holding cStables as savings.

That is a cynical take [and maybe it’s wrong, because as @VirtualHive states, if the cStables depeg it’s the CELO price that gets hit first, and then CELO owners are left holding a reserve of BTC+ETH, and they [not cStable holders] can control where that goes). In reality, I think there are many (incl. big) Celo holders that care a lot about community and cStable holders. My sense is that:
i) Many are busy and not active on the details of this forum and CGPs.
ii) Many feel (and I welcome the dissenting views) something like either a) regulatory or marketing risks outweigh risks to cStable holders, or b) adding stables would actually reduce rather than increase the stability of the reserve (which I don’t see evidence for) or c) some combination.

I don’t believe this is correct. DAI and USDC have withstood sharp market corrections, including Bitcoin and Ethereum dropping 80% from their all time historical highs. What is particularly dangerous for cStables is that it doesn’t even have to be a sudden price crash. BTC/ETH could slowly drop in value by 80% over three months… DAI would be fine because it’s liquidation mechanisms will have no issues at those time scales (in fact, they seem to work quite well even in crashes) and there is no reason to believe USDC could be in trouble then either in a slow crypto price drop. Further, per @VirtualHive 's comment, if BTC and ETH tank, it’s highly likely that CELO tanks much faster. So, in a BTC crash, you probably have a much bigger CELO crash, and CELO is half of the reserve, so the non-linearity of CELO (vs BTC/ETH) in a crash goes against the reserve.

All of this said, my sense across the community is that there isn’t strong support for this interim step.


Well doesn’t make much sense to take their views into account in this matter, then?

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Do you really want to have that conversation John?

I agree that fiat-backed stablecoins (e.g. USDC) should be added to the reserve given the volatility of BTC/ETH and high correlation amongst reserve assets that make up the majority of the reserve (CELO + BTC + ETH = 94.5% of reserve).

DAI, which is held by the reserve already, is backed by 50%+ USDC already (for reasons above), thus the reserve indirectly already holds fiat-backed stablecoins. Overall, increasing the stablecoin percentage from 5% to 20% reduces the overall risk exposure of the reserve’s collateralization stability.


Safety of a currency is achieved through liquidity. However, currency has an interesting property as it is money. There will only be one that dominates.

In the wider economy, USD is money, accounting for >70% of global trades. In crypto, Tether is money.

The obvious problem is then, how do you attract exchanges and other institutions to offer your decentralised stablecoin rather than Tether to their customers?

The solution is two-part:

  1. Back your stablecoin with enough collateral, that is negatively correlated to cryptoto, to guarentee a high floor to the peg (this CGP is key)
  2. Offer a credit-risk free yield on your stablecoin that comes from block rewards, creating something akin to a demand deposit at a central bank

In this way, exchanges, who hold vast reserves of stablecoins, will be incentivised to hold your stablecoin instead as they can use the yield to attract customers.

This is what Cambridge Cryptographic has been pushing forward with Proof-of-Deposit for Celo and cStables.


With regard to point 1 Ying I agree and would like to suggest the the arbitrary numbers thrown out so far, like 30% don’t make sense.

Instead I’d like to suggest that matching the cStables 1:1 against liquid fixed assets like DAI, USD, Fiat, … on an ongoing basis would be a more logical choice, whatever that percentage may be.

I also want to suggest that we not let fud rush us. I’d suggest that we should work that direction over maybe a full year.

Gotta run I’ll address point 2 later today.

Also with regard to number one, there’s probably an optimal ratio between the c-stables and the cello native asset, the native asset shouldn’t be allowed to get below that optimal ratio.

With regard to your second point Ying, First I’d like to know if you have come up with an option that addresses the social concern that I brought up regarding Muslims specifically.

If we don’t address that concern we run the risk of excluding a quarter of the worlds population from participation in Celo’s stable coins.

Your point on religious implications of PoD will be investigated, but let’s not discuss in this thread.

In regards to the 30%, you’ll have to refer to the CGP and ask the proposers for their justification. I do agree that we should aim to back cStables at least 1:1, and this seems like a stopgap that achieves this (so long as cStables demand doesn’t dramatically rise in near term).


Hi all, for visibility: @Markus and I submitted a CGP on chain that is heavily based on the original proposal by @Pinotio.com and myself from 3 weeks ago and the subsequent discussion in this forum thread. Please take a look and prepare to vote how you see fit: Celo Governance by Staking Fund

The tradeoffs in such decisions are incredibly tough, especially in the details, and I want to thank you all for the thoughtful and knowledgeable input - makes me super proud to be part of this group. Let’s keep fostering a community in which we discuss these tradeoffs critically to make sure we take actions that are in the best interest of the users of Mento stable assets.


30% is, as off now, leading to a roughly 1:1 backing of Mento stable assets with DAI and was basically chosen with the 1:1 backing you are suggesting in mind (so not arbitrary). As of now, the mandate of the reserve is to rebalance towards target allocations decided via on-chain governance and we did not want to go as far as changing this mandate as of now by suggesting a 1:1 backing in DAI and removing target rebalancing altogether as this would have a whole range of implications which I do not think we understand well enough at this point. Should simulate and analyze what such a bigger change would mean first IMO. Certainly an option though for the future though with its own upsides and downsides. Would suggest we discuss this in the next biWeekly Mento community call.


You brought Proof-of-Deposit up as part of your solution for the ‘safety of a currency’.

It is more correctly a marketing tool designed as you describe it:

While I do agree that marketing is important, Proof of Deposit is just a tool, it would be a feature that could be promoted in the open market to get attention.

Similarly, while I fully believe that working toward a better balance of assets in the reserve is a good thing, I think that the rush toward passing this governance proposal is artificial and being driven by current event FUD rather than a fully developed idea.

I am seriously concerned that if this proposal is implemented quickly, as a knee jerk reaction to current events, it becomes a defacto market timing move and poses all the risks inherent there.

Since the current proposal is now going to a vote, I’m suggesting a no.

Some thoughts from a newcomer who clearly lacks context:

  • It seems like the main discussion is the share of BTC vs. DAI. In my opinion the relative share of Celo could also be reduced
  • I also find it difficult to back a stablecoin (cUSD) with a stablecoin (DAI) that itself is backed by a stablecoin (USDC). Thinking from first principles this does not seem to be best structure.
  • Everything in crypto in highly correlated. I personally think that having an overcollateralized backing with more upside (btc, eth) is more attractive than having a 1:1 collateralized with stables (that still pose technical and regulatory risks). I’d say that at current prices bitcoin and eth should not be sold since the downside is pretty low and the upside is huge. Celo and other stablecoins can only be successful and have an impact if they grow very big. That doesn’t mean Celo should be reckless like Terra but growing too slow should be considered a risk as well.
  • I would love to see more natural assets with upside since I think this will further help Celo to differentiate itself vs. other stablecoins and L1s.

I think it is very thoughtful by the Mento team to aim for an (at least temporary, given extraordinary market conditions) 1:1 backing in DAI (which has not only proven to be very resilient but also has partial fiat backing), with the remaining reserve assets providing over-collaterization on top of that.

To me, that’s putting stability first, and that’s particularly important given the broad, diverse user base of cStables around the world. I see the point raised about giving up potential upside in BTC and ETH but to me that should be a secondary consideration.

Agree with Ikarus also – I’d love to continue to see the long term path towards a high % of natural assets which I understand is still the plan / unchanged with this proposal.

I ll be voting yes.


Proposal #56 Increase target level of stable holdings in the reserve is up for voting:



Im curious about the choice to keep CELO at 50% and reduce only from BTC and ETH. to obtain stables.

Is there a world where we have CELO target at less than 50%?


Thinking about this more. Although correlated BTC and ETH seem like safer assets than CELO. Because while a in a situation where a cStable de-pegged, that de-pegging could potential effect the demand for CELO yet it wouldn’t effect the demand for BTC or ETH due to their size.

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Great question @aaronmgdr. We did not suggest a reduction of the CELO target at this point as this would mean that the reserve would have to sell large amounts of CELO into this crisis market over the next days which would put intense downwards pressure on CELO. This would, in my opinion, destabilize the system instead of stabilizing it.

The 50% is not set in stone at all and there are good arguments and counter arguments for/against reducing it in the future. It seems important though to not reduce it during market crisis periods for the reasons above.

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I’d like to know more about the Tobin tax.

As for the composition of Celo’s reserve, I’m not clear on why ETH belongs in the mix at all; it’s considerably more volatile than BTC, not to mention the fact that Celo is ultimately an Ethereum competitor.

Bringing the BTC concentration down to 15% and keeping ETH at 15% seems backwards to me; I mean, if anything is going to be traded for stablecoins (for the purpose of reducing volatility), ETH is a much more suitable candidate.

I would say an ideal composition at present time would be something along the lines of

50% CELO
30% BTC
15% decentralized stablecoins (mixture of DAI and others)
5% misc. cryptocurrencies (including PAXG if it’s unlikely to result in any regulatory issues)