Elastic Explained

Assume someone owns 10 units of an elastic token worth $10 and the price is pegged to $1. Should demand spikes, causing the value of these tokens to rise to $20. Following the reversion to the pegged price or rebase, said holder would now have 20 tokens worth $1 each. The increase in value is realized by virtue of their percentage of ownership, not the number of tokens they hold. Holders effectively own a percentage of the project and therefore, the capped value, not the token price becomes the operative metric.

Such clean modeling is not without volatility but could, in an imagined future, upend fiat monies. Traditionally, scarce resources such as precious metals were used for their rarity and non-monetary uses. This was certainly rational at the time. Issues like counterfeiting were avoided although denominations were difficult to create and it was not until the Industrial Revolution in Europe, when real fiat money was produced. This integration created institutional adaptations along with the circulation of government debt. These “notes” were linked to gold or silver and in 1971, the convertible commoditized money was suspended. At this juncture, denizens were essentially strong-armed by the state to use these unbacked currencies. This was the reigning model until synthetic commodities were introduced, offering scarcity but not the second tenet—non-monetary use value. Thanks to technological advancement, electronic money was created and this is really the initial evidence that moneys outside of fiat could exist but the replicability of this information stalled its evolution until the blockchain. The cryptographically secure open ledger made digital scarcity a reality and although it still lacks use value, is now as hard as fiat money. It appears that the outlying individuals with their inherent lack of trust in centralized authorities scored a momentous victory.

A Stable Invasion

Stablecoin protocols are myriad with their pegs often dictated and secured by centralized authorities, while the cutting edge products are fractional-algorithmic protocols, entirely open sourced, permissionless and elastic. These wholly on-chain assets offer unprecedented scalability and unlimited growth, perhaps paradoxically due to their elasticity. When demand and usage dictate market cap, then incentives belong to the user versus fixed supply assets where demand converts to scarcity and if maintained, provides storage of value. The emergent “cash systems” may represent the future of money and to date, it has been enormously challenging to stay up to date and even to truly know if the assets are gaining or declining in overall value.