While it is not often considered, the potential impact of elastic tokens in the space is myriad. From an aerial view, we can observe the repercussions, for both good and bad. What Ethereum has done for open source and crowdfunding has likely influenced the shared economy and vice versa. Though it can be subtle, there are macroeconomic forces at play that make waves in the crypto universe and transitively, beyond. To consider the implications of elastic tokens one has to look no further than some time-tested albeit dated economic principles.
Countercyclical pressure relates to economic policies that can counteract fluctuations while the term procyclical is related to the aspects of economic policies that can amplify volatility. When monies were commoditized, they were subject to standards and behaviors that were generally defined. Granted, this data is some seventy years but principally speaking, it still applies to monies and cryptocurrencies today. In the case of goods falling in price relative to commoditized money, such as precious metals, typically:
- Production increases
- The non-circulating supply gets increasingly used for monetary purposes
Should the price of goods relative to precious metal fall, the cost of metal production will also fall, thus encouraging production which quickly will circulate more gold into the system. In this case, precious metals command a premium over goods and we will subsequently see holders of gold in the form of jewelry for example, take advantage of the demand and liquidity. The effects deter prices from falling.
Conversely, should the price of goods relative to precious metal rise, production of the metal will slow and the circulating supply of the metal will become more expendable and commonly will find its usage for non-monetary uses, i.e. the aforementioned example of jewelry. The countercyclical effect also limits rising prices as production of precious metals would increase causing production to be less attractive.
The rise of stablecoins in crypto has been met with a cry for stability. The popular trading pairs in crypto muddied the waters in seeking the end goal—to have more than when you started. There was no safe haven because a well executed trade against Bitcoin would give you more Bitcoin but not necessarily more money. More than this, holding highly volatile assets even when not trading is a surefire way to become an insomniac.
Elastic coins can function as independent financial primitives that exert countercyclical pressure and encourage if not induce stability. Stablecoins are anathema to the ethos of crypto when they are reliant upon centralized authorities whereas the debt-market derived stablecoins require continuous monitoring and occasional bailouts. The irony that we have baskets of these stables aggregated so arbitrageurs can exploit their instability in order to maintain stability should not be lost on anyone.
Traditional monies on the other hand offer us very little in the way of assurances. The metrics that determine production or production are often at the whims of an administration and in less developed countries, truly game ending inflation has rendered lifetimes of saving virtually worthless. The governing authorities have done little to inspire confidence and there has simply never been a planned fiat currency that can function and thrive off natural demand. Commoditized monies on the other hand, do share some of the characteristics of elastic tokens. They are rules based, stated en avance, non-dilutive as owners will always maintain the same percentage of the total supply irrespective of a fluctuating supply. The expansion and contraction mechanism not only exert countercyclical pressure, they are also shock absorbent. For these reasons alone, the rationale for their creation and existence can not questioned. Allowing crypto traders the opportunity to stay out of the markets while being able to retain value is as inherent to a marketplace as the commerce itself.
As an aggregator, Polylastic offers something similar. Rather than being exposed to a “pick,” the inclusion of any number of experimental elastics can act as a hedge versus holding one or two select early-stage projects.