Intercoin Economics: Exchanges


#1

Intercoin can be made to trade on crypto-currency exchanges against other currencies via the standard tech integrations. For instance, here is Ripple’s guide to interoperating an exchange with the Ripple ecosystem.

Intercoin is able to power community coins which maintain a nearly real-time peg to any outside currency, via Intercoin’s stablecoin mechanism. Bots on the Intercoin network get real-time prices from the exchange’s feed, and help communities counteract the price movements of Intercoin vs X with exactly opposite adjustments of Intercoin on reserve, thus keeping the exchange rate exactly 1:1 in near-real-time. Each bot relies on the price feed from a specific exchange where the bot has one or more accounts, and different communities can rely on different exchanges.

Analysis

Most of the time, this can achieve a far more stable peg than other methods. It is also is more attractive than other collateral-backed implementations, because Intercoin’s bots can amass an Intercoin reserve and then use it to subsidize a community’s stablecoin mechanism instead of each individual needing to over-collateralize their peg, as is done by MakerDAO and others. This subsidy, along with other benefits of Intercoin technology, attracts people holding all kinds of coins to the Intercoin ecosystem, exchanging them for “virtual representations” of the coins inside it. Money flowing from the X ecosystem into Intercoin’s overall ecosystem should push the price of Intercoin vs X upwards even further, in effect having the bots’ subsidy “pay for itself” to some extent, or “pay it forward” for to finance the peg for the next person.

However, during a black swan event where Intercoin’s price plummets with respect to X, the bots may not have enough collateral to maintain the peg. At times like this, the bot will need to “cash out” everyone holding the “virtual X” into the real X right before the exchange rate of Intercoin to X falls below what the bot can sustain. Almost all exchanges support placing Limit orders, allowing them to serve as a bankruptcy-remote failsafe for Intercoin’s stablecoin mechanism.

It works like this: as people cash in and out of the virtual X, the bot updates its limit order on the corresponding exchange, slightly above the weighted average price of Intercoin invested into the virtual X. If Intercoin’s price falls below the limit on the exchange, the order is executed and the bot liquidates the entire community on the Intercoin network. It then securely distributes real X to each member of the community that held virtual X, similar to how members of a community can redeem their local tokens for Intercoin. This might require members of the liquidated community to get wallets in currency X (e.g. on the same exchange), although many people will have already had such accounts because they had initially deposited X into the community holding Virtual X. Alternatively, during a black swan event, X may be exchanged into Y and sent to people wallets in currency Y, using Intercoin’s decentralized identity technology.

Application: Virtual Currencies

People that hold currency X (whether it’s a fiat or crypto currency) on an exchange would be able to trade it for Intercoin, and then, within the Intercoin economy, trade Intercoin for a virtual representation of X. This works regardless of the technology powering the native ledger of X, and without the issuer of X needing to do anything. Thus, Intercoin becomes, among other things, a decentralized exchange, providing liquidity in and out (and between) any currency pairs, whether they originated inside Intercoin or outside.

For more information, see Intercoin Application: Virtual Currency

Application: ICOs

See Intercoin Application: Fundraising

For more information, read:
Intercoin Application: Stablecoins


#2

I think a lot of this is going to hinge on how often these black swan events actually occur. Crypto markets are way more volatile, and you can’t say the prices of coins are uncorrelated to bitcoin.
Its probably important to detach intercoin to be less correlated with the overall markets, that way these black swan events occur less often and communities can see more value out of the actual mechanism


#3

Well in this case the event we care about is ITR dropping relative to some currency X, which might be on the rise itself. The drop must be significant enough that a peg wouldn’t be maintained. Although it is called a “black swan” event it is actually expected to be relatively more common than black swan events of the dollar, stock markets etc.

In such a case, liquidating the community pegged to X and letting everyone claim X preserves the value of their money (since pegging to X was what was guaranteed). Presumably that’s what a merchant paying their suppliers in X would want. (If you pay suppliers in several different currencies, the community could spin up several different virtual currencies to represent them.)

The open question is, how much should bots subsidize new community pegs with the ITR stores they have accumulated, versus the older communities which donated them? It’s a redistribution of wealth/risk from old communities to new ones, thus making it attractive to join the Intercoin ecosystem and in theory driving the price of ITR up in a virtuous cycle. Similar to people being attracted to a prosperous country with welfare and social safety nets and free immigration. At the end of the day, if the ITR ecosystem’s market cap has grown and now slowed its growth, the ITR reserves to subsidize would be eventually exhausted and “black swan” events would happen more frequently. Then the subsidies would have to be provided by the communities themselves, and that represents an additional cost. New financial products or autonomous bots may have been developed by that point which spread this cost across communities like insurance. As usual this may come with its own politics and risks. But for the time being, this pegging mechanism seems to only help Intercoin’s ecosystem grow.

Also, it may happen that the Intercoin ecosystem grows so large that it is just easier to STOP the pegging and pay suppliers using pure Intercoin currencies, which enjoy far more predictable and deterministic exchange rates by design. Near-zero fees, fast cross border payments, full liquidity between any currency pairs and democratically controlled exchange rates. That would be a great improvement in my own opinion.