If you’ve used DAI, sUSD, USDC or USDT, you know how important and useful stablecoins are. They come in all varieties: decentralized vs centralized, backed 1:1 by dollars vs overcollateralized vs reportedly undercollateralized (in the case of USDT). Stablecoins on Ethereum boast an estimated $17.34B in liquidity according to usdonethereum.com and they show no signs of slowing down in growth. However, there’s been fierce competition to create the purist, most decentralized, most reliable dollar-pegged stablecoin in DeFi. Some might argue it’s Maker’s DAI vs others who prefer the newer sUSD created by staking SNX on Synthetix. Some just prefer the $2.8B in USDC because it’s so easily redeemable with major exchanges like Coinbase and it’s super liquid, despite some unappealing admin controls behind USDC.
Today, I’ll walk you through Empty Set Dollar, one of the most interesting and cutting edge stablecoin experiments in DeFi but also one of the least talked about.
Empty Set Dollar aims to offer “a fully decentralized, algorithmically self-stabilizing digital dollar.” If you followed Ampleforth over the spring and summer, it has some minor similarities to AMPL as an algorithmically self-stabilizing stablecoin, but that’s just the start of it with Empty Set Dollar. The protocol native token is an ERC-20 called ESD, which acts as both a stabilized dollar and as a governance token.
Empty Set Dollar protocol is defined by these 4 mechanics found in other protocols:
- Decentralized – from the start it’s only upgradable via on-chain governance
- Self-stabilizing – using an on-chain price oracle
- Single token – ESD is both a stablecoin and a governance token
- Opt-in Supply Adjustments – Imagine if Ampleforth had given AMPL holders the choice of being rebased or not. With ESD, all supply expansions and contractions are incentivized and voluntary.
The first point is pretty straightforward. There’s clearly a sentiment among the Empty Set community that stablecoins like USDC, TUSD, or USDT have at least some elements of centralization built into them. Even DAI relies on trusted assets like USDC and WBTC, which arguably hurts the decentralization of DAI. ESD aims to mitigate that risk from the start.
Second, we have a unique supply mechanism for maintaining the ESD dollar peg. In centralized stablecoins, you simply mint tokens for every fiat dollar. It’s simple but centralized. With collateralized debt positions on Maker, we issue DAI based on the redeemable value of the underlying assets (collateral), but it requires locking up assets and can be affected by price fluctuations in the underlying assets. Then with algorithmically-determined stablecoins like AMPL, if above the dollar peg, more tokens are created and distributed to token holders to inflate away the value of each token vs when price is below the peg, the supply contracts to make the token more scarce and more valuable. This mechanism in Ampleforth is commonly called rebasing.
This huge opportunity to improve upon other stablecoins is where Empty Set Dollar carries us further. As we’ve already discussed, Empty Set abstracts away any of the centralized risks, removes the need to establish a CDP and lock up collateral to issue a stablecoin, and then uses a newer more refined incentive design to maintain the dollar-peg vs the involuntary expansion and…
Hi! My name is Lark Davis!
I’m a cryptocurrency investor with years of experience and I’ve been making consistent profits in the crypto space.
I’m passionate about helping others do the same, so I run multiple educational channels on crypto investing.
