BitMEX co-founder Arthur Hayes proposes Bitcoin-backed stablecoin ‘NakaDollar’
Hayes said 1 NUSD would be created by depositing $1 Bitcoin on a derivative exchange and then shorting the same amount of Bitcoin on an inverse perpetual swap.
BitMEX co-founder Arthur Hayes has proposed a Bitcoin-backed dollar-pegged stablecoin NakaDollar (NUSD) which would be backed by $1 Bitcoin and one inverse perpetual swap of BTC against USD.
In a March 8 blog post, Hayes said the stablecoin would not rely on USD reserves or centralized entities like banks. Instead, the NUSD will be backed by derivatives exchanges listing liquid inverse perpetual swaps.
“If this solution were embraced by traders and exchanges, it would lead to a large growth in Bitcoin derivatives open interest, which would in turn create deep liquidity.”
The combination of short BTC positions and USD inverse perpetual swaps ensures that no matter the value of Bitcoin, the dollar value of the stablecoin will remain stable.
Hayes suggests DAO
Hayes noted that the NUSD stablecoin design will still be centralized, only that the dependency would be on centralized crypto derivatives exchanges instead of hostile fiat banks.
Meanwhile, the proposal also stated that the first step towards creating NakaUSD is establishing a decentralized autonomous organization (DAO) with its own NAKA token. The DAO will be responsible for the governance and operations of the stablecoin.
How NUSD would be created
Using mathematical calculations, Hayes showed how the stablecoin would remain stable despite the market’s volatility. According to him, creating 1 NUSD would involve depositing $1 Bitcoin on a derivative exchange and then shorting it on an inverse perpetual swap.
Hayes explained that only a few individuals or firms could create and redeem NUSD directly from the DAO. He added that the NAKA governance token and NUSD would be based on the Ethereum blockchain.
Hayes believes his approach would create dollar-pegged stablecoins that wouldn’t rely on the dollar. It allows the synthetic creation of “USD equivalent, without ever touching USD held in the fiat banking system or a stablecoin in crypto. It also does not encumber more crypto collateral than it creates in fiat value, like MakerDAO,” he explained.
If successfully implemented, NUSD will break the reliance of stablecoins on the US dollar and the need to find crypto-friendly banks. This would be a welcome development for the industry, which is still smarting from the recent regulatory efforts to curb traditional financial institutions’ exposure to crypto.
BitMEX corroborated Hayes’ view. The exchange wrote:
“Using NUSD vs. other stablecoins would remove a central pillar of crypto FUD which allows for more trading because traders would no longer be worried that they might get stuck with a bunch of stablecoins that they cannot redeem for 1:1 of their USD value.”