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Not Stable coins, but Value coins like ARTH can be a Hedge against Inflation

ARTH is being pegged to a basket of assets that represent strong hedges of each other – FIAT, Bitcoin and Gold.

A kid in my building loves learning about crypto from me. The only problem is, he focuses on price and not the technical details of how they work. Can’t blame him though, 99% of us do that. Today he asked me a question, what happens when the assets you hold start losing price? I told him, I either invest for long term, in which case I do nothing, or for short term, where I sell it and keep my funds in INR or USDT.

The next hour, we talked about what stable coins are, and at the end he asked, well, what if the Dollar goes down? And yeah, unfortunately we do not have an answer to that. To an Indian, any dollar pegged crypto is hardly a stable coin. In fact, for the entire world, the petrodollar may be losing its charm.

Experts believe an inflation is right around the horizon and we must brace ourselves for impact. With what? Gold? Bitcoin? Dollars? What is going to protect us from inflation? The team at Mahadao believes they have an answer to this. It is called “ARTH Valuecoin”, coincidently the aforementioned kid is known as Arth too.

What is ARTH Valuecoin?

ARTH is a next-generation digital currency designed to tackle the depreciation of government-owned currencies (like US Dollar, Euro, or Chinese Yuan), but at the same time remain relatively stable (unlike Gold and Bitcoin). Seems like an impossible puzzle to crack, right? But they might be onto something.

The answer lies in the question, what if a stable coin wasn’t pegged to just one asset or currency?

ARTH is being pegged to a basket of assets that represent strong hedges of each other; so that if one asset depreciates in buying power, the other appreciates because it acts as a hedge against the first asset, keeping the net buying power of the entire basket unchanged.

ARTH’s price is pegged to a Global Measurement Unit (GMU) which is weighted by Fiat currencies, Gold and Bitcoin at the ratio of 80%, 15% and 5% respectively.

GMU=(80∗Fiat+15∗Gold+5∗Bitcoin)/100

Breakup of Global Measurement Unit (GMU). Source: Arthcoin

ARTH 2.0 genesis is scheduled at June 22, 8:30 PM IST, and they are ensuring the protocol goes live with atleast being 110% collateralized with virtually no risk of a bank run we recently observed in Iron Finance.

Minting and Burning ARTH Tokens

ARTH is only minted when collateral is deposited into any one of the protocol pools. This ensures that every ARTH that is minted will always have some kind of backing to ensure its stability.

ARTH is burnt when it is redeemed for its underlying collateral. Since there are multiple pools, users can go to any one of the collateral pools to redeem their ARTH tokens.

The idea is that if ARTH is trading above the GMU Peg, users will mint more ARTH tokens and sell them in the market, bringing the price back to the GMU Peg. Similarly if ARTH were to trade below the GMU beg, users would market buy ARTH tokens and burn them on the protocol to profit from the arbitrage.

Burning and Minting of ARTH. Source: Arthcoin

Price of ARTH Valuecoin

ARTH will start with $1 as the price, however, it will move towards the GMU peg. As the pegged price is used as an anchor, if the current value of the ARTH falls on either side of the target price, the protocol either re-collateralizes or performs buybacks to meet the target price.

The detailed analysis behind calculating the weightage of Global measurement unit can be found on ARTH’s protocol documents.

MAHA and ARTHX tokens

MAHA is the governance and utility token that regulates the ARTH valuecoin and keeps the protocol decentralised. Community members use the MAHA token to vote on key aspects of the ecosystem in order to collectively manage the parameters that keep ARTH stable and in check.

MAHA token holders can govern:

  • Stability fees
  • Protocol direction & strategy
  • Improvement proposals that optimise the Protocol

ARTH Shares (ARTHX) is a non-stable token created to absorb the volatility of ARTH.

Users can either commit collateral or swap ARTH to receive ARTHX. ARTHX is a deflationary token that charges a 5% fee on every transfer which goes to stakers. ARTHX is minted whenever the protocol finds that it does not have enough collateral to back ARTH. ARTHX is burnt when a user mints ARTH or when the protocol buys back ARTHX with excess collateral.

There will be no more than 10,000 ARTHX tokens in circulation.

Staking Rewards, Protocol Controlled Value and more

ARTH holders will be able to participate in staking and yield farming by providing liquidity to the pools. Using Uniswap V3, ARTH will also use Protocol Controlled value like shown in the chart below, so that the protocol is able to provide the least slippage to trades that happen near the peg, while making it easier for the price to come back to the peg if it deviates too much.

The liquidity concentration curve on Uniswap V3, focusing most of the liquidity around the target price
Source: Arthcoin

Once the staking pools go live, users will be able to stake the following tokens:

  • ARTH
  • ARTHX
  • MAHA
  • ARTH-USDC SushiSwap LP
  • ARTH-USDT SushiSwap LP
  • ARTH-WBTC SushiSwap LP
  • ARTH-ETH SushiSwap LP
  • ARTHX-ETH SushiSwap LP
  • ARTH-ARTHX SushiSwap LP
  • MAHA-ETH SushiSwap LP

Algorithmic Money Operations to pay interest to stakers and ARTHX Holders

AMO – First introduced by Frax Finance, is a concept to use unused collateral and earn interest on them that can be distributed to the protocol users.

An AMO gets its funds from the ARTH collateral pools. The collateral pools contain collateral that is deposited by users which is used to back ARTH. An AMO is given special permission to a collateral pool to borrow funds from it.

The AMO then invests them into protocols like Compound Finance or AAVE to earn extra yield. This yield is subsequently given back to ARTHX holders through the ARTHX staking pool.

Volatile Assets + Stable Coins = Hedge against Inflation

The global inflation currently stands at less than 4% every year on average (skipping the pandemic years). Holding on to cash, might give a sense of security but the purchasing power of cash reduces over time, thereby you are losing at the rate of inflation every year.

Investing in assets like Gold, Bitcoin or other crypto may also be deemed risky as markets do tend to fluctuate a lot.

The Global Measurement Unit used by ARTH, balances it out, of course not without the risks of price depreciation in the short run, but overall it does what its supposed to, stay stable in a way that the value increases just enough or more to beat the inflation.

It remains to see though how this experiment fares in the long run, whether ARTH can be the true value coin or just another stable coin as the industry matures further.

ARTH Token Details

Token Name: $ARTH
Type: ERC-20
Blockchain: Ethereum Mainnet
Initial Price at Protocol Launch: US $1
Target Price: Pegged to GMU Index
Product Website: http://arthcoin.com
Contract Addresses:
MAHA: 0xb4d930279552397bba2ee473229f89ec245bc36

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