LUNA & UST was an attempt to simulate traditional central bank monetary policy with an algorithmic stablecoin backed by a tailor-made collateral token. In theory UST would always be worth a dollar as you could redeem it any time for $1 worth of LUNA.
The difference from central bank monetary policy, and the catch, is that there was no real world economy, taxes or military power to back it up.
So it all inevitably goes to hell when people lose confidence in LUNA because it doesn’t generate any/much real world value (independent of the token price itself). The collateral is worthless. The emperor has no clothes.
This weakness is then compounded by LUNA’s inflationationary tokenomics. The algorithm’s defence mechanism to a loss of confidence is minting ever more LUNA in a hyperinflationary loop that eventually collapses the token price to zero.
Upon reflection, LUNA was a bull market baby utterly vulnerable to the whims of the market.
And it’s not just stablecoins.
Most tokens offering staking rewards have to mint new tokens to fund those rewards. There’s an incentive to offer ever higher APY% to attract hodlers, which results in perpetual minting of tokens and inevitably the token price falls.
It doesn’t have to be this way
Tokens that possess real world value or generate actual revenue don’t have this problem. Fully collateralized stable coins are an obvious example.
But so are tokens such as $LIFE that generates multiple revenue streams into its token economy: one fiat + one crypto.
Revenue is earned from both DeFi & TradFi partners for promoting their protocols & products on the Lifetise platform (similar to Brave’s BAT). That revenue is shared with $LIFE hodlers through staking rewards. The fiat revenue is brought into the token economy via $LIFE token buybacks, increasing the value of the token further and providing consistent liquidity (incl. for staking rewards).
Bridging DeFi & TradFi creates the real world value that most tokens are missing. As well as additional buy pressure, it also creates protection against the downside and a degree of safety and stability during market downturns. If there were “an attack” on $LIFE token with people shorting/selling we’d be able to use the fiat revenue from TradFi lenders, travel companies, wedding suppliers etc for token buy backs to support the $LIFE token price.
Turn the printer off
The other half of the equation is removing the inflationary tokenomics. $LIFE token is fixed supply, so it doesn’t perpetually mint new tokens like LUNA and the tokens that do so to fund their staking rewards.
A max supply combined with the multiple revenue streams means we can fund high APY% staking rewards without minting new tokens.
You’ve got to be pegged to real world economy and preferably with a constrained supply. That’s what we do to generate real $LIFE value.
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Over the coming days and weeks, we’ll be sharing more about our vision, how we’re bringing together the best of TradFi and DeFi into one platform, our goals to make DeFi accessible to the mass-market and our upcoming IDO.
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