Until now all of our posts at Aurora have focused exclusively on IDEX, the real-time decentralized exchange. Beginning today we’ll start to explore how Aurora is leading the charge in a new, never before seen product category, crypto-banking. Over the next few weeks we’ll be discussing the various parts of the Aurora ecosystem, reviewing the strategy and theory behind them and explaining how they all fit together. With that we’re excited to provide more details about the boreal, a fresh approach to the stablecoin problem.

A Refresher on Stablecoins

A stablecoin is a cryptocurrency asset with a stable value that makes it ideal for short and medium-term transactions. The best known stablecoin is USDT — the dollar backed asset managed by Tether. Linking a cryptocurrency to bank deposits is a valid way of achieving price stability, but it does so at the cost of centralizing the supporting collateral. The full vision of a stablecoin requires complete decentralization, and while it is not technically possible to achieve our vision today, we are laying down the foundation to develop such a product in the future.

Boreal — A New Kind of Stablecoin

The boreal is a new approach to the stablecoin problem, utilizing ether reserves, debt from crypto-banking loans, and retailer backing and endorsement to achieve price stability. In the early stages boreals will have one explicit use case, paying trade fees on IDEX, and traders who do so will receive a small discount. Guaranteed redemption on IDEX will help maintain the price as traders are incentivized to purchase boreals and lower their trading costs whenever they fall below target. The discount will help bootstrap activity by encouraging traders to make payments in boreals instead of the trading currency in order to further reduce their costs. Ether used to purchase boreals directly from IDEX will be allocated to the reserves, creating a pool of funds that can be used to market make boreals around the target price and reduce supply whenever it outstrips demand.

As Aurora matures and Snowglobe is deployed, Aurora will begin to issue boreal loans through Decentralized Capital. DC will leverage reputation systems such as uPort and RepSys along with transaction history and attestations to assess credit risk. These debts will act as another form of collateral for boreals and will generate additional boreal demand due to the required use of boreals in loan repayment, both principal and interest. When the ecosystem is fully developed, users will be able to redeem their boreals for the underlying ether at any time, creating a true crypto-banking platform.

Free Banking as a Source of Inspiration

Private Currency Notes

When researching the problem we discovered a large amount of monetary theory that correlates closely with these ideals, and we found it in free banking, the original decentralized banking. Free banking is rooted in the belief that private actors can provide a better, more stable currency than that provided by governments. In free banking periods, individual banks created and maintained their own currency, and consumers were free to pick the currency that best suited their needs from a set of competing offerings. Private enterprises were responsible with matching currency supply with demand, expanding and contracting to support currency needs based on macro and seasonal business cycles. There are many historical examples of this design operating successfully before governments instituted new requirements that made free banking impossible. We believe that now is the right time for experimentation with old ideas.

More details are available in our whitepaper, and we’ll be discussing our ideas further through the coming weeks. Stay tuned for our next post with more information on how we will maintain the value of the boreal.