What is Karbo?

The goal of Karbo project is to create anonymous algorithmic stablecoin – decentralized cryptocurrency with low price volatility by using new to world of cryptocurrency techniques of regulating coin supply and its market price.

Key principle of CryptoNote is adaptive parameters. Karbo already has adaptive block size limit and difficulty. In addition to it Karbo will implement adaptive emission, minimal transaction fee and monetary deposit interest rate to achieve this goal.

These changes are based on Vitalik Buterin [2] and Scott Roberts [1] idea that coin price can be determined by difficulty. Hence it can be regulated by adapting above parameters.

Adaptive emission

As described by Scott Roberts (Zawy), one of the Karbo whitepaper authors, all variables for smoothing out volatility must be obtained not from third-party source, but from blockchain itself to be fully decentralized. It is possible and will be first implemented in Karbo:

“difficulty is exactly proportional to network hashrate, and network hashrate is closely proportional to coin price” (Zawy [1])

“difficulty is a function of both price and Moore’s law” (Buterin [2])

Presented whitepaper describes how price can be substituted with difficulty in equations (it’s not that simple, but will use this example for clarity sake) to calculate parameters for price stabilization.

If difficulty (price) grows at the rate higher than Moore’s Law Karbo supply (mining rate) will slightly increase to reflect increase in mining efforts (demand). If difficulty (price) falls we decrease next block reward according to equation, making Karbo more scarce and thus creating deficit required for price stabilisation.

Dynamic minimum fees

Minimum transaction fees should be adaptive instead of being hardcoded as flat rate. This would prevent fees from skyrocketing if price grows (even for low volatility coin) and also prevent hard forks every time fees needed to be adjusted manually by devs.

Premise for dynamic fees is the same as for less volatility in Karbo. Fees can adapt to price change without referring to outside source, using only difficulty and some other variables to calculate new value that balances itself even if price is changing.

Deposits on blockchain

Deposits in Karbo is another mechanism to smooth out volatility in price. Deposit interest rate will adjust itself according to the coin price.

When difficulty (price) is dropping deposit interest rate will increase to stimulate deposits and therefore create deficit of coins which will lead to price support; and vice versa — lower deposit interest rate when difficulty (price) is raising.

The maximum interest rate is proposed at level of 1,5%. Inflation levels of 1-2% per year are generally considered acceptable in economics.

PoW/PoS hybrid and Masternodes

We identified a problem in current state of PoW — the lack of security ensured by stake in equipment [3] and are going to implement the solution: add to PoW, what has become missing — a stake, combining PoS and PoW as a better alternative in PoW with Stake.

Adding PoW with Stake and Masternodes doesn’t eradicate all problems, but helps to prevent: double spends, ’jump’ pools, centralisation of mining, erratic block times, transaction capacity limitation, stalled blockchain.

In order to run a masternode, a node must prove it holds a collateral of a dynamically selected minimal amount of KRB. The reward and transaction fees will be divided between POW and POS participants.

In summary

New Karbo Whitepaper (34 pages) describes several innovative mechanisms to smooth out such a negative characteristic of decentralized coins as volatility. Being a stable coin doesn’t mean Karbo can’t rise in price. Whitepaper only describes how to prevent big swings in price so Karbo can become true decentralized medium of exchange and can be used normally as decentralized stablecoin in volatile price environment. With decentralized stablecoin participants of exchange can be less worried to lose buying power of their coins while exchange is processed.

[1] “Using difficulty to get constant-value dev fees”, Scott Roberts

[2] “The Search for a Stable Cryptocurrency”, Vitalik Buterin

[3] https://twitter.com/zawy3/status/1082199522812612608, Scott Roberts