Sunday, May 6, 2018

Saga Foundation to Issue New Cryptocurrency with the SDR as the "Unit of Reserve"

A thank you to a blog reader who alerted me to this news article. It talks about a another new cryptocurrency to be issued by the Saga Foundation that is tied to the SDR basket of currencies and also would attempt to expand and contract based on economic activity. Below is an excerpt from the article and further below some excerpts from the Saga Foundation web site.


"Saga is being developed by The Saga Foundation, a Swiss non-profit created last year that is dedicated to developing new technologies in open and decentralized software. The advisory board includes Jacob Frenkel, the former Governor of the Bank of Israel and chairman of JPMorgan Chase International; economics Nobel laureate Myron Scholes, known for creating the Black-Scholes formula, the most well-known model for pricing options and derivatives; Dan Galai, a co-developer of VIX, the leading measure of financial market volatility; and Leo Melamed, the chairman emeritus of CME Group and pioneer in financial futures. Needless to say, the board knows a thing or two about how markets work."


From the web site:


Saga: An Asset-Backed Currency

"By allowing participants to both buy and sell SGA, Saga’s smart contract acts as a market maker.
To buy SGA tokens, participants send funds to Saga’s Smart Contract, where they are kept as part of the variable reserve of conventional currencies, hosted by reputable banks.
The primary purpose of Saga’s reserve is to ensure participants can sell SGA; the contract will always offer to buy SGA, drawing on funds from the reserve.
The SGA token will be available for purchase starting Q4 2018."
. . . . .

Restrained Price Volatility

"SGA’s price fluctuates according to market demand. However, price volatility is moderated by the interplay between the money supply and the reserve. By buying and selling SGA, Saga’s smart contract adjusts the money supply to meet market demand. Therefore, the reserve acts as a buffer, limiting the impact of market fluctuations.
In practice, when the economy expands, the contract increases SGA supply, slowing price appreciation. Conversely, when Saga’s economy shrinks, the contract reduces the money supply, thereby curbing any large drops in SGA price."
. . . . 

from the Q&A section of the web site:

How will Saga manage its reserves?

  • Saga uses the services of well-known banks to hold its reserves. The precise deployment of funds is determined by Saga’s Smart Contract. An algorithm controls the release and return of funds as required for the health of the overall Saga ecosystem.
  • We selected the SDR - an International Monetary Fund basket of fiat currencies - as our unit of reserve. This reduces the dependence of Saga on the value of any single currency, however safe it may appear today.

Added comments: This proposal is an example of the kind of thing economists discuss and debate when looking at ideas to improve the monetary system. The goal is to end up with a system where the currency retains a stable value long term and can function to meet the needs of society in the best way possible. The quest for that kind of system goes on all the time behind the scenes with a lot of ideas being discussed and debated along the way. However, we don't see any signs that major change is on the near term horizon at this time.

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