Ever since Satoshi Nakamoto first introduced Bitcoin to the public nine years ago, it has always been accepted that cryptocurrency will have an unstable valuation. Volatility has always been a part of cryptocurrency, and before, people simply accepted it as something that is inherent in the system and there would be very little that anybody could do to change it. However, users of cryptocurrency still want the valuation to be more stable. It would definitely be too much to ask for a coin that would always see an upward trend in its market value, but a coin that wouldn’t suddenly change at the drop of a hat would be best.
This is what The CafeCoin Foundation is aiming for. The Foundation has identified that one of the reasons why cryptocurrency has yet to achieve significantly wide-scale adoption is because of the market’s inherent volatility. People just don’t know if the worth of their coin would float for the long term or if it would become devoid of value by next week. While a lot of investors see volatility as a great opportunity, if you were trying to use cryptocurrency as a viable alternative to fiat money, it wouldn’t be ideal. Luckily, The Foundation has already done the math, and has several plans in place in order to maintain a steady valuation for CafeCoin.
Stability of Cryptocurrency vs. Fiat Money
Although stability is what people want, it should be noted that prices should still be given leeway for fluctuations that are based on freely trading market exchanges. This would only be natural, and it would ensure cryptocurrency would flourish in the market. This hasn’t happened yet, however, as most of the older coins suffer from instability, creating the current market scenario wherein cryptocurrency closely resembles digital gold in the sense where people would rather invest in it, rather than use it as a mode of payment for goods and services.
Due to this, people have been questioning if cryptocurrency could ever be used as a possible way to transact with merchants. According to experts, good currencies should have slow to moderate appreciation and low volatility. So although most cryptocurrencies are a viable store of value, they would make bad currency due to having an extremely volatile valuation. Most traditional currencies that are used by nations today have relatively low volatility. So although they aren’t very good investments, they are greatly valued as currency because of their stability.
CafeCoin proposes an economic framework to achieve a relatively stable value in the future that would also have the potential for appreciation. CafeCoin has learned from the mistakes of previous failed ICOs and altcoins; from the beginning it has been intended to be a cryptocurrency that would be extremely useful as a utility token.
The Foundation also expects that if more and more people make use of CafeCoin, the demand will also accelerate, which will result in the coin appreciating in value, but still keeping the characteristics of a good currency. As opposed to other cryptocurrencies, CafeCoin has also leveraged the expertise of several professionals, and has formulated financial equations and protocols to reduce price volatility of its token.
How it Plans to Ensure Stability
At any point in time, it is possible that the market scenario and demand for CafeCoin might change. To ensure relatively low price volatility when the CafeCoin blockchain launches, and the tokens are used in the market for goods and services, The Foundation plans to choose an optimal stability control mechanism to balance out market changes. In order to achieve this, 20% of the initial offering proceeds will be allocated towards a Reserve Stability Fund.
This fund will be used to trade CafeCoins to minimize volatility. For example, when the 20-day Volume Weighted Average Pricing of CafeCoin reaches 100% above the initial distribution price, or the Spacher Point, The Foundation will release additional coins to accommodate market demand. However, The Foundation also intends to follow certain guidelines for this:
- The Foundation will never release CafeCoin into the marketplace when the Spacher Point hasn’t been reached yet.
- If the Spacher Point is reached, the total number of new CafeCoins issued will be capped at not more than three times the average coin volume traded daily over the previous 20 days during any six-month period.
- 20% of any sales made after the issuance of new CafeCoin will be put into the strategic reserve fund in order to support price stability in the future if such an event reoccurs.
In order to determine the number of new coins to be issued, The Foundation will follow the mathematical equation based on the volume weighted average pricing to ensure market fairness, and it will also have minimal direct impact on the market price. The formula will be based on real-time market data to be provided by leading cryptocurrency exchanges that trade CafeCoin.
CafeCoin Inflation Protection
To make sure CafeCoin will be a long-term reserve utility as a token for broader, global use, The CafeCoin Foundation believes that their token needs to be protected against inflation. In order to achieve this, The Foundation will gauge inflation by utilizing the annual Consumer Price Indices of the two biggest economies; namely the USA, which represents the economic status of the developed world, and China, which reflects the economic growth of the developing world. The CafeCoin Foundation will also rely on the official economic data that is annually published by The World Bank, and it intends to disseminate more CafeCoins to CafeCoin holders as a free incentive and an investment against inflation.
The Foundation will also apply a modified inflation mechanism, so that each CafeCoin holder will get a free distribution of CafeCoin as an automatic inflation adjusted bonus. The size will be directly proportional with their CafeCoin holdings. In particular, the issuance of new coins will happen annually within two months after the official release of World Bank inflation data. For example, if 2018 inflation data is released by the World Bank on the 1st of May 2019, the inflation-modified CafeCoins will be disseminated to CafeCoin holders around July 1st.
The CafeCoin Foundation has taken steps in order to ensure one of the factors it has identified will be circumvented. The new processes and formulas that they intend to implement were derived from the expertise of professionals who were leveraged by The Foundation in order to find a solution to cryptocurrency’s inherent problems. The Foundation has also identified other factors that block the way for cryptocurrency to wide-scale adoption, including high transaction fees, and long transaction times.
Unlike other ICOs, CafeCoin intends to bring something else to the table, and not just follow the path to success set by other cryptocoins. The Foundation identified these problems, and has thought up of the right plans to get past these roadblocks. Only time will tell whether they will find themselves successful or not, but at the very least, CafeCoin can be lauded as one of the few ICOs that want to make a difference.