31:T16e8,md`

Float Protocol › Vision

# Float Protocol > Paul M. and John L. > > [floatprotocol.com](https://floatprotocol.com) > > May 2021 **Abstract** Money is the most important use case of blockchain technology and the cryptocurrency community ("crypto"). It is also the original use case, as set out by Satoshi Nakamoto in their famous 2008 paper. Fast forward to 2021 and, whilst there have been good iterations on 'money' in crypto, they are not the answer. Leading cryptocurrencies such as Bitcoin had potential but are too volatile, especially given their finite supply. Dollar-pegged stablecoins, both collateralised and algorithmic, offer utility but are ultimately symbols of traditional finance ("TradFi"). This means that their purchasing power is subject to the US' monetary policy and not cryptocurrency market forces. In a world of decentralised finance ("DeFi"), crypto needs its own native money. We introduce Float Protocol and the FLOAT stablecoin - a floating, low-volatility cryptocurrency designed to be true crypto money. Routine "Dutch auctions" maintain FLOAT's short-term market value and reduce volatility, while a basket of cryptocurrencies held by the Protocol support FLOAT's value over the long-term, allowing the currency to gradually change value over time. This enables users to maintain their purchasing power independent of the fiat market, while transacting freely without concerns of short-term speculation and market volatility, thus providing a crypto-native unit of account. ## Introduction > "Will this eventually become the world's first million-dollar pizza?" > > \\- ribuck, November 29th 2010, [bitcointalk.org](https://bitcointalk.org/index.php?topic=137.msg25352#msg25352) Many years ago a famous Scottish physicist, James Clerk Maxwell, questioned whether one can create order from disorder. The cryptocurrency community has found itself asking a similar question, is there stability within volatility? The premise of an electronic peer-to-peer cash system has a prominent history [1, 2]. Nakamoto consensus was the turning point, spurring generations of dreams to be caught between blocks, nonces, and bits [2, 3]. Students changed the world overnight with the promise of decentralised applications, their dreams now a reality, excavating the digital landscape to make way for a defiant foundation to that of traditional finance [2 - 6]. Amidst the turning tides, the volatility of cryptocurrencies has been too much for some to handle. Further innovation led to the creation of stablecoins [7, 8], many of which took their cue from the Bretton-Woods agreement of 1944. Others launched themselves into the second half of the twentieth century trying to peg their value to the US dollar through different mechanisms such as collateralisation or algorithms [8 - 11]. There are multiple challenges and inherent issues with such stablecoin approaches. It is challenging to maintain an exact peg, especially when liquidity is relatively small and market movements are large; pegs tend to snap whether algorithmic or collateral-based. Collateral-based systems are rarely capital efficient and are often over-collateralised due to the underlying volatility of the assets within them. Value based on a fiat currency exposes stablecoins to rapid purchasing power erosion in times of expansionary monetary policies, which we are currently enduring [12]. Furthermore, the borderless nature of cryptocurrency falls on the opposing side to having its major stable currency tied to a single state's decreed legal tender. Whispers of regulation among the cryptocurrency corridors put stablecoins aimed at achieving USD price-parity under major scrutiny. Here we present Float Protocol, the decentralised monetary system of the future, with FLOAT token at its heart. It is designed to be the first truly native internet currency and fully satisfy all three of the major properties of money: a medium of exchange, a store of value, and a unit of account. Completely un-pegged, FLOAT is a floating currency with the potential of low short-term volatility while its value over the long-term is determined by the demand for FLOAT and the value of the underlying cryptocurrencies within the Protocol's basket. For the first time, we can denominate crypto in crypto with a US dollar agnostic two token system, freeing ourselves from both fiat monetary policies and peg precision. The target price of FLOAT is designed to move slowly and trail the cryptocurrency economy represented in the system by the cryptocurrencies stored in the basket. In the short-term FLOAT maintains its value by the Protocol initially conducting Dutch auctions every 24 hours. This presents the opportunity for arbitrageurs to buy or sell FLOAT from the Protocol and liquidate their holdings on the broad market making a profit while also pushing the market price towards the FLOAT target price, which is determined algorithmically by the Protocol. The second token of the Protocol, BANK, acts as the governance token, putting the power to change the Protocol in the hands of its users, rather than a select few. BANK also acts as an additional measure of price capture for FLOAT, absorbing profits during times of excess demand and supporting the price of FLOAT in periods of low market demand. This results in a very capital-efficient system without the need for over-collateralisation, while still providing a currency that is relatively stable intra-day, week and month. We demonstrate this in theory through this interactive litepaper, which we encourage you to play and experiment with to test and explore our system. `32:T5aa,html`${previews( [ { path: "@floatcoder/the-basket", thumbnail: "899a4a35aa5110522525f1386327c102676d807dc85541744c1d1e567f18880f", title: "The Basket" }, { path: "@floatcoder/2-token-system", thumbnail: "9a24cd0e0eac1babe644a56bb5313b2311c19823ea9ec9b26b683c2cc374312b", title: "Two Token System" }, { path: "@floatcoder/how-we-stabilise", thumbnail: "259f4d0dfc75cae53168e888ec001c410ef46e5dd34bb167729ff3855f63d542", title: "How We Stabilise" }, { path: "@floatcoder/auctions", thumbnail: "6e8cbba3a4f949af743849e01298e6a36d17d3276f2c90eb45f6d83db67b22af", title: "Auctions" }, { path: "@floatcoder/target-price", thumbnail: "96294d8b2af3d9f8d7ee118f53d3b19cca95f16caa0be358e9e111f625b609be", title: "Target Prices" }, { path: "@floatcoder/6-month-simulation", thumbnail: "af6471c50c8ea06c7e9604438ad940bd7ea382d5008fa13631b296a6d9b00192", title: "6 Month Simulation" }, { path: "@floatcoder/risks", thumbnail: "fe2b290f7c80d06dc5b2d80906c03713104357fe121a059a1a5fb6d5b57f6872", title: "Risks & Mitigations" }, { path: "@floatcoder/conclusion", thumbnail: "582dfcd8c9d36a82bde5aeb2f252a2b0695f5e212c9e2939c83e8f1381055993", title: "Conclusion" } ], { target: null } )}`33:T6fd,md` --- # References [1] V. Vishnumurthy, S. Chandrakumar and E. G. Sirer, "KARMA : A Secure Economic Framework for Peer-To Peer Resource Sharing," [Cornell University](http://www.cs.cornell.edu/people/egs/papers/karma.pdf) (2003). [2] S. Nakamoto, "Bitcoin: A Peer-to-Peer Electronic Cash System," [Bitcoin.org](https://bitcoin.org/bitcoin.pdf) (2008). [3] V. Buterin, "Ethereum Whitepaper: A Next-Generation Smart Contract and Decentralized Application Platform," [Ethereum.org](https://ethereum.org/en/whitepaper/) (2013). [4] H. Adams, N. Zinsmeister, and D. Robinson, "Uniswap v2 Core," [Uniswap.org](https://uniswap.org/whitepaper.pdf) (2020). [5] R. Leshner and G. Hayes, "Compound: The Money Market Protocol, " [Compound.finance](https://compound.finance/documents/Compound.Whitepaper.pdf) (2019). [6] F. Martinelli and N. Mushegian, "A Non-custodial Portfolio Manager, Liquidity Provider, and Price Sensor," [Balancer.finance](https://balancer.finance/whitepaper/) (2019). [7] Tether, "Tether: Fiat currencies on the Bitcoin blockchain," [Tether.to](https://tether.to/wp-content/uploads/2016/06/TetherWhitePaper.pdf) (2016). [8] MakerDAO, "The Maker Protocol: MakerDAO's Multi-Collateral Dai (MCD) System," [Makerdao.com](https://makerdao.com/da/whitepaper#in-mcd-we-trust) (2019). [9] N. Al-Naji, J. Chen and L. Diao, "Basis: A Price-Stable Cryptocurrency with an Algorithmic Central Bank, " [basis.io](https://www.basis.io/basis_whitepaper_en.pdf) (2018). [10] Empty Set Squad, "Døllar," [Emptyset.finance](https://docs.emptyset.finance/resources) (2020). [11] Frax Finance, "Frax: Fractional-Algorithmic Stablecoin Protocol," [Docs.Frax.finance](https://docs.frax.finance/) (2020). [12] P. Jones and L. Giorgianni, "The Great Monetary Inflation," (2020). `34:[] 2f:{"title":"Vision / Float Protocol ","cells":[{"id":27,"value":"$31","pinned":false,"hidden":false,"mode":"ojs"},{"id":97,"value":"md`Next, let’s dive behind the scenes to take a look at the Basket.\n\nNext`","pinned":false,"hidden":false,"mode":"ojs"},{"id":104,"value":"md`\n---\n\n# What's Inside\n\n`","pinned":false,"hidden":false,"mode":"ojs"},{"id":106,"value":"$32","pinned":false,"hidden":false,"mode":"ojs"},{"id":33,"value":"$33","pinned":false,"hidden":false,"mode":"ojs"},{"id":109,"value":"md`---\n\n## Appendix\n`","pinned":false,"hidden":false,"mode":"ojs"},{"id":114,"value":"htl = require(\"htl@0.2.5/dist/htl.min.js\")","pinned":false,"hidden":false,"mode":"ojs"},{"id":111,"value":"function previews(notebooks, options) {\n return htl.html`

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