Note: this is a minimally revised version of a paper we published at CryptoEconSys 2020
Decentralized cryptocurrencies have gathered increasing interest in the past few years, raising hopes of a new era of non-sovereign electronic money. Unfortunately, cryptocurrencies perform poorly as actual money due to their unacceptably volatile purchasing power. “Stablecoins” aiming to reduce this volatility, on the other hand, tend to peg to an external currency like the US dollar, gravely weakening the decentralization that makes cryptocurrencies so attractive.
Melmint is a mechanism for issuing a trustlessly stable cryptocurrency, Mel, designed for the prototype Themelio blockchain but easily portable to others. Mel is defined without any reference to external pegs such as the US dollar, eliminating the need for oracles and other trusted third parties. This solves a major open problem in the field. We use Elasticoin, an existing proposal to reduce cryptocurrency volatility, as a building block for a trustless monetary policy that gives Mel robustly stable purchasing power. We evaluate Melmint through both theoretical economic arguments and stochastic market simulation, an approach not seen in the existing literature. In all our tests, Melmint is shown to be exceptionally robust in both mundane and extreme economic conditions.