Shareslake aims to become the base network for the stock markets of the future and companies' funding.
Redeemable (RED) is the base coin of the Shareslake network, which was the first ever Cardano fork. Redeemable is designed to get rid of crypto volatility and at the same time protect from fiat inflation. Continue reading to learn more.
The concept behind Redeemable is simple. It brings crypto features without exposure to volatility and at the same time protects from fiat inflation.
- It IS NOT a stablecoin because it is not pegged 1:1 with a fiat currency.
- It IS NOT a common cryptocurrency because its value changes so slowly that can be considered stable. Also, its value is deterministic (can be calculated).
These features are not only desired by businesses, but also by almost everyone who wants to save money.
How Redeemable works
Imagine we want to buy a pizza. Today it costs 10 USD but due to inflation, it will cost $14 in 4 years. Now let's imagine we buy the same pizza today for 10 RED. In 4 years, it will continue costing you 10 RED.
This effect, as well as the deterministic state, is reached by backing up Redeemable with a reserve of fiat and traditional assets. The reserve is invested into Treasury Inflation-Protected Securities (TIPS) and bonds and the interest earned is re-invested on the same reserve. This causes the effect to increase the reserve value following CPI rates. At any moment, the Redeemable value can be calculated as the value of the assets in the reserve. Let's illustrate this:
Let's start with a reserve of $100 and 100 RED in circulation.
- Reserve: $100
- RED supply: 100
- Price per RED: $1
Now, let's suppose there is an inflation of 4% during the next 5 years. Since Redeemable will gain value at the same rate as CPI:
- Reserve: ~$117
- RED supply: 100
- Price per RED: $1.17
We got an increment in the Redeemable value against USD that compensates for the loss of purchasing power. 4 years ago you could buy 10 pizzas using Redeemable and today you can buy the same 10 pizzas. If you use dollars or stablecoins, today you can buy only ~8.5 pizzas instead of 10.
Companies operating with RED can benefit from:
- Knowing at any moment the value of its treasury in USD for taxes purpose and be sure it won't drastically change from one day to the next.
- Maintaining liquidity in their treasuries without worrying because it will always be worth the same.
- Setting prices in Redeemable and forgetting to update them every year to adapt to inflation.
People using or holding RED will maintain their purchasing power over time without the need to invest or lock their money into traditional investment products.
Why Redeemable is required?
A company or business operating in a certain country pays taxes on it. The currency adopted by the country for paying taxes will generally be the trading currency for the company shares. We can easily calculate the value of a company using the same currency it uses to report earnings or a currency whose exchange rate is relatively stable. This is a big problem when we talk about tokenizing company shares or bringing the stock markets to the crypto world.
Usability requires stability. In other words, no volatility. If it is already complicated to establish a business when you don't have to worry about currency fluctuations, imagine if your business can lose 10% of the accumulated income from one day to the next just because of the currency volatility. Remember a company reports earnings using the country's currency, so, if a company operates using crypto, at some point the currency exchange needs to happen. There are two common solutions for these problems:
- Instant exchange: instant exchange consists of setting prices in fiat currencies and allowing people to acquire products with crypto by exchanging the currencies at the purchase time. It isolates the business from the crypto volatility but has implications on the clients, such as waiting for the purchase to see if they can obtain the product an x% cheaper tomorrow.
- Stablecoins: stablecoins are basically a crypto representation of a fiat currency, bringing crypto advantages without exposure to volatility or the need to exchange currencies. But they are pegged on a 1:1 basis with fiat currencies, losing value due to inflation. This is why we think stablecoins are not stable.
Stablecoins have the same problems as fiat currencies. They do not preserve the business's wealth. A company, or any person, wants to preserve the value of the already earned income. A company (operating in fiat) that maintains a positive balance on its accounts is directly exposed to inflation losses. Also, it needs to update its product prices according to the inflation rates to remain profitable. Inflation rates, in terms of increases in living costs, are generally measured by the Consumer Price Index (CPI).
Redeemable is a new concept of cryptocurrency, that can be considered a hybrid between stablecoins and common cryptocurrencies, benefiting from increasing its value to forget about fiat inflation but being stable enough to be usable.