Soramitsu CEO: Sora's XSTUSD stablecoin skips over-collateralization by burning XOR

Ashton Addison: Why do you see Polkadot and Kusama as the best innovation, and why build there?▶ 01:36

Makoto Takemiya: Scalability has always been a big problem in crypto. If you extrapolate today's crypto users to the entire population of the world, simple arithmetic shows that a single network is not going to scale. The problem Kusama and Polkadot are trying to solve is scalability. They are building a framework where many different networks can specialize in their own domains, coordinate, move assets around and maybe even share some virtual machine space. To me that is the most compelling vision that currently exists in crypto scalability. It's the most straightforward way to create real scalability that could theoretically scale to everyone on Earth.

Ashton: What does a decentralized economic system mean for Sora?▶ 03:05

Makoto: Sora is trying to be a decentralized token that can power real, productive economic use cases, meaning the creation of new goods and services. An economic system is not just a token and a network. It's also a governance system to allocate tokens to the right people, the producers. The theory behind it is the disaggregated quantity theory of credit, put forth by Richard Werner. There are three ways to create money: for consumption, for asset purchases or speculation, and for production. The first two lead to consumer price or asset price inflation. Only the third, creating new money for production, expands the economic pie. With Sora we want a decentralized way for people around the world to have democratic oversight over how new tokens are created and distributed in the economy.

Ashton: Where does the platform stand today, and how does the parachain fit in?▶ 04:49

Makoto: We have a standalone network, running on Parity Substrate, that launched in April 2021. It has its own validators, and up to 69 can be chosen for an epoch to do the validation. For the parachain we're setting up a new network, a little uncreatively called the Sora Kusama parachain network. It will be independent, with its own governance, and able to deploy new code and apps independently of the existing network. We'll have a bridge between the two Substrate-based networks. Tokens can then move from any Substrate chain into our network and be swapped on Polkaswap, which I think is the most awesome DEX in the ecosystem. The parachain is invaluable to that goal, because we need it for secure interoperability. Polkaswap launched last April with our initial network, and even without the parachain operable it has about $30 million in TVL. That's not bad for a new DEX in a new ecosystem.

Ashton: What makes the XSTUSD stablecoin special?▶ 08:02

Makoto: XSTUSD is the first Sora synthetic stablecoin; XST stands for Sora Synthetics. It works quite similarly to Luna's model. You burn, say, $1 of XOR, the native token of Sora, and receive $1 of XSTUSD. A primary market maker function mints XOR to give you your $1 worth. It's built into Polkaswap as a liquidity source, so users are always guaranteed the best rate, and there's infinite liquidity because it can mint new XOR. One difference from Luna is that there's no protocol fee on top, so all you pay is the liquidity provider fee in the pool, not a seigniorage fee to the network. I proposed this back in 2018. In the future we want to integrate oracles into the network, so that through governance people can create new stablecoins based on other indices, such as the euro or the South African rand. That's up to the community to discuss and decide.

Ashton: Why not over-collateralize, as DAI does?▶ 10:34

Makoto: With DAI, if you want to mint new DAI you typically have to put in something like 130% collateral, depending on the reserve asset. With XSTUSD you don't have to over-collateralize when you burn XOR. The rationale is that burning XOR reduces the circulating supply, which helps stabilize the market for XOR. The benefits to the economic system should outweigh any costs, such as exchange rates changing or having to mint more XOR later. In aggregate you're taking more XOR out of circulation as XSTUSD and future XST assets get used. In DeFi apps it's hard to reason about volatile currencies, so you usually want a stablecoin. But centralized ones like USDC or USDT can be frozen at any time, and DAI's over-collateralization makes it costly to mint. XSTUSD removes those extra costs, and because it's integrated into Polkaswap you don't even have to think about it when trading.

Ashton: How does the community govern Polkaswap today?▶ 12:37

Makoto: It's still a young ecosystem, so there's a current state and a future state. Right now we use the decentralized governance that comes built into Substrate, the same as on Kusama or Polkadot. There's a council, token holders can make and vote on proposals, and there's a tech committee. There's a quadratic-voting type of idea where you can lock up tokens for longer if you have more conviction and get more voting power. It works pretty well as a single-stage governance.

Ashton: What will governance look like in the future?▶ 14:04

Makoto: We want to build a multi-stage governance pipeline where each stage is done by different people, so you can't form a clique or a political party. We're drawing on ideas from the American political scientist Terrill Bouricius, who spoke last year at the Sora Economic Forum, our annual online event. His structure is based on ancient Athenian democracy, which wasn't a direct democracy but was based on sortition, meaning randomly choosing people. You would have a proposal stage, a review stage, a pros-and-cons drafting stage and a voting stage, with participants randomly chosen at each. We hope that gives a fairer, more balanced democracy than the ones we have today, which are really just popularity contests where factions control everything. Athenian democracy rests on three core tenets: isegoria, isonomia and sortition. Every citizen has an equal opportunity to contribute their voice and equal voting power, and sortition randomly chooses people. Mix them together and you get a fair, reproducible governance system.