Decentralized Stablecoin Mechanism Using Algorithmic Token Creation and Destruction

Resolve Bottlenecks,
Find Innovative SolutionsGenerate Solutions

Solution Overview

Problem

The volatility and extreme price variations in cryptographic coinage markets hinder mainstream adoption due to lack of effective stability mechanisms in blockchain environments.

Innovation Solution

A decentralized stability mechanism using pegged and variable-priced cryptographic tokens, where the issuing authority creates and destroys tokens to maintain a stable price by leveraging market forces and arbitrage, eliminating the need for reserves and collateral, and utilizing smart contracts for autonomous trading.

Engineering Contradictions & Design Principles

VSEngineering Contradiction Analysis

1Stability of the object's composition

If traditional stablecoin mechanisms use reserves and collateral to maintain price stability, then price stability is improved, but device complexity and loss of substance increase

Engineering Contradiction:

Improveprice stabilityVSAvoidmechanism complexity

Core Design Contradiction:

Stability of the object's compositionVSDevice complexity

Solution Approach 1:

The patent removes the traditional reserve and collateral components from stablecoin mechanisms, extracting the essential stability function and implementing it through pure algorithmic control and arbitrage mechanisms, thereby reducing complexity while maintaining stability

Inventive Principle:

Principle #2Taking out (Extraction)

Solution Approach 2:

The system uses self-service mechanisms where market forces and arbitrage automatically regulate token supply and price without external intervention or reserves, allowing the stablecoin to self-correct and maintain stability autonomously

Inventive Principle:

Principle #25Self-service

2Ease of operation

If decentralized stability mechanisms eliminate reserves and collateral, then ease of operation and loss of substance are improved, but reliability may worsen

Engineering Contradiction:

Improveoperational simplicityVSAvoidsystem reliability

Core Design Contradiction:

Ease of operationVSReliability

Solution Approach 1:

The patent implements feedback mechanisms through market-based arbitrage and automated supply adjustment, where price deviations trigger automatic corrective actions that restore stability, ensuring reliability through continuous self-regulation without requiring reserves

Inventive Principle:

Principle #23Feedback

Solution Approach 2:

The system replaces traditional mechanical reserve-based stability with algorithmic and market-driven mechanisms, using smart contracts and arbitrage protocols to achieve reliability through code and market forces rather than physical or financial reserves

Inventive Principle:

Principle #28Mechanics substitution (Replace mechanical system)

Data Source

PatentUS11328290B2Stable cryptocurrency coinage

Publication Date: 2022.05.10 INVENIAM CAPITAL PARTNERS INC

AI summary

A two-coin mechanism for maintaining a stable value of cryptographic coinage traded in a decentralized market exchange without requiring a reserve. A pegged cryptographic token and a variable-priced cryptographic token are both traded in the reserveless decentralized market exchange. The pegged cryptographic token and the variable-priced cryptographic token are value related based on a cryptographic exchange rate. Whenever a market transaction is processed (such as a buy or sell order), at least one of a destruction operation and a creation operation are performed. The destruction operation destroys at least one of the pegged cryptographic token and/or the variable-priced cryptographic token, while the creation operation creates new ones of the pegged cryptographic token and/or the variable-priced cryptographic token. The two-coin mechanism thus implements a decentralized and algorithmic monetary policy that removes and/or deposits cryptographic tokens to/from the reserveless decentralized market exchange to alter supply and to maintain stable coinage values.