The first post I made was short on details. People asked some questions and thought maybe it's not possible to do derivatives on Steem. I'm convinced by the literature that it is not only possible but that SMTs will make it inevitable that we will have derivatives on Steem. The question is how do we want to apply these derivatives and how do we want to take advantage of SMTs.

This  post is not a proposal. This post is to build the discussion toward a process by which the community can arrive at a proposal. I will present my current ideas on how a stable token could be created but just note that these ideas are still "half baked" and while they may be better than nothing there are some technical details to work out. I hope that there will be enough technical discussion to work out the problems.

Collateral and the Trusted Execution Environment

One issue with creating a stable token is how do you deal with collateralization? The good thing about SMTs is that it provides us a means of having security tokens on Steem. SMTs as currently implemented in my opinion do not work as well as they could and I would suggest to the technical community in Steem to consider how the trusted execution environment can be leveraged for the purpose of collateralization.

One possible solution appears in a 2017 TEE paper titled: "Tesseract: Real-Time Cryptocurrency Exchange using Trusted Hardware". This paper offers lessons which if applied to a Steem context could mean hardware SMTs. A hardware SMT is essentially a shift from putting all of our trust into the programmers and the honesty of the redeemer of the SMT security and instead placing our trust in the hardware itself to completely automate the redemption process. For example if an SMT is backed by Bitcoin and that Bitcoin redemption is secured using the trusted execution environment then you can use the lessons from the Tesseract paper to enable a hardware scalable decentralized derivatives exchange.

Multicollateral backed assets (backed by an index of SMTs)

Assuming we could solve the problem of how to do collateral safely and securely, in a trust minimized decentralized fashion, then the next question would be can we then simply use the same process to create for example a token backed by the top 10 cryptos? A crypto index token for example could be an underlying asset to build a reward token which clearly would be better than Steem even if not necessarily stable. The real use of this kind of asset though would be to allow for Steemians to get into the derivatives trading and hedging via the SMTs in a manner which is decentralized and automated. It would also allow for the creation of a stable token depending on what SMTs are in the collateral pool to back the new stable token.

Some ideas include Steem Gold, or Steem Dollar 2.0, or Steem Silver, or Stable Steem. In my opinion Stable Steem could be Steem which is backed by highly stable SMTs such as the Dai, Tether, or anything which can hold value. This is going to have to require governance and a stability management group to carefully put in or remove different collateral or adjust percentages over time but this can be achieved using stake based voting. My conclusion, derivatives and Stable Steem are feasible and my recommendation is to go forward with producing a proposal.

References

1. https://www.semanticscholar.org/paper/Tesseract%3A-Real-Time-Cryptocurrency-Exchange-using-Bentov-Ji/ee3e34dc384f39b1b16a8d311da1cda3c16fd282

2.  https://apograf.io/articles/2476

Bentov, I., Ji, Y., Zhang, F., Li, Y., Zhao, X., Breidenbach, L., ... & Juels, A. (2017). Tesseract: Real-Time Cryptocurrency Exchange using Trusted Hardware. IACR Cryptology ePrint Archive, 2017, 1153.

Cheng, R., Zhang, F., Kos, J., He, W., Hynes, N., Johnson, N., ... & Song, D. (2019, June). Ekiden: A platform for confidentiality-preserving, trustworthy, and performant smart contracts. In 2019 IEEE European Symposium on Security and Privacy (EuroS&P) (pp. 185-200). IEEE.