A Note on Cryptocurrency Stabilisation: Seigniorage Shares
Cryptocurrencies like Bitcoin govern the supply of coin through simple and deterministic coin growth rules. As a result,unanticipated changes in coin demand are reflected in changes in coin price,causing volatility and discouraging usage of coin as media-of-exchange. In this paper,the authors argue that next-generation cryptocurrencies should incorporate an elastic supply rule that adjust the quantity of coin supply proportionately to changes in coin market value. There are two difficult problems to solve in order to implement such a scheme. This note outlines a solution to one of those problems,and offers some suggestions on how the other problem might be solved.
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