# Agora: Democratic stable money

*Agora* is money generated by market activity that solves centralization and stability issues arising in other types of money.

## Problems

### Problem 1: Centralization

Banks chosen by governments are given the power to mint (seigniorage) with all its advantages, to the disadvantage of other money users.

Central banks expend sizeable effort to stabilize the value of money, the cost of which is born by money users.

### Problem 2: Stability

Attempts to decentralize money production have failed to create a stable unit of account-- a prerequisite to a large-scale money system.

Bitcoin is a notable example of a money system that struggles to be used for everyday economic activity because of its high volatility. Sellers are reluctant to sell if they think they might not recover their costs, and buyers are reluctant to buy if they think the value of their money might rise.

Stablecoins have paved the way for blockchain payments, but are still ultimately pegged to centralized money. ([See problem one.](#Problem-1-Centralization))

## Solution

*Agora* is a money system that expands and contracts with market activity. It can be used as a unit of account without any link to a central authority.

It creates the potential for a [universal dividend](#universal-dividend).

### The market

#### Selling

Sellers can sell anything they wish. They set a price in Agora.

Blockchain tokens are sold simply with a smart contract. Other items or services are sold using a disputable transfer of Agora via [Celeste](https://celeste.1hive.org/). In these cases, when a sale is made, the seller sets an inspection period[^3] to give the buyer time to receive the goods and inspect them. Until the inspection period ends, the seller can extend the period, and the buyer can dispute the transfer.

#### Minting and burning Agora

Agora is minted by adding Colat tokens to the collateral pool in the Agora token contract. The number of Agora minted is equal to the value of the added Colat tokens priced in Agora.[^4] Minting Agora this way avoids Uniswap slippage, and helps [stabilize of the value of Agora](#Stabilizing-the-value-of-Agora).

Colat tokens can be retrieved by anyone (even if they didn't mint Agora) by sending Agora to the contract to be burned. The number of Colat retrieved is equal to the number of Agora being burned divided by the net Agora created by the pool (all Agora ever minted minus all Agora ever burned) times the Colat in the pool.

$$
Colat =\frac{AgoraToBurn \cdot ColatInPool}{AllAgoraMinted - AllAgoraBurned}
$$

The number of Agora that can be minted or burned in a single block is limited by a [median vote that controls how much the collateral pool can change in size in a single block](#Collateral-pool-block-limit). Having a block limit is necessary instead of using a time-weighted price average of Agora-Colat, because an attacker could cause a price shift in a different pair and use the collateral pool before the Agora-Colat pair can be arbitraged to adjust to the new price.

### Stabilizing the value of Agora

Having a [collateral pool](#Minting-and-burning-Agora) dampens Agora price swings. Price fluctuations are allowed to transfer from the Agora to Colat. An expanding market economy will cause Colat to rise in value, while a contracting market economy will cause Colat to lose value. The price of Agora can remain stable throughout these changes.

Two additional longer term measures are available. [Universal dividends](#Universal-dividend) and [boosting the collateral in the pool](#Collateral-boost) can be used as extra measures to fight price deflation and inflation, respectively. Signals given by votes for these parameters can counteract price fluctuations even before the votes are enacted because of their influence on expectations.

#### Burn and swap tool

The burn and swap tool allows a user to burn Agora, receive Colat, and swap it for a popular asset (such as USDC) in one action. This tool will show the difference in quantity returned by swapping Agora for the asset directly versus burning Agora and swapping Colat for the asset. If the quantity is higher for swapping Agora directly, the [Colat minted to the pool needs to be increased](#Collateral-boost).

### Median votes

Median voting is a method for democratically choosing a value. During a voting cycle, voters[^2] can select a value between a defined minimum and maximum (and change their vote as often as they wish). When the voting cycle ends, the median vote value is used.

Median voting has sole control over Colat minting.

All votes below have a minimum value of 0, no maximum value, and a voting cycle of 1 month.

#### Universal dividend

The number of Colat tokens to mint and send to [Unitap](https://unitap.app). This can be used to fight price deflation.

#### Collateral boost

The number of Colat tokens to mint and add to the collateral pool. This can be used to fight price inflation.

#### Collateral pool block limit

The maximum Colat that can be or added or removed from the collateral pool in a single block expressed as a percentage (in basis points) of the size of the collateral pool at the end of the previous block.[^1]

#### Agora team

The number of Colat tokens to mint and send to the DAO that builds and maintains Agora.

## Questions

### Where does Colat get its value?

Colat gets its value from a belief in the growth of the market economy.

### Why will people use Agora?

Sellers are attracted to the most [stable](https://) money available to their customers. Anyone interested in buying from the Agora marketplace can choose to receive Colat as a [universal dividend](#Universal-dividend) from [Unitap](https://www.unitap.org). Colat can then be easily exchanged for Agora.

### How will Agora hold its value in the presence of a more widely used national currency?

What if merchants swap Agora for a widely used currency rather than burn it for Colat? This might be the currency they need to use to pay expenses (including rent, shipping, and taxes) which can't yet be paid in Agora.

Voters need to keep a close eye on trade imbalances with Agora and other pairs. If the price of Agora is falling compared to other important assets, the [Colat in the pool needs to be increased](#Collateral-boost).

The [burn and swap tool](#Burn-and-swap-tool) helps draw attention to imbalances and makes it easier for people to burn Agora rather than swap it directly.

### Isn't this another algorithmic stable coin that will fail like UST and Luna?

UST was pegged to the U.S. dollar, which Agora will not be. Instead of auctioning off new Agora, the Agora system creates Colat via a universal dividend, followed by [simple minting of Agora based on the Colat/Agora price](#Minting-and-burning-Agora).

If the market for Agora shrinks drastically, Agora should not destabilize in the face of heavy selling as long as [large quantities of Colat are minted](#Collateral-boost) to keep the value of an Agora burn and swap above a simple swap. Colat will experience a massive price drop in such a scenario. The price of Colat tracks the size of the Agora marketplace.

### If Agora isn't tracking USD, what is it tracking?

To become a highly stable coin, Agora's value should track the value of a basket of goods sold in the Agora marketplace. The goods sold can change. [Median voters](#Median-votes) will take this into account when stabilizing the value of Agora, as well as [market pairs of Agora with other widely-used currency](#How-will-Agora-hold-its-value-in-the-presence-of-a-more-widely-used-national-currency).

### If the Agora marketplace shrinks, won't people trade Colat for other assets, destabilizing Agora?

Agora should be allowed to shrink gracefully. I fear that a contraction in the Agora marketplace could cause Colat holders to trade their Colat for other assets, compounding the contraction. If you have a solution for this, please let me know, otherwise I'm not ready to proceed with Agora. Thanks to Vitalik Buterin for suggesting the [thought experiment](https://vitalik.ca/general/2022/05/25/stable.html).

[^1]: The Agora smart contract checks the Uniswap contract for total Colat in the pool at the time of the last block, the total Colat added since the last block, and the total Colat removed since the last block are all tracked. A mint or burn operation that would cause either the total added or the total removed to exceed the block limit is rejected. Added and removed totals are considered independently, i.e. they aren't combined to form a net total.

[^2]: Voters are limited to one vote each through [BrightID](https://www.brightid.org). See [median mechanism](https://en.wikipedia.org/wiki/Median_mechanism).

[^3]: The minimum inspection period is five days.

[^4]: [The pair price from Uniswap can be computed as in this example.](https://ethereum.stackexchange.com/questions/98685/computing-the-uniswap-v3-pair-price-from-q64-96-number)