Nakamoto Dollar and The Math Behind Ethena
AI summary of the linked articleArthur Hayes' "Nakamoto Dollar" proposes a capital-efficient synthetic dollar that does not rely on the fiat banking system, built from a single short position in a bitcoin inverse perpetual. The margin is posted in BTC worth 1 USD, and the short position tracks 1/p - 1/p0, so the combined value always equals 1 USD in BTC terms. The article notes the position cannot be liquidated because its value never falls below zero, but it warns that if BTC's price drops far enough that longs are liquidated (for example at a liquidation price of 0.25), the position's total value is capped at 4 BTC and its USD value could eventually fall to 0. Hayes recommends putting funding-rate income into a sinking fund to cover shortfalls from liquidations, custody issues, or negative funding rates. |
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3 comments  This was super interesting, but I didn‘t get what 1/p represented and why it had something to do with the BTC price. Are perps like collateralized debt positions?  auditless.ethSubmitter Ah - good question. If p is the price of BTC in USD, e.g., 10 BTC = 1 USD then p = 10. 1/p is the inverse so 0.1. Perps are very similar to CDPs in a sense! They ultimately both are margin accounts. This is a theme I will be exploring going forward (and already explored a bit in https://research.auditless.com/p/al-58-synthetix-v3-and-the-margin). Perps are: - more general since they can support leverage - somewhat "fungible" positions since you only have 1 collateral type - because they are fungible and have a market price there is a funding rate which serves as an incentive to ensure that the value of perp tracks the underlying spot asset Fascinating. I feel like a lot of this stuff is, in principle, much simpler than I expected (eg mostly based on margin accounts). I mean, I still don‘t get 1/p, but I have a feeling it‘s not that complex actually |