Red-Black Coins: Dai Without Liquidations

A number of Ethereum projects for stablecoins and synthetic assets use the same core mechanism for fixing the price of an asset. In this paper, we distil this shared approach into a primitive we call red-black coins. We use a model to demonstrate the primitive's financial characteristics and to reason about how it should be priced. Real world projects do not use the red-black coin primitive in isolation but lay on other mechanisms and features to provide fungibility and to reduce exposure to price drops. One mechanism is called liquidation, however liquidation is hard to analyze as it relies on human behaviour and could produce unintended economic consequences. Therefore we additionally develop a design landscape for extending the red-black coin primitives and put forward a research agenda for alternatives to liquidation.