We have seen numerous iterations of the stablecoin concept, from USDC, which is basically 1:1 backed by bank deposits or short term liquid assets, to fully algorithmic coins backed by digital currencies. We propose most of these coins were built when the requirements of DeFi were quite different than they are now. For instance, when USDC was created the total dollars in DeFi were $130 Billion. This is now roughly a Trillion dollars. For most people in 2018 just having a way to move money in and out of DeFi without subjecting themselves to huge price fluctuations was enough. We believe this is no longer the case and people want more from their stablecoin.

We believe there are 3 critical requirements for the next generation of stablecions to be successful.

Transparent

The key issue stablecoins of old have is lack of transparency. Those that hold assets in bank accounts or elsewhere require people to trust their banks, auditors or the company backing the coin. Auditors are human too and make mistakes. Algorithmic stablecoins had the opportunity to be completely transparent but, as we all found out with Terra, not only wasn’t this the case but they couldn’t liquidate fast enough to satisfy the needs of their redeemers.

We propose the next generation of stablecoins must list each asset backing the stablecoin in a way that is both human and machine verifiable. In the case of HOME, this is why we chose to make the coin stable against liens on U.S. homes that are registered at the county level (in the real world) and on the blockchain every time we lend money against a home. Here are the current liens on homes that back HOME. Further, 2.0 Stablecoins need to be transparent about how much of their asset base is liquid and available to handle redemptions. Current fiat backed stables attempt to be 100% liquid even though they are backed by assets that are not instantaneously liquid. To be fair even banks would require approximately 1 month to completely liquidate the tens of billions of dollars that a coin USDC holds in deposits and treasuries.

The HOME approach to this problem is to further define the intent of those who purchase HOME. This is done at 3 levels:

• Buy HOME with zero lockup: This group gets a 1% return

• Buy HOME with a 90 day lockup: This group gets a 2% return

• Buy HOME with a 1yr lockup: This group gets max returns (currently around 5%)

The advantage of this system is it gives the protocol a “signal” about what to do with the money flowing into HOME. If the money isn’t locked up then the protocol can make better decisions about liquid the remaining assets should be vs other stablecoins who “guess” how much they need to keep liquid to satisfy withdrawals. For money that is locked up the protocol can put the money to work in longer term assets, like mortgages and pass some of the increased return to the HOME holders who are locked up for longer. As an example of how this is working today about 50% of HOME is locked up and cannot be redeemed providing a base of assets that are not subject to a “bank run” scenario. One way to think about this is a metaphor of a house. The foundation is rarely if every replaced (1yr lockup) so you can rely on it being there. The walls are less likely to stay and so are considered less reliable from a longevity perspective and finally the furniture which is easily changed and shouldn’t be relied on to have any particular longevity. Here is the current breakdown of locked vs unlocked HOME:

Durable

A stablecoin needs durable returns from the assets backing the coin. A common technique in stablecoin 1.0 world was rewarding holders of a coin with governance tokens from the project that were subject to price fluctuations thereby inflating the “claimed” yield. A promoted yield of 30% or more was common. Stablecoin 2.0 products must list their yield solely based on the return from the assets backing the coin. In the case of HOME, this entails showing the return based on people repaying the loans against the homes on a monthly basis. Further this return must be durable i.e. there must be some indication those returns will continue and in the case of HOME the loans are from 15yrs to 30yrs in duration. Often yields on 1.0 stablecoins was day to day at best.

Decentralized

As if 2022 didn’t contain enough lessons already, we learned post-FTX the critical need for systems we build to be decentralized from the start and at the core. 2.0 Stablecoins should be based on decentralized assets. In the case of HOME, those assets are houses distributed across the United States with each of over 3000 counties responsible for maintaining records locally. This means that even a catastrophic event in one state wouldn’t bring down the HOME ecosystem. This is in stark comparison to 1.0 stablecoins that store their assets in banks or other financial institutions which increases centralized risks. 2.0 Stablecoins also must maintain cashflows even in the event of a shutdown down in the banking system that would freeze all the stablecoins based on centralized assets. While HOME doesn’t have fully decentralized cash flows yet, there are several homeowners who pay their mortgage every month without ever passing money thru the banking system. A network of these homeowners and corresponding smart contracts in the system to process the payments would provide a truly decentralized stablecoin solution.

We hope you join us in building the first Stablecoin 2.0 that is transparent, durable and decentralized.