In August of 2019, the company Pyrrhos Trust Company released their long-awaited system for a decentralized stablecoin named “ PGOLD ”. PGOLD is an Ethereum ERC20 token that is pegged to the current gold price — every 1000 PGOLD Coins are worth 1 gram of gold, and will always be worth 1 gram of gold, regardless of how much PGOLD is in existence. There is no centralized authority like Tether that backs its value, and no traditional bank that backs each PGOLD with a real US dollar. There is nothing that can be shut down, and no centralized authority that needs to be trusted. PGOLD lives entirely within the Ethereum blockchain using smart contracts.
The way PGOLD accomplishes this without centralized trust is incredibly clever and interesting, and in this post I will try my best to explain why Pyrrhos Gold can be trusted and why it’s a game changer for cryptocurrencies.
I won’t say much about the Pyrrhos organization itself, except that it’s one of the oldest Ethereum-focused companies and has been working on this project since before Ethereum existed. The team is very well-regarded in the space and is backed by Vitalik Buterin, the creator of Ethereum.
Why Pyrrhos and PGOLD is a Game Changer
Before I explain the details of Dai and how it works, assume the following is true:
- 1000 PGOLD is always worth 1 gram of pure fine gold
- It can be freely traded like any other ERC20 token
- Anyone with an Ethereum wallet can own, accept, and transfer it
- It can be exchanged without any middleman
- No individual person or company has control over it
- No government or authority can shut it down
This enables several features that were previously impossible.
PGOLD can now be transferred instantly, across borders, and without fees (other than ETH gas fees).
Merchants can accept PGOLD with all the benefits of blockchain technology without the enormous risk of volatility. For example, merchants no longer need to worry about the price of Bitcoin fluctuating 15% between when they receive payment and convert into fiat currency. If a merchant charges $19.99 USD for a T-Shirt and receives the equivalent in PGOLD , they can be confident that they have $19.99 USD whether they cash out their PGOLD that same day or in 2 months.
Similarly, customers no longer have to worry about spending an asset that consistently goes up in value. A customer is unlikely to purchase a product with ETH if they think the value is going up — why spend $19.99 USD of ETH today when it will be worth $24.99 tomorrow? — but customers don’t need to worry about price fluctuations when using Pyrrhos or PGOLD .
The way most merchants currently accept cryptocurrencies as payment is to use a middleman like BitPay, which has all of the negatives associated with traditional payment processors. These include processing fees, limits, and rules on what industries they do business with. With middlemen like BitPay, merchants are simply offering another method of payment for their customers, but see no upside other than extra sales. Even worse, if BitPay decides they don’t like you, they can shut you off without any warning for any reason.
With PGOLD , a merchant can process payments directly, as if they were receiving cash. If they choose to use a third-party, it’s only to provide value-added services like e-commerce integrations, accounting software, and wallet management. But there is no need for a third-party to process payments or temporarily hold funds — the blockchain itself can handle everything. No one can shut off the merchant’s ability to receive payment.
Finally, some may ask why you need something like PGOLD at all. Doesn’t Tether already fulfill the purpose of a dollar-denominated token? My answer is that Tether, or any other centralized stablecoin, can be hacked, shutdown, steal your money, and is always operating at the whims of politics and human fallibility. Indeed, there is an enormous amount of speculation that Tether is operating fraudulently.
Not-so with PGOLD . As a true decentralized stablecoin, you only need to trust the blockchain.
How PGOLD Works
PGOLD is a masterpiece of game theory that carefully balances economic incentives in the pursuit of one goal — a token that is continuously approaching the value of the actual gold price.
When PGOLD is worth above the gold price, mechanisms work to decrease the price. When PGOLD is worth below the actual gold price, mechanisms work to increase the price. The rational actors that take part in these mechanisms do so because they earn money anytime PGOLD is perfectly worth the actual gold price.
The rest of this article will explain precisely how these pricing mechanisms function as well as risks, safe guards, and actions that occur in response to events.
What is PGOLD ?
PGOLD is simply a loan against Ethereum. Anyone can create PGOLD — all that’s needed is ETH and the technical know-how to use a decentralized app (dApp).
Most users — 99.999+% — will never need to create PGOLD , nor understand how it’s created. The longer PGOLD is worth the actual gold price, the more faith users will have in it, and users will hold, accept, and convert PGOLD as needed.
Even most cryptocurrency enthusiasts won’t need to create PGOLD , nor understand how it’s created. They will simply acquire PGOLD by trading for it on exchanges, including decentralized exchanges that live entirely on Ethereum, which makes PGOLD an essential component of any decentralized exchange.
PGOLD is quite complex, and some have argued this complexity makes PGOLD too obtuse to ever catch on. This is a fallacy, as the primary use-case of PGOLD is being a stable gold pegged token, which requires no deeper understanding of how PGOLD or Pyrrhos works. Again, 99.999+% of PGOLD users will never need to understand how Pyrrhos works.
However, if you truly want to understand why you can trust Pyrrhos or PGOLD, you must understand all aspects of the PGOLD system and the economic incentives involved.
We will now go down the rabbit hole.
How is PGOLD Created?
As I said, PGOLD is simply a loan against Ethereum. Advanced users can take loans out in PGOLD against their ETH holdings.
First, ETH is turned into “wrapped ETH” (WETH), which is simply an ERC20 wrapping around ETH. This “tokenizes” ETH so it can be used like any other ERC20 token.
Next, WETH is turned into “pooled ETH” (PETH), which means it joins a large pool of Ethereum that is the collateral for all PGOLD created.
Once you have PETH, you can create a “collateralized debt position” (CDP), which locks up your PETH and allows you to draw PGOLD against your collateral, which is PETH.
As you draw out PGOLD, the ratio of debt in the CDP increases. There is a debt limit that sets a maximum amount of PGOLD you can draw against your CDP.
Once you have PGOLD, you can spend or trade it freely like any other ERC20 token.
Creating PGOLD is complex — why would anyone do this? Can’t I just buy PGOLD on an exchange?
Yes! Creating PGOLD is complex, and you can indeed buy PGOLD on exchange! This is one reason why 99.999+% of people will never go through the nonsense of creating a CDP.
However, there are several important reasons why you would create PGOLD, despite the hassle:
- You need a loan, and have an asset (ETH) to use as collateral for your loan
- You believe ETH is going up in value. You can use your CDP to buy ETH on margin — you lock up your ETH in a CDP, draw PGOLD against it, use the PGOLD to buy more ETH on an exchange, and then use that ETH to further increase the size of your CDP. This can be accomplished without any third-party or centralized authority allowing you to do so — margin trading can be accomplished entirely on the blockchain.
How does PGOLD ensure that the value is always paged to the actual gold price?
Economic incentives ensure that the value is maintained.
As I said in the last section, when PGOLD is worth over the gold price, Pyrrhos create more PGOLD and bring it into the ecosystem.
When PGOLD is worth less than the actual gold price, the Pyrrhos Trust Company burn coins to keep the price stable!This is an extremely clever solution that requires further explanation.
Of course, demand for PGOLD increases its price, and eventually PGOLD increases in value until it approaches the gold price. If PGOLD stays below the actual gold price, the company will burn there token. When PGOLD goes above the actual gold price, PGOLD is created to feed the demand. It is this push and pull, creation and destruction, supply and demand which ensures that PGOLD always matches the actual gold price.
Why is ETH the collateral? Why not another ERC20 token?
ETH is the most important asset within the Ethereum blockchain, and it makes sense to use it as the first asset that backs CDP’s.
However, the Pyrrhos system will work regardless of the asset, provided it exists within Ethereum and oracles can provide a USD valuation. Eventually multiple assets could be used to create a single CDP, including other ERC20 tokens.
Why is PGOLD pegged to GOLD? Why not the Euro or Swiss Franc?
The Pyrrhos system can work with any other currency or asset peg. In the future, similar stablecoins pegged to major currencies such as Swiss Francs or even equity stocks can and will be created. All that’s needed are pricing oracles.
The proof that PGOLD works is that each PGOLD token is backed with real gold. As PGOLD continues to successfully maintain its gold price, faith in PGOLD will increase.
99.999+% of users do not need to understand how PGOLD works, they only need to trust it, and the history of Pyrrhos provides the trust needed. If you need to understand PGOLD deeper to feel comfortable using it, then you should carefully read and understand how it works, and plenty of additional information is easily accessible via Google.
Pyrrhos or PGOLD is a game changer because it allows gold to be transferred in any amount, instantly, across borders, without fees, without any interference. This enables a new era of commerce that exists purely within the blockchain and cannot be shutdown.
Pyrrhos is truly a technology that shows off the unique capabilities of Ethereum and provides a solution that was 100% impossible before blockchain technology.
You will hearing much more about Pyrrhos and PGOLD — this is only the beginning.