Celo

  • Cryptoasset Report
  • June 12, 2019

Celo is a seigniorage shares stablecoin protocol with an address-based encryption scheme, initially focused on a social payment mobile app for developing markets.

Overview

Celo aims to use this stablecoin and user-friendly addressing scheme to promote mobile cryptocurrency payments in otherwise under-banked areas, as demonstrated in a pilot study in Venezuela. Celo raised $25 million from Polychain and A16z Crypto in a private sale of Celo Gold, which functions as the reserve currency for a set of stablecoins.

Protocol Details

The Celo protocol uses an address-based encryption scheme, in which users can register existing unique personal data, such as phone numbers, email, or IP addresses, to an on-chain address, allowing them to more easily discover each others’ addresses. For example, a user would generate their own public key associated with their phone number, then register this mapping in a public database, which is verified by a network of nodes. Users can root multiple public keys back to a single phone number (or other unique identifier) by adding a fixed string. This is broadly similar to the Ethereum Name Service.

Asset Details

There are two types of tokens within Celo: Celo Gold, which acts as a (potentially volatile) reserve currency, and Celo stablecoins, which can be pegged to fiat currencies or indices such as the Consumer Price Index. The Celo protocol is implemented as a fork of Ethereum, on which smart contracts govern Celo Gold and all associated stablecoins. Celo highlights five aspects of the protocol that differentiate it from other seignorage share stablecoins, such as Basis:

  • A multi-cryptoasset collateral reserve supporting many local and regional stable value currencies.
  • Stablecoin expansion and contraction parameters based on the reserve ratio, which is a function of the reserve pool’s value to the total pegged value of the stablecoins.
  • A DEX that functions as the primary market for all stablecoins and Celo Gold, which the protocol will use to perform expansions and contractions.
  • Block rewards issued in Celo Gold.
  • A governance mechanism in which Celo Gold holders must stake to participate in decision-making processes.

Celo Gold, the reserve currency, will have a fixed supply; half of this is allocated directly to the multi-collateral reserve, and half is sold for other cryptoassets which are allocated to the reserve. All Celo stablecoins are backed by a single reserve pool. Though Celo invisions many regional stablecoins to be created on the network, the first will be Celo USD. The protocol will adjust to fluctuations in the market value of Celo USD as follows: when above the peg, the protocol creates new stablecoins and uses them to purchase a basket of other cryptoassets through the DEX, and adds them to the reserve. When the stablecoin is below the peg, reserve holdings will be sold to purchase the stablecoin. This process aims to mimic central bank processes of open market operations. There is a variable transfer fee for Celo Gold, designed to encourage long term holding; when the reserve ratio is low, transfer fees are higher. All Celo transactions are validated in a Proof of Stake system by Gold holders. The team has conducted a stability analysis to model various scenarios around fluctuation in the stablecoin’s price.