Cardano Is Exploring A New Mechanism That Will Transform Smart Contract Platforms

Cardano is working on a new research project or mechanism to help make transaction fees fair, stable, and more predictable over time, according to a new blog by the network’s parent company IOHK.

The blog titled “Stablefees and the Decentralized Reserve System” explains that a good system should have a mechanism for adjusting transaction costs so that it can remain reasonable and competitive.

“we explore a new mechanism that builds on Cardano’s approach to ledger rules and system assets, and complements the Babel fees concept.”

Additionally, since most people are unaware of how much their specific transactions costs on a network, the Stablefees project plans to solve this too.

“The systems should also allow the users to discover the correct price for timely transaction processing, depending on their individual needs.”

While the Stablefees project is specific to Cardano, IOHK states that it can be adapted to any other crypto project with similar characteristics.

Cardano: Introducing Stablefees

Transaction fees on Cardano network serve three purposes; they are necessary to pay stake pool operators, to prevent idle attacks on the network by introducing costs in transactions, and to incentivize people to participate in staking and earn rewards.

Fees are also calculated depending on the size of the transaction in bytes using predetermined equations. This means that Cardano-based smart contracts charge per the size of the data, unlike on Ethereum where the amount of fees charged per transaction depends on the amount of effort used to compute and execute the transaction.

The latter’s system makes it unreasonably expensive to transact on Ethereum-based smart contracts, especially during times of high network traffic when miners make it necessary for people to pay more for faster transaction processing.

The primary idea behind Stablefees is to set a base price for transactions by pegging them to a basket of currencies or commodities. This will involve the creation of a native smart contract to act as a decentralized reserve, issue, and manage one stablecoin pegged to the said basket.

“The stablecoin—let’s call it “Basket Equivalent Coin” (BEC) is the currency used for paying transaction fees (and all other real world pricing needs of the platform.)

ADA will have a dual role; to act as the reserve asset of the decentralized smart contract and as the reward currency for staking.

“It will also be the fall-back currency in extreme scenarios where the reserve contract is in liquidity crunch.”

Users will need to have BECs by buying them or exchanging ADA for BECs on the decentralized reserve contract.  The smart contract will issue BECs to users on various bases, and will also issue decentralized equity coins (DECs) in exchange for ADA.

The smart contract will leverage the value of BEC by leveraging the value of DECs so that the BEC is pegged on the underlying basket of commodities, the blog further explains.

“In other words, DECs will absorb the fluctuations of ada vs. the basket to ensure that the real-world value of BECs remains stable.”

Advantages of BECs and DECs

IOHK predicts that the project will have various attractions for different types of investors, such as risk-averse investors, transaction-intensive holders, and those with high liquidity needs. Additionally, if ADA goes up, BECs will have some of the best rewards but also be very affected if the price of ADA goes down significantly. However, DECs will be more suitable for long-term holders.

ADAUSD Chart By TradingView

“Since decentralized reserve prices these coins in ada, both BECs and DECs can facilitate participation in staking and governance.”

The blog also explains the function of an on-chain oracle to determine the price of ADA as well as the price mechanism.

Commenting on this interesting concept, on-chain analysis platform Weiss Crypto said that this is an interesting idea that could be the new standard for all smart contracts.

 “The fact of the matter is having your costs priced in exponentially growing assets is bad for smart contract platforms. Glad to see Cardano innovating once again.”