Having one digital currency – the TENDER – comes with one disadvantage: it doesn’t really appeal to humans who are used to thinking in their national currency. For a good user experience, it is desirable to show transactions in the user’s chosen currency. This could be handled easily by using TENDER internally and showing the respective amount of local currency in apps. However, this creates another problem: TENDER would then be attached to one currency, probably the US$. If the local currency is volatile versus the US$, then that volatility would be imported into the TENDER economy, violating the objective of achieving stability. For instance, a Russian user might exchange 10 roubles today but have a balance of 9.5 roubles tomorrow and 10.5 roubles the day after due to fiat volatility.
The Pacio solution is to use multiple digital currencies in the economy to mirror the national fiat currencies required by app developers. Initially, there will be TENDER$ and TENDER€, with additional currencies to be added via a governance vote when the market (one or more developers) calls for it.
This segmentation is desirable from a user perspective but comes with a set of challenges for the economy:
To avoid adding new currencies which might see little use, a poll that would create a new currency would require a 2/3rd majority to pass.
The economy’s funding process would be done in the various existing currencies. An enterprise would submit their funding request in the currency of their choice. There would still be only one rating process. The funding queue would then consist of different currency projects. Emission has to take care of that.
The funding currency nominated for an app is likely to be the currency of the app’s main market, but naturally that can’t be guaranteed. Thus, some loan repayments could be in a different TENDER currency than that of the funding via emissions, resulting in the need for an internal process to make occasional adjustments by swapping currencies. A swap is different from an exchange. In an exchange, ownership changes. In a swap, one currency is destroyed, while the equivalent value is created in another currency.
Since swaps deal with real fiat currency values, they can’t safely be executed by an automated process. The fiat exchange rates to be used would need to come from a third-party source, which opens an attack vector to which there is little defence (see also the next section on exchanges). The solution for these occasional adjustment/management swaps is to use voting via the governing body. These would be an incentive for voters, not financially since there is no fee, but in terms of power. Participating in swap voting adds to the reputation rating that translates into voting power.
An exchange where holders can change one TENDER currency for another is required. Example: a US YouTuber receives microdonations in TENDER$, TENDER€ and TENDER- Rouble. While he can easily sell TENDER$ via Stripe or PayPal, he can’t do so with foreign currencies. So an exchange is needed. This service should be provided as an app charging third-party fees for the economy or through apps deployed by those whose business it is to run exchanges and cope with the liquidity, arbitrage, and risk issues involved. Doing that is not a core part of Pacio’s role. It will be relatively easy for an existing exchange operator to add a TENDER interface to their system via a TENDER app.