Part 1 — The Foundations of Value in the Gaugecash Monetary System
By Kai Pfähler Created March 2023
I have been contacted from various sides about the background of the value behind GAUGECASH. As the GAUGECASH Monetary System is an innovation based on technologies unseen before, and as it has solved the problems of hyperinflation, devaluation, and volatility in new ways, the answer is somewhat complex. In this mini paper, I’ll try to shed light on this.
It can be claimed that the Fugger family formed the first global bank in the modern sense. In the 15th century, they set up an ingenious network of factories (bank offices) starting in the Suebian city of Augsburg, Frankfurt, and Venice in Italy, soon expanding throughout Europe and beyond. Operating an efficient network of trustworthy messengers, the Fuggers positioned themselves by way of a perennial flow of up-to-date information on transactions and value in all regions within their business realm.
It enabled them to facilitate long-distance trade with credits and with a cashless system based on letters of exchange, arguably an early form of banknotes. As a propellant of early globalization, Jacob Fugger, “the rich,” rose to become one of the wealthiest persons ever.
The Fugger success story became possible by solving a significant problem which jeopardized expanding trade: carrying cash in the form of gold or silver coins was bulky and cumbersome, and there was a substantial risk of being robbed. The elimination of inhibitions is a historical constant for progress and increase of wealth.
By creating trust and consensus, the Fuggers established a new standard of value. I named this example of over five centuries ago because I believe that history repeats itself. But the Fugger innovation does not stand alone. Henri Arslanian, in his latest book, describes in an accessible way the greater narrative of money’s history.
In his masterpiece “Principles for Dealing with the Changing World Order,” Ray Dalio pointed out the cyclical behavior of historical events. He identified an array of indicators through which the development phases of empires can be determined. As history shows us constants, one of these is significant for our topic here: Value always follows solving problems. This has been a returning topic in the teachings of William J. Baumol.
I choose to use the Fugger analogy to expound on the value behind the GAUGECASH Monetary System. As GAUGECASH is an innovation rooted in long-established principles, it requires understanding among its users in order to grow.
In the course of history, currencies have materialized in various forms, such as coins, letters of exchange, banknotes (current paper cash money), and blockchain-based currencies. A currency serves two main purposes in principle: A means of transaction and a store of value. Not every currency is fit for both.
A gold bar is well suited for a long-term value store but is significantly less convenient as a means of payment. A currency always is a derivative of a certain value. A reliable and predictable inheritance of value depends on broad consensus and widespread trust. Value can be intrinsic, which is the case with a gold coin, or it can be nominal, which occurs in banknotes and certain blockchain currencies. A nominal value bears the promise of redemption in the form of its underlying value.
Recent times have seen a plethora of attempts to create digital currencies, some of these in the form of CBDCs, others created by non-central bank
entities. Digital currencies can be scored on several characteristics, such as their stability or volatility, their supply, them being centralized or decentralized, or on their intrinsic value, such as collaterals, scarcity, or an algorithm.
These are just a few examples. The Matrix 1 attached to this text gives an attempt to historically compare several non-digital and digital currencies by some of their vital characteristics. It is clear that different types of currencies serve different purposes.
In order to establish the economic and technical principles that are the foundation of value in the GAUGECASH Monetary System, we need to refer to the comparison of Bitcoin ($BTC), USD Tether ($USDT), and $DAI, as shown in the attached Matrix 1.
Ensuing this is that GAUGECASH, for the first time, has solved the problem of hyperinflation and devaluation. There is no stable asset that has done this so far. Only investment assets managed to offer this kind of hedge until now.
The GAUGECASH face value (nominal value) is constructed by its decentralized index. This means that its value is technically not pegged, although it does act as such from a functional point of view. The advantage of a constructed value over a pegged value is that there is no risk of de-pegging, which happens to so-called stablecoins.
This index calculates a real-time weighted average of 35 real-world currencies. This list is based on the OTX FX trading, as stated by the Bank of International Settlements (BIS) in Basel, Switzerland. On top of just the calculated average, its algorithm also has a built-in hedge against hyperinflation and devaluation, plus a limited correction for inflation.
The index renders a stable, soft pegged value of about $1.73. The chart on the Gaugecash.com website traces the index value back to the year 2002 when the Euro was launched. It proves that $GAU is the most stable currency that was ever created. Its resilience against hyperinflation and devaluation and its built-in partial inflation correction establishes GAUGECASH as a unique proposition for a robust protection of purchase power.
Whereas the index is a number that imparts an exchange rate or a nominal value to the $GAU currency, it does not explain the issue of what its intrinsic value is based upon. To answer this, we need to look at the inter-twined relation of the GAUGECASH ($GAU) and Gaugefield ($GAUI) assets. Where $GAU is the system’s stable asset, $GAUI is the monetary system’s backup asset, which has an inelastic and deflationary design. It shares some characteristics with Bitcoin and Ethereum, particularly scarcity. Although a volatile asset, it will appreciate in the long term (as long as there is demand) based on the economic principle of scarcity.
The growing liquidity that this generates is shared on the level of smart contracts with $GAU. So that shared liquidity grows with the increase of volume, traffic, and investment in the GAUGECASH Monetary System. $GAUI wraps its blockchain’s native token, which is also scarce. Thus, a self-reinforcing liquidity pool is created for the GAUGECASH system. As a result, we can state that the GAUGECASH index value is backed by the blockchain itself.
Here is a second problem that was solved by GAUGECASH, namely, to cancel the need for traditional asset collateral without the need to revert to a mathematical algorithm, as in the case of $DAI. The GAUGECASH stable value is backed by a value that resembles Bitcoin or gold. This type of value back-up in GAUGECASH creates a typical hard Monetary System, just as the gold-pegged US dollar was until 1971. In the case of GAUGECASH, this term is extended to digital scarcity.
Although different in nature, this digital scarcity renders the same intrinsic value as with a gold-standard dollar note, where that banknote represents a certain-weight in gold. GAUGECASH creates a reserve by wrapping the native token of the blockchain, now MATIC, and later maybe something else. MATIC represents the intrinsic value of the blockchain, which among others, is rooted in computers, network elements, and software.
Matrix 2 compares the intrinsic qualities of Gold, Bitcoin, and The GAUGECASH Monetary System in detail. With two problem resolutions, the GAUGECASH system brings innovation with disruptive potential. Never before a form of cash has been created that comes so close to the promise of a durable and robust purchase power as GAUGECASH does.
As history evinces significant cyclical qualities, and success and advancement are the result of resolving problems, we can state that the innovation delivered by GAUGECASH enables a new purpose for monetary assets, namely a decoupling from centralized policies that let the value of those assets shrink, and in a way that deprives its holders of any significant influence.
Ray Dalio demonstrated in both a scholarly and very readable way that we may expect repetitions. Based on the analysis in Matrix 2, we can state that decentralized digital money in the form of Bitcoin was a great innovation. The GAUGECASH system takes this innovation to the next level by protecting purchase power as a historical novelty. Let us take the Fugger’s resolution of the cash transport problem as anticipation and a context to understand the GAUGECASH potential.
The decentralized design of GAUGECASH, which also spams its index and the oracles and feeding the index, guarantees absolute immunity from interference, restriction, or even manipulation by governments, regulators, corporations, (central) banks, or any other conceivable centralized entity. This results in an agnostic pose toward the (geo)political order of our world.
As the GAUGECASH system is also blockchain agnostic, it is resilient in a high grade to shortcomings in the technological landscape and will follow the innovations of the entire blockchain ecosystem. Purchase power robustness, immunity from manipulation, and blockchain independence make GAUGECASH a monetary class on its own, redeveloping the economic concepts of value, purchase power, and currency.
To learn more, visit www.gaugecash.com and be part of the cutting-edge solutions we are bringing to the DEFI community. Follow @GAUGECASH on Twitter, and join our Telegram group
Attachments:
- Matrix 1: Historical comparison of selected currencies
- Matrix 2: Intrinsic value — Gold vs Bitcoin vs The GAUGECASH Monetary System
Literature:
The Fuggers of Augsburg: Pursuing Wealth and Honor in Renaissance Germany. Mark Häberlein. The University of Virginia Press, 2012. Translated from the German original, “Die Fugger,” 2006.
The book of crypto. Henri Arslanian. Palgrave Macmillan, 2022.
Principles for Dealing with the Changing World Order: Why Nations Succeed and Fail. Ray Dalio. Avid Reader Press / Simon & Schuster, 2021
The Free-Market Innovation Machine: Analyzing the Growth Miracle of Capitalism. William J. Baumol. Princeton University Press, 2004.
Investigating the impact of global stablecoins, Annex C: Central bank digital currencies (CBDCs). The International Monetary Fund, 2019.
Economics of a pure gold standard, fourth edition. Mark Skousen. Published by The Foundation for Economic Education Inc., 2010.
Whitepaper of the Gaugecash Monetary System. https://www.gaugecash.com
