Today enterprise blockchain developer Settlemint announced a deal with the Islamic Development Bank Institute (IsDBI) to use smart contracts to develop a ‘Smart Stabilization System’ (SSS). It applies to any market-based assets but particularly financial asset and digital currencies.
At a high level, the goal is to reduce the potential for major short term market swings. Sometimes short term volatility can get out of hand and cause crashes. Depending on the asset – think money market funds – occasionally governments have to step in, resulting in a cost to the taxpayer. As a development bank, the IDB is exploring an alternative path.
It says the stabilization algorithm will aim to manage “the gap between supply and demand to reduce the volatility of the price.”
We’ve asked for details, but we’d guess the smart contract will automatically buy when there’s a lack of buyers, and sell when there’s a shortage of sellers. If it doesn’t own the asset, it might need to borrow it first. Theoretically that would mean it will buy low and sell high,…