Seigniorage and Chai

I feel that there has been a lot of confusion about how seigniorage works in the context of chai.

Here is my take, trying to explain the key mechanics that allow Chai to benefit from from seigniorage and provide on-going benefits to consumers and merchants.

Looking forward to any feedback.
Chai_Terra.pdf (420.8 KB)


This is great!. For BD purposes with non-crypto potential partners I think need something shorter and simpler. No formulas, can’t look like an academic paper, and need a short and long version. Short is one paragraph for the body of an email. Long should feel more like an infographic than a paper.

I dmed you!

Thanks for the write up, but could you get more specific on these questions:

  1. You mention how users access Chai, but what happens to the KRW that is transferred from a bank account?
  2. How does the relation between Chai and Terra work when new KRT are minted? What kind of proofs does Chai need to provide for Terra to mint KRT? I imagine its done in a centralised way for now, but what are ways to create these proofs in a decentralised and trustless manner?
  3. You mention the demand for KRT and a weekly 8% growth rate. But if I look at the total KRT supply it has remained pretty much constant around 76bn KRT since end of January. Have there been any seignorage discounts given out in this time? If so, how where they financed when the supply remained constant?
  4. When merchants want to withdraw their KRT and have KRW in their bank account, do they have to use an exchange for that or does Chai convert it for them? If so, how does Chai convert it?

I am asking these questions mainly because we will need transparent and decentralised ways to answer these if we expect more companies like Chai to use Terra.

  1. I believe Chai buys KRT mostly from exchanges, but since I don’t work for Chai I can’t know exactly what chai does.
  2. For now, Terraform Labs provides seigniorage to chai, under the condition that either transaction volume grows or that the amount of KRT locked at chai increases.
  3. The 8% growth rate refers to the historical average since genesis. You are correct that since chai reduced discounts in January, growth has been affected. As a natural implication seigniorage has also beed reduced (but its not zero since topups have increased). So the amount of KRT being locked with chai has been rising at pretty high rate).
  4. I believe how this is handled varies from merchant to merchant. Most merchants eventually liquidate to KRW. I am unaware of the exact details per merchant.

Your points are excellent and we fully agree that for the Terra ecosystem to truly flourish seigniorage should happen in a decentralised and transparent way. Hopefully soon the whole process will be algorithmic, so there will be no room for discretion and centralisation.