AC's Stablecoin Study Notes

2021-01-06 20:10

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Original compilation: 0x26

In this article, AC did not define stablecoins such as Basis as algorithmic stablecoins , but choose to use Bond instead. In the case of guaranteeing the ownership of the original assets, the right to use the stable currency is obtained. The following is AC’s classification of tokens anchored to fiat currency value and the translation of the original text of the study:

1:1 pledge (USDT, USDCT, USD, etc.)

Arguably the easiest way to deposit 1 USD to get 1 USDT. Destroy 1USDT and withdraw 1USD. If the price of 1 USDT is greater than 1 USD, minters can deposit USD and sell USDT for profit. If the price of 1 USDT is less than 1 US dollar, arbitrageurs can buy USDT and burn it to obtain US dollars.

Rhythm Note, a stable currency in the fiat currency custody model.

Asset collateral model (DAI, sUSD, etc.)

Create a debt position with collateral and mint stablecoins. For example, deposit 1 ETH to get 700DAI. It is stable if the collateral value is greater than the outstanding debt (minting volume). It is worth noting that the debt itself does not need to be stable, only the condition that the collateral value is greater than the debt is satisfied.

If anyone’s collateral < debt, the liquidator can repay that part of the debt, And get an equal proportion of collateral.

The previous paragraph implies that rational liquidation is only possible if the profit on the collateral ≥ the cost of the debt to be repaid Will repay the debt (DAI). If the collateral requirement is 120%, it means that the profit to participate in this liquidation is 20%. So, if the entire system is collateralized at 120%, it means that for every $1 collateralized, there is $0.83 in debt. If the value of the collateral drops by 10% ($0.9), the collateral to be repaid is $0.1 and the debt amount is $0.083. This means that for every $0.83 the liquidator will receive $0.17. The more the collateral price exceeds 100%, the more stable it is.

Banded Bonds/Seigniorage (Basis, etc.)

In order to illustrate the problem, the following examples are partially simplified. If the price is less than 1, the user can buy discounted bonds. If the price is greater than 1, all bonds can be sold. For example, if the current currency price is $0.9, you can buy a bond at $0.89. At the same time, this will also increase the buying demand and thus increase the price of BAC. When the price of BAC rises above $1, the BAC discount coupon can be exchanged for BAC. If the demand is greater than $1.01, now sell the BAC obtained from the discount coupon at a price of 0.89

Volatile Bonds (Frax etc.)

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The following examples are partially simplified for illustrative purposes. There are two tokens in this system, one is aimed at stablecoin and the other is unstable. If price < 1, burn stable tokens to convert to fluctuating tokens. Price > 1, burning unstable tokens for stable tokens.

Rhythm Note, also take Frax as an example to further explain, when the price of the stable currency Frax is 0.9 US dollars, users can exchange Frax Burn to get a stablecoin worth 1 USD (for example, 0.8USDC and 0.2 FXS). When the price of the stablecoin Frax is $1.1, users can mortgage a token combination with a price of 1 (0.8USDC and FXS with a price of 0.2), obtain Frax, and sell it in the market for arbitrage.

Backstop Bonds (stable insurance)

Provides a second backing token similar to USDC. Backers can stake USDC and earn fees. If the anchored token price is less than 1, sell the anchored token to obtain the supporting token USDC to maintain the anchored price. If the price of the anchor token is greater than 1, the support token USDC will be mortgaged for the anchor token and sold in the market to maintain the price. The anchor token is as liquid as the backing token. Essentially automatic ribbon bonds or volatility bonds (depending on whether the backing token is a stablecoin).

Reflex-Index (Reflexer, etc.)

More in-depth research is needed. It currently appears to be secured by collateral, but the collateral is converted into a less volatile index. AC will continue to study.

Stable Credit

Iterated to the third version of stable credit, using collateral to create a pledge and redemption system that anchors the 1:1 exchange rate. However, as mentioned in the asset-backed model above, the condition of collateral ≥ debt must be met. For stable credit, this condition does not have to be met, because for every $1 of collateral, there is a corresponding $1 of minted stablecoins and $1 of debt.

If we regard minting stablecoins as issuing debt, then first we need to assume the target of this bond : Mainly to provide leverage. Using DAI as an example, if you want to mint DAI with Ethereum as collateral, and then use DAI to buy more Ethereum. Without considering other influences, the account has 2000 DAI minted from 2 Ethereum, and an AMM with 1000 DAI and 1 Ethereum. If you sell 1000 DAI in AMM, the obtained Ethereum is ≤ 1. At this time, the Ethereum position is ≤ 2, and the debt of 1000 DAI; there are ≤ 1 Ethereum and 2000 DAI in the AMM. In the AMM in this case, the purchasing power of DAI against Ethereum is reduced. Then as the assumption above, all DAI minting activities are to increase leverage, then the actual purchasing power of DAI will drop to between 0.5DAI and 1DAI.

When there is enough liquidity, these calculations do not need to be considered, but building alternative solutions for them is also It is very necessary. In the fourth iteration, in addition to the 1:1 pledge-redemption system and collateral, Volatile Backstop Bonds will also be introduced.