Our Solution
The protocol is built on a collateralised based issuance architecture where stablecoin supply is generated through borrowing against collateral deposited in our protocol. Our objective is to offer near to 100% capital efficiency to the users while simultaneously having the appropriate backing of stablecoins. We tackle the volatility of this collateral through delta neutral mechanism with the help of our decentralised credit default swap (dCDS) module and derivatives usage to align incentives among participants.
The stablecoin solution serves as a reliable store of value, targeting individual users, businesses, DAOs (decentralized autonomous organizations), and financial institutions seeking to stay engaged in the growing digital asset ecosystem while capitalizing on diverse opportunities in global markets. Our stablecoin issuance module allows leveraging crypto collateral in return for stablecoin credit while offering downside protection for the deposited assets. This opens up new possibilities for borrowers who can secure a stablecoin loan against their crypto collateral and invest the funds in their businesses without the risk of liquidation. Our objective is to deliver optimal capital efficiency to all participants. The project encompasses three key components, outlined as follows:
Stablecoins
They are issued/minted upon locking collateral like ETH and other crypto native assets. The LTV (Loan to Value) ratio will start at 80% and will climb upto 100% once the protocol is stabilised.
Decentralized dCDS (Credit Default swaps)
Depositors can take a position by depositing USDa and other acceptable tokens in dCDS module and get regular funding payments from users buying derivatives. They will also earn a part of the borrowing fees charged to stablecoin borrowers. Participants can earn near to 200% APY over and above the interest rates they receive from depositing their assets. The dCDS owners will also act as option sellers and will be getting fixed option premiums in return for enabling the volatility hedging to provide downside protection to borrowers and counterparty support to protocol. The dCDS users will effectively be getting compensated with option premiums from multiple borrowers in return for offering downside protection and in the way will be able to accrue the percentage of profits achieved by multiple borrowers by taking loans from our protocol.
Collateral Options
The collateral options are the source of fees for dCDS owners. The idea behind collateral options is to give an option to the borrower for creating lossless strategies. In traditional finance, people buy options to hedge their downside and create a limited loss strategy. Using the same method, upside is maintained as the collateral options are a form of call options that allows the borrower to earn all the upside above a particular strike price. Borrowers will be able to buy a call option and downside protection while taking a loan against Ethereum or any other collateral through our borrowing contract. Upon paying an upfront option price, the borrower can hedge the downside risk.
These three will work together to maintain the stablecoin peg and manage collaterals & defaults. The protocol will have two types of user-base with different risk tendencies and opinions about the market.
The first type of users will be borrowers who want to mint stablecoins and stay long in the volatile crypto asset that they hold. These users also want to maximize their deposited capital’s efficiency. To achieve the same, the users can mint and borrow the stablecoins against their deposited capital at the maximum LTV ratio of 100%.
The second type of users will be dCDS owners. A dCDS position allows one to swap the credit/default risk in exchange for some periodic fixed fees. In its aim to provide a 100% LTV ratio to borrowers, the protocol faces the credit/default risk when there is a fall in deposited capital (collateral) value. The protocol will protect itself against these credit risks with the help of dCDS owners. The protocol will swap the credit risk from itself to the dCDS owners.
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