Meet The Next Generation of Stablecoins: USD3
Web 3 Dollar is composed of the best stablecoins index with the main objective of being resistant to inflation by generating yield just for holding it.
TL: DR
- USD3 is backed by a series of DeFi assets from the most reputable protocols within the DeFi ecosystem (AAVE, Compound, MakerDAO).
- USD3 was designed to be a low-risk asset while capturing a yield of up to 10% APY passively.
- USD3 aims to be the perfect treasury asset for DAOs and Corporate.
- Being overcollateralized through Reserve Protocol, USD3 is protected from black swan-style events that could make it lose its peg to the USD.
A little about USD3’s founder: Tom Sawyer
Tom Sawyer aka 0xTomSawyer on X (formerly Twitter), has been a Software Engineer for over 5 years, and has worked in reputable companies such as NASA’s Jet Propulsion Laboratory (NASA JPL), as a Software Engineer, he has a solid background in Computer Engineering and Math. Since 2018 he has been involved in the crypto ecosystem and has worked at Chainwave and since then the DeFi topic has caught his attention.
The Problem: Stablecoins Today
Currently, according to DefiLlama, stablecoins have a Market Cap (MC) of about USD 160,171b…
Of that USD 160,171b, around 92.60% (USD 148,329b) is represented by Fiat-backed stablecoins, followed by 6.41% (USD 10,278b) which are backed by crypto and lastly, we have 0.97% (USD 1,564b) (thank goodness it’s only <1% 🤣) which are backed algorithmically.
The problem with these types of stablecoins is they are centralized, can suffer depegs, are not usually very transparent, and at the end of the day they cannot escape a bigger problem, which is inflation.
The Solution: A New Kind of Stablecoin
To develop a new type of stablecoin that is free of all of the above-mentioned problems, Tom had to think very carefully about how to do it.
- Step 1: Forget about the most commonly used backup methods today (Fiat, Crypto, or Logarithmic) — By not choosing such methods as a backup for USD3, sensitive aspects such as centralization, transparency issues, possible depegs, and inflation are completely or partially eliminated.
- Step 2: The entire creation process has to be on-chain — By subjecting the entire process of creating this new type of stablecoin to only happening on-chain, since everything that happens within the blockchain is public, you end up eliminating transparency problems.
- Step 3: Knowing how to choose the best infrastructure/protocol to deploy this new type of asset — To have better security, management, and access to this new asset, choosing the best infrastructure/protocol will add an extra to the asset to be developed.
Ladies and Gentlemen: Web 3 Dollar aka USD3
By considering and taking into account all these details, and after much research Tom was able to create Web 3 Dollar (USD3).
Web 3 Dollar (USD3) is an asset-backed blue-chip stablecoin index, initially pegged to USD 1. Being composed of DeFi instruments, USD3 can offer its holders an APY of 5–8%, also it is designed to be a stable and resilient digital asset, leveraging on-chain over-collateralization to protect against depegging events or bank runs.
USD3 Backing Assets in Detail
- saEthPyUSD (AAVE PYUSD V3), pyUSD (Paypal USD) deposited and lent out on V3 of Aave on Ethereum. This variable yield is generated from the interest rate paid by borrowers and driven by borrower demand levels.
- Savings DAI (sDAI), DAI (MakerDAO) are deposited on Spark Finance to earn yield via the DAI Savings Rate (DSR). The DSR is a fixed rate of return set by MakerDAO governance which rewards the portion of DAI deposited in a vault. The yield paid out is a share of revenue earned from DAI’s backing assets, either through interest charged on loans or from deploying reserves.
- Compound USDC, USDC (Circle) deposited and lent out in V3 of Compound Finance. This variable yield is generated from the interest rate paid by borrowers and driven by borrower demand levels.
Thanks to these 3 DeFi instruments used as backing assets for USD3, USD3 can offer an APY of 5–6%.
Key Features of USD3
Web 3 Dollar is deployed using Reserve Protocol, which gives it several features/benefits such as:
- Over-collateralization — Web 3 Dollar is deployed using Reserve Protocol, which gives it several features/benefits, one of them is that it has an emergency basket of assets, intended to replace the main asset(s) that support it if they are detected to default. USD3 benefits from over-collateralization through the Reserve Rights (RSR) token.
If a default were detected in one of its backing assets, a procedure would be initiated where all the RSRs that are backing USD3 would begin to be sold and then the established emergency asset would be purchased to prevent USD3 from depeg. This over-collateralization mechanism was successfully tested when the depeg happened to USDC. - Permissionless and fully on-chain — The Mint/Redeem process is working 24/7, you don’t need KYC, you don’t need to be approved by anyone to be able to use USD3, you don’t need to pay commissions to third parties, everything happens on-chain, verifiable and transparent.
- Secure and transparent — USD3 was deployed using one of the most secure and robust DeFi protocols: Reserve Protocol. This protocol has been audited about 9 times by highly respected firms such as Trails of Bits, Solidified, Ackee, Halborn, Code4rena, and Trust Security. Also, the protocol has one of the largest Bug Bounties on Immunefi with a maximum reward of $5M if a critical bug is discovered.
- Decentralized governance — By being overcollateralized using RSR, RSR stakers not only get a portion of the returns generated by USD3 but also become the governors of USD3. Anyone can propose a change to USD3 and put it to a vote, if the stakers agree, the governance proposal will be approved, if the proposed change is not aligned with the principles of USD3, they can vote against it.
USD3 Growth Since Its Creation
USD3 is a new asset, but since its creation, it has been gaining market growth. In the last few days, we have seen large amounts of USD3 being mined and it currently has a market cap of around $23M.
Also, we can see that USD3 is being integrated into large DeFi protocols such as Curve and Convex where users will be able to generate extra yield by LPing their USD3 into the various existing pools.
Use Cases for USD3
- FinTech integration — USD3 is the perfect asset to be integrated into the various FinTech that currently exist. Within this FinTech, it can act as a payment method, a savings method, or simply another digital solution available to access the USD.
- Long-term savings — Just by holding USD3 you can generate yield passively, this would allow holders to generate long-term interest on their savings and beat inflation.
- Treasury asset — This is related to long-term savings but on a larger scale, where DAOs/Foundations/Corporations allocate a % of their governance token holdings to USD3 or directly replace their stablecoin holdings with USD3. Currently, the treasuries of the largest DAOs/Foundations/Corporations only hold less than 1% of their total value in stablecoins, leaving the value in USD terms to be affected due to unfavorable market conditions… By generating a passive yield through USD3, these treasuries could better profit/preserve value in unfavorable market times.
Closing Thoughts
USD3 makes a perfect combination of backing assets to become the ideal solution for all types of users, from the common user to large DAOs, Foundations, or Corporations. Having already reached a Market Cap of close to $23M in a short time, it can be seen that USD3 is starting to attract attention and can certainly achieve its main goal: Becoming the perfect treasury asset for DAOs, Foundations, or Corporations.
Helpful Links:
- USD3’s Founder
- USD3’s X/Twitter profile
- USD3 on Reserve Register dApp
- USD3 Governance Forum
- Want to talk more directly about USD3? Head over to Reserve’s Discord.
Thanks for reading, anon…
This article is also available in Spanish, you can read it by clicking HERE.
