CDT Deep Dive
Contents
- Overview and Advantages
- Asset Bundles
- Reflex Indexes
- Use Cases
- Future
Overview
$CDT is a USD denominated, floating redemption stablecoin native to Osmosis, focused on robustness, ease-of-mint, and stability.
Users can mint $CDT by depositing a number of different assets as collateral, then minting the $CDT against that collateral value. Membrane is designed to accept a number of different assets such as LP tokens, and even a mixture of different assets into a single position, dubbed an “Asset Bundle”.
$CDT offers a number of advantages when compared to other CDP-based token designs, which will be covered in this article:
- Asset Bundling delivers a massive boost to system stability, while improving user experience and flexibility.
- Replacement of a hard-peg system with a soft-peg Reflex Index removes “peg brittleness” and the need for centralized stablecoin PSMs from the system, while still providing a low-volatility collateral source.
- $CDT enables a large variety of different collateral types such as LP tokens, which increases both flexibility for users and diversification for the protocol.
Asset Bundling
One of Membrane’s core features is Asset Bundling, a process in which users can mix different forms of collateral into a single position. When assets are bundled in this manner, they are treated as a single unit with respect to LTV and total value. This allows users to mix and match different collateral combinations in order to reduce their volatility, which in turn takes pressure off of the liquidation functions, benefitting both the user and protocol.
Bundling Example
In the above example, we can see two positions before and after their price action. In the position displayed on the left, the assets are unbundled, so when the price of OSMO drops, it falls into liquidation territory. This is not only frustrating for the user, but puts additional pressure on the liquidation markets. In the position displayed on the right, the assets are bundled together. Although the OSMO again dropped in value, no liquidations occurred as the total value of all assets remains sufficiently overcollateralized.
While using Membrane, assets can be added or removed from the bundle at will, regardless of whether the asset type was a part of the initial position. This combination of flexibility and safety encourages more user activity, helping $CDT to scale.
Reflex Indexes
A reflex index is a type of floating peg mechanism, pioneered by Reflexer Labs. In a reflex index, the redemption rate of a token is adjusted in an automated fashion to counteract market forces, stabilizing the market price of the token. In essence, the short run price of $CDT is allowed to fluctuate in accordance with market pressure in order to maintain longer term stability.
When the market price of $CDT is above redemption price, the redemption rate will lower in order to encourage minting (minting more $CDT results in a higher $CDT supply, lowering price). When the market price of $CDT is below redemption price, the redemption rate will rise in order to encourage redeeming (redeeming $CDT results in a lower $CDT supply, raising price).
In this way, $CDT maintains long-run stability while increasing robustness to market pressures and forgoing centralized stability modules.
Use Cases
$CDT is an incredibly versatile token, as the large variety of compatible collateral combined with more stable minting via bundles enables $CDT to maintain larger scale than other CDP-based tokens.
$CDT can also help power derivatives markets by acting as a collateral aggregator. By providing a single form of settlement with extremely deep liquidity, it can encapsulate liquid value from many different sources while issuing itself as a standardized unit. This lets derivatives markets avoid the liquidity and design issues around collateral, and instead allows them to focus on creating intuitive and efficient protocols.
Using Membrane’s open liquidation system, any user can provide their $CDT in order to benefit from discounts on liquidated collateral by using the Stability Pool or Liquidation Queues (which will get their own article soon).
We hope you enjoyed this closer look at $CDT, and are looking forward to providing more in-depth written content as we approach launch. Let us know what you’d like to hear about next!
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