Introducing Bluejay Finance

Bluejay Finance is an Asia-focused capital-efficient protocol for multi-currency stablecoins. Our aim is to bring the FX market to DeFi, in order to accelerate financial inclusion for all users and businesses.

Who are the next 100M crypto users?

Crypto has had an extraordinary year in 2021. Ethereum price increased 425%, Bitcoin crossed $1 trillion in market cap, unprecedented amounts of institutional capital entered the space, and retail interest exploded through NFTs and GameFi.

So what’s next from here?

The next 100M users will be entering crypto for its practical benefits and utility beyond just speculative trading, especially in regions like Asia where there are large gaps in access to financial services and capital markets compared to the West. We’re very bullish on Asia as a region, and this trending growth is already starting in countries like Philippines, Vietnam, and Thailand top the charts for global crypto adoption, in a report by Chainalysis.

• Indonesia has the 7th largest crypto user base. It’s estimated that 7.2M Indonesians own crypto, which is a 85% increase YoY and almost 3x the number of stock investors (2.7M) based on data from Indonesia Stock Exchange.
• In the Philippines, 20% of the population has had exposure to crypto, and at least 3.5M have played an NFT game like Axie Infinity.
• 9 in 10 Singaporeans intend to increase crypto investments in 2022.

Why local stablecoins?

In order to bring these populations into crypto, we need to have the infrastructure of local stablecoins to enable on/off-ramps, interoperability, payments, financial services in DeFi, and more.

Stablecoins are instrumental building blocks for the growth of crypto. Stablecoins are pegged to real-world assets like fiat currencies, and serve as a stable and interoperable layer that facilitate transactions for more commonly volatile assets in crypto like Bitcoin, Ether, etc. They have allowed individuals and businesses to not only pay and receive payments but also gain access to a wide variety of financial services like money exchanges (e.g., Uniswap), savings (e.g., Celsius), investments (e.g., Synthetix), asset management (e.g., Yearn), and more.

However, local stablecoins represent less than 1% of the supply of stablecoins, and most protocols and distribution strategies were designed solely with the USD in mind. This poses several challenges for crypto users in this region.

• ForEx Risk: people do not want the additional forex exposure of holding USD stablecoins, where they could lose 3–15% of the value of their investments if their home currency fluctuates against the dollar.
• Earning income in crypto: even if employees at non-US crypto companies wanted to receive their salaries in stablecoins, they would have difficulty dealing with the tax implications if the payment is in USD stablecoins.
• Fees & inconvenience with off-ramps: on/off-ramping is still quite an expensive (e.g., fees) and inconvenient process (e.g., multiple hops via DEXes/CEXes) for many users in the Asia region, to the point where many actually do not cash out at all on a regular basis.
• Local familiarity: the value of a sovereign currency is deep-rooted in culture. Many more mainstream users and businesses might be hesitant to invest in crypto until there is a local stablecoin available, which they understand much better as a unit of account than USD or other foreign currencies.
• Centralization risk: many people are uncomfortable with the idea of overly relying on a stablecoin that has a central bank that will likely not have their particular home country’s interest in mind when managing its monetary policy (e.g., inflation, interest rate hikes)

Why a different stablecoin design?

Fiat-collateralized stablecoins like USDC and USDT are centrally controlled. This represents a regulatory risk and a point of failure for apps wishing to be truly decentralized. Current crypto-backed stablecoins requires overcollateralization that results in low capital efficiency.

The excerpt from FEI’s whitepaper gives a good summary of the current stablecoin ecosystem. Fiat-collateralized stablecoins are opaque with their setup and are under constant regulatory scrutiny which prevents them from scaling beyond a single jurisdiction.

For that reason, there are multiple protocols attempting to create a truly decentralized stablecoin protocol that is reliable, scalable, and capital-efficient, each with a different approach:

• IronStablecoin and FixedForex approached the problem with MakerDAO’s CDP model of overcollateralization.
• Angle Protocol approached the problem by selling the exchange risk to hedging agents.

The problem with overcollateralized protocol is that they are not as capital efficient in nature as collaterals are non-working capital. For example, one DAI requires more than one USD of collateral and another one USD to be matched in a liquidity pool, yet only the one USD in the liquidity pool is a working capital (ie. it accrues transaction fees).

This puts unnecessary pressure on the protocol to undertake additional risks by investing (usually through staking or lending) their collaterals used to back the stablecoins issued. In periods of market stress, where there is an increased correlation, there may not be sufficient value from the collaterals to support the market value of stablecoins minted.

Other models such as selling exchange rate risk to third parties have the challenge of pricing the risk correctly, attracting stakeholders to take on the counterparty risk, and have not been tested under stressed market conditions.

At Bluejay Finance, we are attempting to take a different spin by using liquidity to back stablecoins.

What is Bluejay’s design?

Bluejay Finance allows stablecoins to be provided, with deep liquidity backing directly from a DAO through protocol-owned liquidity.

Some key elements of our designs:

• Bonding mechanism to fund stablecoin minting
• Protocol-owned liquidity to back stablecoins
• Stabilizer bonds to keep stablecoins to peg

The DAO will be using a bonding mechanism to bring their assets into the treasury in exchange for a stake in the DAO.. Users will be able to exchange collaterals (i.e., DAI) or liquidity provider tokens for the stablecoins for its native governance token.

The DAO’s treasury will comprise mostly liquidity provider tokens, which represent an equal proportion of stablecoin and collaterals staked on a decentralized exchange. This eliminates the need for additional collaterals to be kept to back the stablecoins as they are backed by liquidity directly. The design also creates predictable liquidity for the stablecoins supplied as there is no reliance on external liquidity providers.

In addition to those bonds, the DAO also issues different stabilizing bonds, depending on whether the stablecoin is overpriced or underpriced in relation to real-world pricing. These bonds allow users to buy the governance token at a discount relative to the deviation between the prices and its proceeds will be used to swap assets on the liquidity pool to bring the on-chain price to peg.

What is the role of the BLU token?

The governance token will play a dual role in accruing value and governance.

The primary role of the BLU token is in its value. The token is backed by the total amount of assets held in the treasury, which includes the collaterals posted in the bond sales, the stablecoins paired in the liquidity pool, as well as revenue generated from the bond sale and liquidity pools (when swaps happen). One thing that sets the BLU token apart from other DeFi tokens is that value generation comes in part from a real use case for the treasury starting on Day 1.

In addition to value accrual, token holders also play a part in protocol governance. In its infancy stage, the team will help to bootstrap the protocol and be a steward to make sound decisions for everyone.

As the protocol mature, the governance token will be used to vote on different decisions like:

• General project directions
• Project collaborations
• Stablecoins to provide
• The proportion of resources to allocate to different stablecoins
• The proportion of collaterals to be held as reserves .etc

What is next?

The protocol is still under active development and testing and we will be releasing our schedules and launch details soon. We are aiming to launch in May 2022 on the Ethereum mainnet.

As we get closer to launch, we will be releasing more details on the protocol and how you can participate.

Join Us

Building a protocol is more than just the technologies, the community is just as important. We welcome any help and initiatives to support and grow the protocol.

Fill up this form to get the latest update on our launch!

Alternatively here are some ways you can get involved now:

• Join our community on Discord
• Follow us on Twitter
• Subscribe to us on Medium

Legal Disclaimer

The information provided in this Medium Post pertaining to Bluejay Finance, its crypto-assets, business assets, strategy, and operations, is for general informational purposes only and is not a formal offer to sell or a solicitation of an offer to buy any securities, options, futures, or other derivatives related to securities in any jurisdiction and its content is not prescribed by securities laws. Information contained in this Medium Post should not be relied upon as advice to buy or sell or hold such securities or as an offer to sell such securities. This Medium Post does not take into account nor does it provide any tax, legal, or investment advice or opinion regarding the specific investment objectives or financial situation of any person. Bluejay Finance and its agents, advisors, directors, officers, employees, and shareholders make no representation or warranties, expressed or implied, as to the accuracy of such information and Bluejay Finance expressly disclaims any and all liability that may be based on such information or errors or omissions thereof. Bluejay Finance reserves the right to amend or replace the information contained herein, in part or entirely, at any time, and undertakes no obligation to provide the recipient with access to the amended information or to notify the recipient thereof. The information contained in this Medium Post supersedes any prior Medium Post or conversation concerning the same, similar, or related information. Any information, representations, or statements not contained herein shall not be relied upon for any purpose. Neither Bluejay Finance nor any of its representatives shall have any liability whatsoever, under contract, tort, trust, or otherwise, to you or any person resulting from the use of the information in this Medium Post by you or any of your representatives or for omissions from the information in this Medium Post. Additionally, the Company undertakes no obligation to comment on the expectations of, or statements made by, third parties in respect of the matters discussed in this Medium Post.