dForce to Launch USDx — the First Synthetic Indexed Stablecoin

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dForce

4 min readMar 26, 2019

Background

dForce is aiming to build an integrated platform for blockchain-native DeFi and monetary protocols serving as back-bone infrastructure for DeFi and open finance applications. The first of such protocols is USDx, the first synthetic indexed USD stablecoin protocol.

What is USDx?

USDx is an on-chain synthetic indexed USD stablecoin protocol, which is 1:1 pegged to a basket of selected stablecoins, USDx is issued as an ERC20 token and is automatically minted with a basket of constituent stablecoins (mostly fiat-back with high transparency and liquidity) through smart contracts. Its’ underlying portfolio includes USDC, TUSD and PAX, which is adjustable via on-chain governance.

Note:

DAI was removed from the basket through a governance voting in Nov 2019.
Constituent weighting has been adjusted to 80% USDC + 10% PAX + 10% TUSD through a governance voting in July, 2020.

Dual-token Model

dForce is featuring a dual-token model, with USDx as transaction stablecoin pegged to constituent stablecoins and the network utility token - dForce Token (DFT) to be used for transaction service (i.e mintage fee, interest payment etc), insurance fund, community governance, incentive mechanism, validator deposit etc;

DFT also acts as last resort for dForce ecosystem, i.e issuance of DFT for recapitalization of USDx holdings in extreme events.

Constituent Stablecoins and their Selection

USDx is backed by three constituent stablecoins, with the following weighting: 80% USDC, 10% TUSD and 10% PAX. The selection and weighting of constituent stablecoin is assessed based on the following parameters/factors:

1) Transparency & regulatory compliance;

2) Outstanding floats;

3) Daily trading volume and OTC liquidity;

4) Supported exchanges.

Stablecoin Trilemma

There is currently no implementation in the market that can effectively tackle the stablecoin trilemma: stability, scalability and fungiblility.

While fiat-back is best at tackling the stability and scalability fronts, they collectively fail on fungibility, unable to to create fully permissionless, decentralized, censorship-resistant and programmable protocol.

Over-collateralized stablecoins, like DAI, is a by-product of a decentralized lending market. Although it is able to provide more fungibility than its peers, there are inherent conflicts between two contradictory demands underlying its protocol. The demand for leverage (amid bull market) contradicts the demand for stability (amid bear and panic market). The recent stability fee hike (from 0.5–7.5% in the period of 4 months), highlightening such conflicts (DAI de-pegged from USD due to overwhelming demand for leverage leading to oversupply of DAI compounded by whammy demand for stablecoin amid market recovery).

DAI already locked around 2% of total ether, it is inconceivable that DAI will have to collateralize over 30% of total ether in circulation (at current market price), in order to generate floats of the size of USDT, that in itself will render DAI systemically important to Ethereum(too-big-to-fail-protocol), hence introduce instability back to the DAI/MRK itself. I do believe the fundamental flaw is unsolvable without significant redesign.

Our Design Goals For USDx

Our design goals for USDx is to make the right trade-offs to deal with the trilemma.

USDx is essentially pegged to mostly transparent fiat-back stablecoins, the trust model is simple and scalable, the peg is maintained via arbitrage dynamics between USDx and its constituent stablecoins. Given its portfolio diversification, it is exposed to less market, counterparty, liquidity and regulatory risks. Most importantly, USDx is an adaptive and self-amending protocol, able to adjust its constituent portfolio and their respective weighting via on-chain governance.

Despite we have more fiat-back and centralized stablecoins in our basket, our goal is to gradually diversify into more decentralized and fungible stablecoins(like DAI and other collateralized or algorithmic stablecoins) and the governance will pan out gradually to ultimately be a DAO-like model, where DFT holders dictate all governance issues, including pricing policies in dForce Network.

The Benefits of USDx — Highlights

USDx provides the following benefits(there will be separate articles going into the details of each of the benefits):

Strong peg and robust trust model
Diversification at its core with no risk of single point of failure
Interest-bearing
Multi-layer risk buffers
Decentralized Governance

Our Launching Schedule

Testnet Schedule

USDx 1.0 Testnet

USDx 1.0 testnet is deployed on Ethereum Kovan Testnet, 1.0 features full on-chain mintage/dis-aggregation and interaction with our network token DFT.

The USDx 1.0 Testnet portal is listed below, you are able to interact with MetaMask, welcome to join our Telegram for testnet faucet:

USD1.0 Testnet(On Kovan Testnet): https://dforce.network/

Telegram Group for Testnet Faucet: https://t.me/dforcenet

Mainnet Schedule

dForce Token (DFT)

dForce Token is critical to the full functionality of dForce Network and USDx protocol, we are aiming to deploy DFT to Ethereum mainnet over the next two weeks.

USDx 0.5

We are ready to deploy our USDx 0.5 on Ethereum mainnet in April/early May, V0.5 allows to mint/dis-aggregate USDx via trusted gateways(brokers), so we will be able to integrate with our partners and exchanges etc.

USDx 1.0

1.0 will feature fully on-chain mintage/dis-aggregation functionality, we already deployed the v1.0 Testnet, mainnet deployment is aimed in June/July.