Impossible Finance Research Report #7 — Ouro
The idea of having a digital token pegged to a real-world currency is not new, even predating Bitcoin, but adoption of stablecoins only began to occur in 2014, with the introduction of Tether (USDT). This was the first stablecoin and the first to introduce such a concept. The assumption was that every USDT minted is backed by $1, as such being able to maintain its 1:1 peg. The underlying fiat collateral remains with a central issuer and must fully match the number of stablecoins in circulation.
Since then, many other stablecoins (i.e. USDC, DAI, BUSD, etc.) have replicated the same pegging mechanisms, but concerns have been raised due to the centralization of these tokens and the potential for blacklisting and/or censorship of users. Despite its shortfalls, it still goes without saying that these stablecoins have created significant improvements in how users interact with crypto, largely acting as a safe haven for users to avoid crypto market volatilities. Additionally, it has also significantly removed the frictions associated with exit as there wasn’t a need to go entirely back into fiat, signifying a key piece of infrastructure that enabled the growth of crypto.
To put into perspective the current state of stablecoin supply now, the graph above highlights the significant uptick in stablecoin adoption from its inception in 2017, growing from a measly supply of $10 million to a total supply of over $136 billion today. This is a testament not only to the adoption of crypto but also to the adoption of stablecoin usage, as users preferred to store their crypto in USDC or USDT. Behind this behavior shift also came increasingly available yields and the variety of DeFi strategies that support stablecoin deposits on-chain.
However, even with its popularity and intuitive ease of use, there remains a huge issue — many stablecoins such as USDT or USDC are controlled by a single entity off-chain in a centralized manner, which goes against the very ethos of crypto. Furthermore, since stablecoins are pegged to the dollar, you’re at the mercy of the monetary policy and regulatory risk of one government.
On the flip side of this, we have decentralized stablecoins. These can be split into two categories — collateralized stablecoins and algorithmic stablecoins.
Collateralized stablecoins are what the name suggests, they are backed by a certain amount of tokens, typically in the form of less volatile assets, and are over-collateralized. These are far less susceptible to censoring but capital efficiency is greatly sacrificed. The most widely used one is DAI from MakerDAO, but there are other newer stablecoins such as MIM, FRAX, LUSD, and FEI that all use a variety of different assets to back their stablecoin.
Then there are algorithmically-rebasing stablecoins, which don’t typically utilize collateral but rather rely on a set of algorithms and smart contracts to control the supply and demand, dictating the stability of the token. For example, if an algorithmically-rebasing stablecoin falls below its peg of $1, the supply of tokens is reduced to ensure it re-pegs, and the opposite is true if it exceeds $1. As such, it’s a much truer form of decentralization because it’s trustless, there isn’t a regulatory body looming around the corner and code is very much law. This does lead to some user adoption pain points such as non-fixed supplies and more complexity in economic models. However, for a web3 world, we need web3-native stores of value.
This is exactly what we should be working towards, a state where everything in crypto is truly decentralized, away from the clutches of a single controlled entity. Even though there have been many algorithmic stablecoins that have failed, many have thrived as well. This is part and parcel of innovating within this space, there will be plenty of hiccups along the way but it’s a necessary evil when it comes to innovation and at Impossible we strive to be at the forefront of that.
As mentioned above, the community will not stop the search for better algorithmic stablecoin solutions, and we hope one day some algorithmic stablecoins can reach a sizable market share, similar to a position that USDC enjoys today.
Project Overview
Ouro aims to create an ‘inflation-proof store of value’, by deriving traditional fiat inflations manifested in the growth of the value of cryptocurrency assets and migrating them onto Ouro. One simple way to think about Ouro would be that as inflation rises, more people aim to hedge inflation through the purchasing of cryptocurrency assets. Thus, Ouro aims to capture this value and direct it to token holders as Ouro offers cryptocurrency exposure through their whitelisted assets within the reserve pool (BTC, BNB and ETH) and therefore a hedge against inflation, whilst also providing token holders the benefit of reducing price volatility risks and preventing impermanent loss for liquidity providers on automated market makers. This is achieved through interactions between their dual-token system OURO and OGS (Ouro Governance Share).
Users are able to mint OURO by depositing assets into the reserve pool and will receive OURO of equivalent value (i.e. If $100 worth of BNB is deposited, the user receives $100 worth of OURO). This creates a steady 1–1 collateralization value correlation between OURO and deposited assets. The deposited assets are then stored in Ouro’s reserve pool where they can be utilized for earning yield via other integrated protocols. Ouro’s rebasing model then monitors the difference in market capitalization between the amount of OURO issued and the value of the assets within the reserve pool and will rebase if there is a deviation of more than 3% in order to return the value of issued OURO and assets within the reserve pool to equilibrium.
Upward Rebase — An upward rebase occurs when the market capitalization of reserve pool assets is 3% or more compared to the market capitalization of issued OURO (i.e. Value of assets within the reserve pool increase by 3% or more creating excess collateral).
- At least 70% of the excess collateral will be used to:
- Buyback OGS on secondary markets for a token burn (50% of the 70%)
- Form and grow the insurance fund (50% of the 70%) - At most 30% of the excess collateral will be left in the reserve pool to:
- Support an increase in the Default Exchange Price of OURO
Downward Rebase — A downward rebase occurs when the market capitalization of issued OURO is 3% or more than the market capitalization of reserve pool assets (i.e. Value of assets within the reserve pool decrease by 3% or more, creating insufficient collateral)
- The system will mint new OGS which is sold to top up the system collateral
- If the deviation is too large, assets in the Insurance fund will be used to acquire new collateral along with the newly minted OGS
Ouro’s Insurance Fund mainly acts as a smart-contract-powered “buyer of last resort” as it is used to aid newly minted OGS in purchasing new collateral during highly volatile price periods for cryptocurrency assets to ensure that the market capitalization of issued OURO and the assets held within the reserve pool are equal. The Insurance Fund’s secondary use case would be for compensation of any security or economic incidents that may occur.
The implementation of the 1–1 collateralization between the market capitalization of issued OURO and the assets stored in the reserve pool coupled with the rebasing model helps OURO token holders acquire an efficient hedge against inflation whilst allowing users to not have to worry about the potential downside risks, as they are fully absorbed by OGS tokens as well as the Insurance fund. This allows Ouro to provide a ‘best of both worlds’ scenario as users are able to receive exposure to cryptocurrency assets stored within the reserve pool, whilst reducing the risks involved in individually purchasing those assets in the form of price volatility.
Project Highlights
Quick Metrics
- Public Sale Token Price: 1 OGS = 0.025 BUSD
- Initial Token Supply: 1,000,000,000 OGS
- Launchpad Sale: 1,250,000 USD (split into multiple pools)
Investment Thesis
Hedge Against Inflation
With centralized stablecoins, hedging against inflation is impossible because they are meant to mimic the value of the US dollar, and as such susceptible to the inflationary pressures of the dollar. With the US government continually trying to stimulate the economy in the wake of COVID, inflation risks are certainly a growing worry, as there is less value per dollar. Ouro intends to prevent a rapid rise in the inflation of their stablecoin by capping the rate of inflation by 3% per month — this achieves several different purposes.
Firstly, OURO acts as a store of value because it creates codified economic stability, having a stablecoin that gradually appreciates in value can aid in value retention relative to the US dollar, thus maintaining its purchasing power, which is one of the reasons why investing in crypto is so attractive. Secondly, OURO is also able to better hedge against impermanent loss much more effectively when thinking of LP positions that require stable/volatile assets. For example, if ETH appreciates in value typically this would result in an imbalance of the ratio of tokens, but because of OURO’s inflation mechanism rebase of 3%, this aids in the reduction of impermanent loss suffered.
Smart Treasury
Typically treasuries in crypto mainly consist of the project’s own tokens, this leaves many vulnerable to market sentiment, causing huge amounts of fluctuations within a protocol’s own treasury. For example, Uniswap has the largest total treasury as well as liquid treasury but is heavily tied to the value of UNI, their governance token, which generally means that it’s sat idle, not being utilized to earn more revenue for the protocol. On the other hand, you have Olympus, which has an incredibly diverse treasury in comparison to Uniswap. This enables them to deploy on other protocols to earn more revenue for the protocol, making use of assets but more importantly, reducing the volatility associated with just holding a single token.
Ouro’s treasury is similar to Olympus, because, in order to mint their stablecoin OURO, the same equivalent value of ETH, BTC or BNB (and in the future, more assets according to governance) has to be deposited into their protocol. This then enables them to deploy some of these assets on a yield generating protocol like Venus to earn a yield, and refunneled back into the protocol to conduct and sustain OGS buybacks and burns. Finally, other rewards generated from the protocol (excess collateral) will also funnel into buybacks split 50/50 with the creation and addition of LP tokens, which would enable Ouro to build greater protocol-controlled liquidity (PCL) into the protocol.
Strong Applications and Suitability for DeFi
In terms of the user’s perspective, Ouro can be applied in a multitude of different strategies. Firstly, staking is the main way users can interact with the protocol. By staking OURO, the currently supported assets (BTC, ETH, BNB), and LP tokens created would enable users to earn OGS, which would be the main way users will gain exposure to the protocol. Furthermore, OURO is designed to have a 3 month vesting period, which does not apply to LP stakers and stakers of supported assets. Participating in single-sided staking of supported assets will garner you the least amount of return because of not having to face impermanent loss.
In addition to just staking, Ouro intends to create greater engagement with users by including LP competitions, such as periodic jackpots. Once LP tokens hit a specific aggregate target, a jackpot will be released to LP stakers who participate in their OGS/BUSD pool for a minimum of 15 days. If the targets made are not hit for the month, the jackpot will be shifted to following month. This incentivizes increased user participation in liquidity pools for greater, more stable liquidity provision.
Future Prospects
In the future, we expect Ouro to include a larger basket of tokens besides the current ones on offer, enabling greater exposure to other crypto assets and inverse index synthetic assets, providing greater flexibility. In addition, on-chain governance and the formation of working groups will also be promoted in order to encourage users to have greater involvement in the decision-making and trajectory of the project. Finally, expect to see greater integration with Impossible Finance, as we assist Ouro in growing the number of protocol-controlled assets in their treasury via integrations with our Launchpad.
Team
Initially coming from Binance Research, Michael Chen has a great depth of experience in crypto. With crypto native experience navigating the macro crypto market while reviewing past protocols in his research role at Binance, there is no doubt that he along with his team of highly experienced crypto veterans, will be able to push the boundaries of what is capable of algorithmic stablecoins.
Risk Evaluation
Since the inflation and rebalancing mechanism depends heavily on the curation of basket assets that mints OGS, the market performance of the assets is a major determinant of the success of Ouro. As liquidity ramps up and different asset pairs are added to the Reserve Pool, we are confident that Ouro can still generate outsized market returns on top of the different yield strategies.
OGS Token Metrics
- Token Name: Ouro Governance Share (OGS)
- Initial Token Supply: 1,000,000,000 OGS*
- Buy-back Protection Program: 50% downside protection at public sale price ($0.0125 BUSD)
- Tokens Allocated to Impossible Launchpad: 50,000,000 OGS (5% of Total Token Supply)
- Launchpad Sale Hard Cap: 1,250,000 USD (split into multiple pools)
- Standard pool: 500,000 USD (Paid in BUSD)
- Unlimited pool #1: 375,000 USD (Paid in BUSD)
- Unlimited pool #2: 375,000 USD (Paid in IDIA) - Public Sale Token Price: 1 OGS = 0.025 BUSD
- Day 1 Circulating Market Cap: ~$1.7 million USD
- Listing Price: 0.03 BUSD
- Token Sale Format: Staking Subscription
- Sector: Impossible Finance Infrastructure Track
- Supported Staking Tracks: IDIA staking only
- Learn more via the OGS Whitepaper — here
KYC requirements: Residents from countries or regions such as the US, Mainland China, and UN-sanctioned countries are excluded from participating.
*Read more about Ouro’s Philosophy and Tokenomics on their Medium
About Ouro
Ouro aims to create an inflation-proof stablecoin system on BSC, featuring Peer-to-Pool asset swaps. The project derives fiat inflations manifested in the growth of the value of crypto assets, and migrates them onto OURO, making it an inflation-proof stablecoin.
Website | Medium | Twitter | Telegram
About Impossible Finance
Impossible Finance is a multi-chain incubator, launchpad, and swap platform led by Ex-Binance & DeFi veterans. It offers a robust product-first ecosystem that supports top-tier blockchain projects to targeted user audiences. With extensive support from key leaders in the crypto industry, Impossible Finance simplifies DeFi for users to enjoy fairer investing, cheaper trading and better yields.
Website | Whitepaper | Medium | Twitter | Telegram
Impossible Tokens
IDIA token is the core governance and access token for allocation into our launchpad IDO sales.
IF token is the core governance and fee accrual for the swap and other non-launchpad products within the Impossible family.
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Terms & Conditions:
- Notes: DISCLAIMERS, TERMS, and RISKS
- Risk Warning: Trading and/or generally investing in any cryptocurrency involve significant risks and can result in the complete loss of your capital. You should not invest more than you can afford to lose and you should ensure that you fully understand the risks involved. Before investing, please consider your level of experience, objectives, and risk tolerance, and seek independent financial and legal advice if necessary. It is your responsibility to ascertain whether you are permitted to use the services of Impossible Finance based on the legal and regulatory requirements of your country of residence and/or applicable jurisdiction(s)
