With the great enthusiasm caused by the integration of Aeternity into Jelly which enabled swaps between BTC<>AE and ETH<>AE, a new idea was born within the Aeternity community. People asked for Stablecoin on Aeternity. And Jelly came up with real implementation. The Stablecoin is called AES (Aeternity Stablecoin) and will be backed by DAI. Let’s jump into the details!
What is a Stablecoin?
Unlike other cryptocurrencies that are highly volatile, stable coins are specially engineered to remain “stable” in price. They are pegged to traditional fiat currencies. For example, most stablecoins are pegged to the USD. The most popular amongst them is called DAI and it is worth exactly 1$. Other stablecoins are pegged to a whole group of low-volatility assets, including fiat currencies like dollar, yen, euro; bank deposits and government securities, which is supposed to make them even more stable.
How MakerDAO works?
As we said, the most successful case up until now is DAI by MakerDAO. MakerDAO allows people to take loans without KYC or trusted parties, at a particularly attractive interest rate and repayment terms, and a high level of security since everything is managed through smart-contracts.
The borrower gives cryptoasset as collateral, and receive stablecoin — the DAI. The entity that keeps the collateral cryptoasset is a smart-contract called Collateralized Debt Position or CDP, which only the borrower has the option to reimburse. DAI is produced each time a loan is issued and then the same amount of DAI is burnt when the loan is repaid.
The volatile nature of the cryptoassets leads to one specific rule — the collateralization of the loan should always be 150% and can never fall below that %. If that happens, an automated liquidation process is activated and anyone acquires the possibility to repay the debt in order to rebalance the system.
If you are eager to learn more, please check the MakerDAO documentation.
As you already understand the fundamentals of MakerDAO and DAI, it is now time to describe the new AES System. Jelly allows us to use the infrastructure that Maker DAO has already built and simply expand it to be compatible with the Aeternity network.
The idea is to have a token that represents 1 USD. The AES stablecoin will be pegged to DAI in a ratio of 1:1
A multisig smart contract on the Ethereum network will hold the collateral (in that case DAI). For instance, if you lock 100 DAI in the multisig smart contract, you will receive exactly 100 AES. The collateral (DAI) and the newly minted tokens (AES) should always be equal in quantity. If you want to get back, let’s say, 20 DAI, you first need to burn 20 AES. The good thing is that there is no need for over-collateralization because DAI is a collateral with a stable price — exactly $1. You do not need to cover any price fluctuations.
- Build AEX9 token — AES (Aeternity Stablecoin) — Done
- Build HTLC contracts compatible with Jelly Swap — Done
- Build Jelly Swap AEX9 typescript package to allow easy development — Done
- Integrate AES on Jelly Swap — In Progress
In order to create the first AES tokens, we will put the initial collateral of DAI (a few hundred dollars) into the multisig contract. Once the DAI is in the contract, we will mint the corresponding amount of AES.
The multisig contract is developed by Jelly and will be accessible at any time. To keep things simple, at first we (Jelly) as an entity, will mint the AES tokens. We will assure that every AES is collateralized by the appropriate amount of DAI. At any point, one can verify whether the total amount of AES is in fact collateralized by the respective amount of DAI, since everything is on-chain. We will provide a separate website to track in real time all available AES and all locked DAI in the multisig contract.
If we see a real demand for AES, we will take things further into putting more effort by “decentralizing” the minting process and keeping the collateral ratio intact. By building either a network of “operators” or a DAO that will take care of that.
How to acquire AES:
You have 2 options
- Go to Jelly and swap DAI or AE for AES
- Deposit DAI into the multisig contract and receive the newly minted AES tokens
Why do we need AES?
Use case 1:
Let’s say you are an Aeternity developer and you receive your salary in AE. The AE token is volatile and is subject to price fluctuations. Therefore, the value of your salary is endangered. With the AES in action, you can exchange part of your salary for stablecoins that never lose value.
Use case 2:
If you are building a payment application on Aeternity blockchain, you will most probably want to use stablecoins for your services to guarantee the price.
Other use cases are up to the community. You will be able to use AES in every way that you find appropriate. Further information will be published regularly in the Aeternity forum.