OpenDAO
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OpenDAO

Grant: Multi Collateral Stable coin suite based on beta money market code

We are offering 50000 OPEN to any team that builds a multi collateral multi currency system based on the beta money market code from Open DAO.

Our long term goal is to build a suite of stable coins denominated in various currencies backed by a range of collateral including onchain and offchain real world assets.

A multi collateral multi denominated stable coin architecture.

What we have right now is the Y Dollar built on top of the UMA protocol. It has a single collateral model and it expires in a fixed period of time.

We are working on a model with UMA to build a single collateral perpetual contract that would allow us to launch a range of stable coins.

However to get to our multi collateral model we would need to do development beyond what UMA already offers. Having a single USD token would lead to greater liquidity than having a fragmented set of multiple tokens each with their own set of collaterals.

The single collateral model does lead to risk isolation but that can be addressed via suitable collateralization buffers.

First a recap, we started with a money market which was a fork of Compound.

A money market like Compound has lenders on one side and borrowers on the other side. It is a double sided marketplace. You need the lenders before the borrowers can be serviced. A double sided marketplace is significantly harder to pull off than a single sided one.

A stable coin minter like Maker or Synthetix is about locking assets and creating a synth dollar and hoping that the market will accept it as an equivalent to existing stables. This can be done by creating incentivized LP positions.

However Compound can be repurposed as a multi collateral stable coin minter. Instead of having lenders on one side, you can simply mint a stable coin when anytime supplies collateral and triggers the borrow function.

This stable coin is effectively backed by the supplied collateral and using the admin module we can add any new collateral we want in almost real time. We can ensure the peg is met by adjusting interest rates. Monetization is already possible by sending the interest to the token holders claim wallet. Given that we have already forked the OPM adding the mint function is relatively straightforward.

This will allow us to jump straight to the Multicollateral model.

Better still we can easily add more currency denominations quite easily and continue to use the UMA oracle.

A USD stable coin is a synth, and creating other synths to trace other currencies using the same architecture is as simple as giving the option to mint another token. Interest rates for each of the synths can be adjusted independently to allow control of the peg.

We have already commenced the work on this effort and the stages are likely to look as follows

  1. Fork OPM and mint a bunch of stable coins in advance. This will be the maximum number of coins in circulation and will effectively act as a debt ceiling. This is pretty much a replica of compounds code with some UI changes and would allow us to go to market fairly quickly. We are working on this at present, and will be using xBTC (BTC wrapped to XDAI using pNetwork) as collateral as our first asset. Once we know the system is behaving as expected we can mint some more tokens to increase the debt ceiling. This is a quick and dirty model to get to the market fast. We intend to do all our experimentation on XDAI first in light of the ongoing gas issues with Ethereum. Other assets can be added as collateral in quick succession.
  2. Add the ondemand minting functionality, still have debt ceiling in place via an admin parameter. Also governance based control of interest rates.
  3. Dynamic interest rates to have better control of pegs
  4. Removal of debt ceilings
  5. Add other currency denominations (EUR, AUD, INR, CNY etc)

These steps might be tweaked a bit, and debt ceilings might be put in for individual assets as collateral to ensure the system is relatively safe while audits are requested.

UMA DVM can be still used with our own contracts.

We’re working with a fork of Uniswap on XDAI which would serve as a trading platform for those who want to arbitrage the synth currencies.

Assuming everything goes per plan the same steps can be repeated on other EVM chains such as Ethereum, BSC, and other chains that support EVM compatibility.

The Compound based model allows us to leverage our existing expertise and go to a Multi Collateral stable coin suite fast.

Get in touch with us if you wish to claim this grant.

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