The Ripe Stablecoin (jUSD)

Dre Ham
Ripe Finance
Published in
7 min readSep 22, 2022

--

Hey there! Dre again. Last week we did a quick intro on Ripe. We’re building a new DeFi primitive that unlocks the ability to earn yield on everything. Yes, everything. Sounds crazy, right? Big, crazy ideas are why we’re here.

Today we’re gonna give a break down of one of the core components of the protocol: The Ripe Stablecoin (jUSD). Let’s dive in…

jUSD is Pegged to $1

Our stablecoin is pegged to the US dollar. While we think there’s a lot to not like about the dollar, it’s still one of the most widely adopted currencies in global financial markets. We want to reach mass market adoption and so we’re choosing a currency that’s already deeply integrated.

The other big reason we’re choosing to peg to the US dollar: that’s where most of the yield opportunities exist in DeFi. A key component of our protocol is The Endaoment (we’ll share a lot more about this in the future). The Endaoment is meant to grow and be productive — all gains are then shared with depositors and stakers. Therefore, The Endaoment needs to be denominated in a type of asset that has strong yield opportunities. The Endaoment also serves as reserve backing for the stablecoin. Backing whose value is tightly correlated to the value of the stablecoin reduces risk and increases stability.

jUSD is Collateralized

The goal is that jUSD is always over-collateralized. More explicitly: the value of the assets deposited into the protocol (“backing”) should outweigh the value of the circulating supply of jUSD.

Naturally, after the collapse of UST/Luna, people out there are a lot more skeptical of stablecoins. They want to know what actually backs the stablecoin. Is backing just a sh*tcoin governance token? Or is it backed by a basket of diverse, liquid, blue-chip assets? At Ripe, we’re choosing the latter.

Similar to Maker, much of the “backing” comes in the form of user deposits. However, unlike Maker, we’ve built the protocol in a way that is more agnostic and extensible to a range of asset types (cryptocurrencies, yield-farming positions, stablecoins, NFTs, RWA, etc).

Diversification is one of the most tried and true principles in finance. Collateral needs to be diverse to help withstand the ups and downs of market cycles across asset classes. And there must be a healthy buffer between the value of the collateral and the value of the circulating stablecoin. We believe that’s the best way to earn trust in the community.

jUSD is Algorithmic

Oh noes. The curse word in stablecoin land. Please Dre, tell us jUSD is NOT algorithmic. Algorithmic stablecoins do not work!

Well, it is algorithmic. But it’s not algorithmic in the way you’ve been rugged on in the past. It’s in no way, shape, or form algorithmic like UST, Basis (Cash), ESD, Titan, AmpleForth, and the countless other corpses in the stablecoin graveyard. I’ve taken enough ruggings to know those designs don’t work.

So how is jUSD algorithmic?

When a user deposits into Ripe protocol, that value is considered “backing.” Depending on the risk parameters of the asset (volatility, liquidity, etc), the user has the ability to borrow against it (mint jUSD) up to a certain LTV ratio (Loan-to-Value).

Now for the key differentiator and innovation of the protocol: The difference between what the user borrows and the value of the collateral is what the protocol itself can mint. Think of the protocol as a trusted borrower. It can mint that difference in jUSD and put it to work!

As price of collateral changes, or as deposits and withdrawals occur, the protocol responds accordingly (mint or burn). In that way, it is algorithmic. That jUSD never leaves the control of the protocol. It has rules, constraints, and guardrails that are enforced by its own smart contracts. That jUSD is not arbitrarily inflated and given out as rewards (like aforementioned algorithmic stablecoins). The reason it mints jUSD is to be productive and earn yield on behalf of the “collateral value” from depositors. That’s what allows you to earn yield on everything.

Ripe is both fully collateralized and algorithmic. This has never been done before. In future posts we’ll talk about how the protocol swaps from jUSD to other stablecoins (so that it can earn yield). That’s where the bonding mechanism comes into play — inspired heavily from Olympus. I was an early Ohmie (3,3).

jUSD is Capital Efficient

You may be wondering, why does the protocol need to be algorithmic? What’s the point?

To achieve maximum capital efficiency! That’s the point. If you deposit $10,000 worth of ETH into Ripe, wouldn’t you want to maximize its earning potential and productivity? As much as we love you, we can’t give you $10,000 jUSD to borrow against that $10,000 worth of ETH (100% LTV). Nothing personal, it’s business. However, maybe we let you borrow/mint $6,000 jUSD (60% LTV). Take a nice vacation.

But what about that $4,000 value gap between what you borrowed and what your collateral is worth? It really stinks that $4,000 in value is just sitting there, bored, unproductive, not living its best life as jUSD.

This is one of the major criticisms of stablecoins like DAI, MIM, LUSD, etc. They aren’t capital efficient. The value of the stablecoin minted typically doesn’t get close to the value of the asset backing it. Understandably, risk management is a big factor. And it’s what we discussed earlier (“jUSD is Collateralized”).

But what if we found a way to reach greater capital efficiency, all while maintaining sound risk management practices (LTV ratios, etc)? What if we kept that capital efficiency gap (collateral value vs borrowed value) within the protocol itself? What if the protocol as a borrower could be trusted? What if the protocol put that jUSD to work, earning yield on your behalf? Now that sounds interesting. That’s how Ripe works.

Having idle jUSD sitting in the protocol is pointless too. It needs to get into other stablecoins so that it can earn yield in DeFi (and pass gains back to depositors). We’ll get more into bonding mechanism another day.

jUSD is Decentralized

Well, not totally. Not yet anyway. But we’re building it with that goal. While it is in “beta,” it needs training wheels. It needs knobs, dials and levers for the policy team to utilize while the system learns to ride on its own. There are certain components where we just need data, experience and time to help inform how long-term programmatic solutions could/should look. We don’t assume to have all the answers on certain monetary policy issues. But we’ll learn. And we’re building the system in a way that when the time is right, we can remove the training wheels and it can ride on its own.

We will also be very mindful of what the “backing” looks like. Both in terms of general depositor collateral but also The Endaoment. We like USDC, USDT, and DAI. They are widely adopted in DeFi and because of the Curve 3pool, they are highly entrenched in the ecosystem. But we cannot become too dependent on any of them. They each have massive centralization risk. For something as big and impactful as what Ripe aims to be, there will likely be naysayers, skeptics, and haters — especially of the regulatory/political nature. Therefore, we’re building the protocol with strong escape hatches should there be any issues from certain centralized stablecoin issuers. The Endaoment will minimize holding naked stablecoins — but will always be within LP positions, to further protect against actions taken against our protocol.

We absolutely want jUSD to be the most widely adopted stablecoin on the planet. And we believe to achieve that, it needs to be protected from the whims of government officials and the school yard bullying of heavy-handed regulators. It needs to be as decentralized as humanly possible.

jUSD is Scalable

Because we’ve built Ripe in such a way that it can support a wide variety of assets — both onchain and offchain — we believe it has what it takes to reach mass market scale.

Perhaps most importantly: the jUSD supply is not limited by how much people are willing to borrow (like most other DeFi stablecoins that are backed by crypto assets). Rather, its potential/ceiling is based on the value of all assets that exist in the world, and people’s willingness to make those assets yield-generating and productive.

That’s an insanely large market opportunity. This goes far beyond web3. On the big stage, we’re talking stocks, bonds, money markets, Foreign Exchange, real estate, and commodities. On the smaller stage, we’re talking about your house, your car, your watch, your sneakers, your goat, your small business. People in the world hold assets of all shapes and sizes. Each one of those assets can serve as “backing.”

This is a stablecoin design unlike anything you’ve seen before. If it works, which will undoubtedly be a process and journey, this is the Holy Grail of stablecoins. It is decentralized (yet scalable), algorithmic (yet collateralized), and highly productive (yet capital efficient).

Some will say it can’t be done, it’s impossible, it’s too hard, no way. They’ll give all the midcurve IQ arguments for this, that, the other. It’s easy to hate, to doubt, to FUD.

They might be right.

But what if they are not? What if together, with your help, we find a way to make this actually work? What if we unlock the ability for people all around the world to earn yield on all their assets?

Well… then that just might change the world.

You in? Hop into our Discord and let’s make it happen!

P.S. Why is the name jUSD? Try saying it out loud.

--

--