How to borrow $USM Stablecoin and use it with the DeFi ecosystem.

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Standard Protocol

5 min readMar 6, 2022

Standard Protocol testnet is now LIVE on Rinkeby for MeterUSD, ($USM), the first decentralized, self-sovereign, collateralized Stablecoin for Web 3.0 ecosystem.

$USM is the MVP product for the Standard Protocol money economy and will be essential to empower the Standard ecosystem along with STND and LTR tokens, and CDP NFTs that allow full self-sovereignty over the collaterals, debt positions, and loans, as well as the whole multichain DeFi ecosystem.

Shortly after the testnet phase, Standard will initially deploy USM to Metis Mainnet — Andromeda, and other partners networks. Now, we welcome our community to participate in our testnet launch.

How to borrow $USM, collateralize assets and use $USM in the DeFi ecosystem.

Go to apps.standard.tech/borrow, connect with your wallet, and select “Rinkeby” network, the Ethereum testnet.

To mint USM, the user deposits collateral. Borrowed # of USM = Market value of collateral (using oracle price feed) / collateral ratio. The borrowed amount is the quantity of USM, not based on the market value of USM.Meaning, USM is always minted at $1. USM is always paid back at $1 as well.

Step by step guide:

Step 1: Select a collateral

Select the assets as collateral. In the testnet version, ETH will be the only selection.

Step 2: Collateralize

Choose your deposit amount, in this example, we select 0.1 ETH
Set a collateral ratio, the minimal collateral ratio of this asset is 150%, and in this example, we can increase it to 200% to be more safety
Confirm the $USM borrow amount and Borrow. On the right panel, users can confirm the collateral price and liquidation price of the collateral assets, the oracle price of USM as well as your total market debt value of $USM.

Step 3: Confirm Transaction

Confirm your transaction and USM will appear in your wallet.

Congrats! You have now successfully mint USM!

Step 4: Check you NFT

After successfully open a vault to manage your collateral debt position (CDP), an Vault V1 NFT will be minted along with it to represent your position.

Rinkeby Vault V1 address: 0x34199b137da656c9d5305200EC2EEaDA2a5248B9 https://rinkeby.etherscan.io/token/0x34199b137da656c9d5305200ec2eeada2a5248b9

You can also check out https://testnets.opensea.io/account to find the NFT in your account.

What are the benefits of using USM?

Case A: USM’s price is above $1 (Positively off-pegged)
When MeterUSD is positively off-pegged, e.g. at $1.05, borrowing through our vault will net user of Meter that valued more than USD 1, this incentivizes more to mint new Meter, resulting in more circulation in the market, and hence stabilizing the tokens value back to $1.00.

Assume collateral price stays the same, total supply is 1,000,000, the market price is $1.05, desired supply is therefore 1,050,000.
Remember that USM is always minted at $1. So, by minting USM, the user immediately gains a $0.05 arbitrage profit.
Users seeking to take arbitrage opportunities from the Collateral-USM AMMs will be minting USM. Buying USM is inefficient because USM’s price is >$1. Users can mint USM using low min. collateral ratio assets. For example, USDC
These actions work to increase the supply of USM and selling pressure and bring the USM price down closer to the peg. The desired supply factor acts as a guard in an attempt to prevent USM prices from dropping lower below the peg.

Case B: USM’s price is below $1 (Negatively off-pegged)
When MeterUSD is negatively off-pegged, e.g. at $0.95, the market will be incentivized to buy MeterUSD from DEXs and use the now-cheaper MeterUSD to redeem their collaterals, which comparatively have a higher value. Users gain profit from the arbitrary, while at the same reducing the circulation of MeterUSM in the market, hence uplifting the token value back to the $1.00 range.

Assume collateral price stays the same, total supply is 1,000,000, the market price is $0.95, desired supply is therefore 950,000. Also, assume the user had used borrowed USM to purchase other assets.
No new USM can be minted because total supply > desired supply.
Remember that USM is always paid back at $1. So, a user gains by buying USM and paying back.
Stability Fee on borrowed USM is accruing, therefore users must buy USM and do payback.
Users seeking to take arbitrage opportunities from the Collateral-USM AMMs will be buying USM.
These actions work to decrease the supply of USM and increase buying pressure and bring the USM price up closer to the peg.

Of course in the real market, collateral prices are changing and there are other factors to take into account. However, the simple model works like it’s described above.

Arbritrage from Liquidation

The challenge of every stablecoin is when the collaterals can no longer support the token to stay close to its $1 peg during a bearish market. Standard Protocol takes a different approach on liquidation: instead of auctioning the undervalued collateral to specific, privileged users, the CDP will be liquidated (partially or completely) directly to our DEX and available to the market to trade. This is not only a much more capital-efficient way to handle liquidation but also allows users to explore arbitrary, i.e. slightly discounted, tokens on our DEX even during an unpleasant market sentiment.

More info about Standard Protocol tech design and our product $USM, our multichain DEX, and our team can be found on Standard Wiki

About Standard Protocol

Standard Protocol is the first Self-Sovereign Stablecoin protocol that embraces and visions the truly decentralized form of Web3.0. Empowered by its interoperable DAO ecosystem, Standard Protocol empowers its users with full control over its monetary system through a multichain DEX, a decentralized Oracle, and a non-reserve design for CDP using NFT. We’re also a recipient of the Polkadot Web3 Foundation Grant, Polygon #DefiForAll Fund and Shiden Network Builders Program Grant. Standard Protocol strives to innovate as the next-generation digital settlement currency and prides itself on its global movement in self-sovereign finance.