Introducing USM — Self-sovereign, Non-reserve, Web 3.0 Stablecoin
Stablecoin is an essential matter in the full-of-volatility Crypto space. Minute by minute, cryptocurrencies fluctuate in their prices and stablecoin is what allows them to trade by a solid reference.
There are many other friends and predecessors in the space that have come up with creative and intelligent solutions to deliver this important thing. As a protocol working to achieve the same goal, we highly appreciate their efforts and have been inspired by many.
After a lot of hard work and effort, Standard Protocol is excited to present USM, a self-sovereign, non-reserve Web 3.0 stablecoin.
The problems we tackled
1. Self Sovereignty
Web 1 -> Web 2 -> Web 3 = Read-only -> Read-Write -> Read-Write-Own (Eshita, Messari)
A true Web 3.0 stablecoin needs to give borrower the full ownership including borrower’s assets exchanged for the stablecoin. The typical design is a custodial model in which a protocol controlled contract forms a reserve of the borrower’s traded-in assets. The reserve is usually controlled by a DAO, but individuals do not have control over what they provide, unless they are in the majority. This is conditional ownership and freedom.
Referring to the analogy of Eshita, the custodial design is more like Web 2.5.
2. Non Reserve
In order to let the borrower have self-sovereignty, it’s a necessity to be non-reserve and here, we define reserve as “set of funds under control by the protocol”. Having a reserve introduces multi-step intermediary processes like voting and can introduce problems like voter apathy and community division. Being non-reserve eliminates these complexities in the protocol design.
3. Bear Market
Most stablecoins in the market are bull market materials. Most existing solutions to the bear-market are not practical or have high barriers to entry, leaving out the general population from the game. These solutions include auctions, seigniorage, reserve buybacks + backstops.
Auctions bring complicated terms, intermediaries and processes. In addition, users need to interact with raw smart contracts or run programmatic modules. This is definitely not for everybody. Indeed, only for the few.
Seigniorage and reserve buybacks + backstop possess reflexivity and these can always create death spirals when heavy redemptions come, crushes the confidence and destroys backstop or share token reinvestments.
The ideal solution is one that allows any retail investor to easily participate and eliminate reflexivity with real benefit.
How we solve these problems
1. NFT
When a borrower opens a CDP (Collateral Debt Position), NFT (ERC-721) is minted along with the debt (borrowed USM). This NFT represents the ownership of the CDP and is fully transferable. This means that the borrower has full ownership and has the freedom to spend not only the borrowed USM but also the collateralized debt position at his own will. The custodial design on the other hand, only allows bidirectional transfer of trade-in assets between the user and the protocol. On top of the full ownership and the freedom, self-sovereign design opens another market for the CDPs.
2. Collateral Liquidation on AMM
When a liquidation happens, liquidated collaterals are sent to the AMM pair of Collateral-USM. This is a one-sided collateral-only liquidity. Therefore, the amount of USM in the AMM stays constant while only the amount of the collateral increases. This creates an arbitrage opportunity where anyone can gain from trading USM to the collateral through the AMM. This is easy for the general population (most crypto users already have experience trading with AMM on DEX), and the opportunity is provided to every holder.
With this design, in the bear run, collaterals are liquidated to the free market asap and the market self-adjusts. One can simply trade USM and gain instead of having to participate in an auction or governance token backstop.
Summary
Web 3.0 is an era about ownership and self-sovereignty. With USM’s design, users own both the borrowed USM and CDPs. On top of that, users don’t need to go through the hassle of reading heavy documentation to participate in the bear market opportunities. It’s just as simple as interacting with an AMM, which users have already been doing for a while in DeFi.
P.S
Standard Protocol would like to give a big round of applause to all of our friends out there working on a stablecoin.
About Standard Protocol
Standard Protocol is the first Self-Sovereign Stablecoin protocol that embraces and visions the true 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.
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