Motivation
The crypto space is in desperate need of a fully decentralised stable coin that is premissionless and censorship resistant. Currently there isn't one, the big stable coins, eg Tether, USDC, BUSD are all centralised and backed with real world assets that can be confiscated or lost, and which the users of the stable coin need to trust, since these stable coins are not reliably audited. Even DAI which comes close has some issues, it is in part collateralised with real world assets like bonds. All these stable coins are centrally controlled, and the issuers can ban or revoke (black list) the accounts of people with whom they do not agree with, this is tyranny and no different to the legacy financial system.
DUSD - What is it?
The DUSD would be a token issued on Dash Platform (coming soon TM) which would be over collateralised with Dash itself, it would have no intermediaries and no counter-parties, due to the transparency of the blockchain, it would be constantly auditable.
How does it differ from Terra/Luna?
Terra was an algorithmic stable coin that was not backed by any assets, DUSD would be back by real Dash several times over thus giving it its value to maintain the peg. Terra could issue infinite Lunas, in contrast, DUSD cannot issue any Dash at all, it can only sell down existing Dash held in collateral to buy back de-pegged DUSD, once the pool is empty, no more Dash could be sold.
How does this benefit Dash?
The act of issuing a DUSD requires Dash to be held (locked up) in a smart contract or liquidity pool, this creates an intrinsic demand for Dash shooting the price up. As the price improves, the amount of collateral in Dash required to issue the next DUSD decreases. Any additional demand on Dash is good for this coin and will improve price.
How does the DUSD remain stable?
In short, the DUSD remains stable by offsetting its volatility to the underpinning coin, Dash. Thus Dash becomes more volatile, in both directions, but see above, it will be positively volatile as the circulating supply decreases. The longer answer is there would be a market place where Dash can be locked-in to mint a new DUSD, that DUSD can then be sold, used, on secondary markets, eg exchanges for $1 of value. Thus anyone with free floating Dash, ie not in a masternode can use that Dash to create DUSD which they can then sell for $1 worth of value each. In other words, it is a way one can extract equity from Dash they own, eg to pay for expenses without selling the Dash and while remaining exposed to Dash to benefit from the price appreciation. It is similar to a leverage long position, although the leverage is very small due to the need for very high collateralisation of the DUSD.
What should be the collateralisation amount?
No one can know for sure, but it should be high enough such that even in the worst possible bear market, the DUSD is still over collateralised by the Dash in the contract, since Dash is no stranger to dropping 90% in a bear market, a collateralisation of 10x would not be sufficient, but a good starting point. So, that leaves, 20x, 30x, 40x, etc the higher it is the safer the DUSD will be IMO 40x is probably the right number. At 40x, the Dash price could fall 97.5% and the DUSD would be still collateralised 1:1 with Dash.
Issuing and burning DUSD
Anyone with Dash can take it over the DUSD contract on Platform and exchange their Dash for DUSD according to the going rate calculated by the contract. In the case that Dash is $32 and the DUSD is trading at $1.00, then $40 of Dash (1.25 D) would be required to generate the DUSD, the identity (Platform user) is credited as having added one new DUSD to circulation, this is so at a later date, this user can reverse the process and get the Dash back for the burn of the 1 DUSD. It prices of both assets remains the same, then 1.25 Dash is returned for the DUSD, if the price of the DUSD has fallen, then more Dash is returned in proportion to the collateralisation ratio, if the price of the DUSD has risen, then less Dash is returned to the issuer. This creates a market to keep the peg of the DUSD at parity with the stable coin, because you can 'make money' by trading (swapping) out the volatility of the DUSD into the Dash.
Example 1.
The price of Dash is $40 and the DUSD is 90cents. I wish to lockup Dash to mint DUSD. I need to provide $44.44 (1.11 Dash) to mint one DUSD. This is a disadvantage. When the DUSD price is less than a dollar, the system will disincentivise the creation of new DUSD by making it more expensive to mint that DUSD.
Example 2.
The price of Dash is $40 and the DUSD is $1.12. I wish to lockup Dash to mint DUSD. I need only $35.71 (0.89 Dash) to mint the each DUSD. This is an advantage. When the DUSD price is more than a dollar, the system will incentivise the minting of new DUSD to return the peg to 1 dollar.
Example 3.
I previously minted 1 DUSD and I want to convert to Dash, in the case the pool is stable at 40:1 (DUSD
ASH) I get back 40 times the value of my DUSD, ie $40 in Dash.
Example 4.
I previously minted 1 DUSD and I want to recover the Dash, but the pool ratio is currently 45:1, ie Dash has increased in price, I can now swap my DUSD for $45 worth of Dash and potentially make a profit.
Example 5.
I previously minted 1 DUSD and I want to recover my Dash, but the pool ratio is now 36:1, Dash is under collateralising the DUSD. I can only recover $36 dollars of Dash, potentially making a loss in the case when the Dash price falls.
The above scenarios should create a market where there are always incentives in place for individuals to act in such a way so as to restore the peg of the DUSD.
Masternode Oracle
To make the above system work, we need to know a few things, the target ratio of the pool, eg 40:1, the amount of Dash kept in the pool and the amount of DUSD (liability) issued by the smart contract. We also need to know the price of Dash. With all these variables, we can always solve for the price of DUSD which will be deterministic based on these facts. To avoid manipulation of the pool ratio, we need to have a solid true price feed of Dash, the MN network is perfectly suited to this, each MN can report a price of Dash over the P2P layer which can be determined similar to taking a weighting of say Binance 60% coinbase 15% Bitfinex 10% Kraken 10% Maya 5%, the ratios are not too important since arb bots ensure the same price is seen on all these exchanges. Should any feed be down (404) the active feeds are scaled up to make 100%. The masternodes confer in a quorum (to be designed) and out liers are thrown out, coming up with a price the group agrees upon and thus each masternode now publishes that price on their P2P. Every masternode must publish a price, whether they all attend different quorums to reach a consensus, or only one quorum does the work and then gossips to the rest of the network is to be determined. Ideally price quotes are updated more frequently than blocks are produced, if it is a challenge to do this, then the block time should be decreased to 60 seconds, why not?
Verification of Masternode price quotes
Ideally, the quotes would be signed with the masternode's key so we can be sure it has not been tampered with, the client however, should also poll several masternodes a time to compare the price and ensure they are equivalent. Since this is a Platfrom DAPP and Platform already has a mechanism for getting trusted data from L1, I feel this is an easy problem to solve.
Arbitrage
The primary market would be on Platform and operating 24/7 and available to anyone, anywhere with enough Dash to interact with the contract. It is expected that some users of the system will then sell their coins onto exchanges, eg MAYA, and any CEXes smart enough to adopt this and they will arbitrage any price differences between them, eg if DUSD is trading at $1.20 on Coinbase, DUSD can be moved in from MAYA or another CEX to take advantage of this market ineffeciency, in case the DUSD is now still trading above parity on all exchanges (shortage) then there is a clear incentive to mint more DUSD on Platform and send it over to the exhanges, since you need less Dash to do so, later when the price of DUSD returns to $1 or perhaps less, you will be able to do the reverse, burn the DUSD and actually get back more Dash than you locked up assuming the price of Dash had not changed during this time.
The crypto space is in desperate need of a fully decentralised stable coin that is premissionless and censorship resistant. Currently there isn't one, the big stable coins, eg Tether, USDC, BUSD are all centralised and backed with real world assets that can be confiscated or lost, and which the users of the stable coin need to trust, since these stable coins are not reliably audited. Even DAI which comes close has some issues, it is in part collateralised with real world assets like bonds. All these stable coins are centrally controlled, and the issuers can ban or revoke (black list) the accounts of people with whom they do not agree with, this is tyranny and no different to the legacy financial system.
DUSD - What is it?
The DUSD would be a token issued on Dash Platform (coming soon TM) which would be over collateralised with Dash itself, it would have no intermediaries and no counter-parties, due to the transparency of the blockchain, it would be constantly auditable.
How does it differ from Terra/Luna?
Terra was an algorithmic stable coin that was not backed by any assets, DUSD would be back by real Dash several times over thus giving it its value to maintain the peg. Terra could issue infinite Lunas, in contrast, DUSD cannot issue any Dash at all, it can only sell down existing Dash held in collateral to buy back de-pegged DUSD, once the pool is empty, no more Dash could be sold.
How does this benefit Dash?
The act of issuing a DUSD requires Dash to be held (locked up) in a smart contract or liquidity pool, this creates an intrinsic demand for Dash shooting the price up. As the price improves, the amount of collateral in Dash required to issue the next DUSD decreases. Any additional demand on Dash is good for this coin and will improve price.
How does the DUSD remain stable?
In short, the DUSD remains stable by offsetting its volatility to the underpinning coin, Dash. Thus Dash becomes more volatile, in both directions, but see above, it will be positively volatile as the circulating supply decreases. The longer answer is there would be a market place where Dash can be locked-in to mint a new DUSD, that DUSD can then be sold, used, on secondary markets, eg exchanges for $1 of value. Thus anyone with free floating Dash, ie not in a masternode can use that Dash to create DUSD which they can then sell for $1 worth of value each. In other words, it is a way one can extract equity from Dash they own, eg to pay for expenses without selling the Dash and while remaining exposed to Dash to benefit from the price appreciation. It is similar to a leverage long position, although the leverage is very small due to the need for very high collateralisation of the DUSD.
What should be the collateralisation amount?
No one can know for sure, but it should be high enough such that even in the worst possible bear market, the DUSD is still over collateralised by the Dash in the contract, since Dash is no stranger to dropping 90% in a bear market, a collateralisation of 10x would not be sufficient, but a good starting point. So, that leaves, 20x, 30x, 40x, etc the higher it is the safer the DUSD will be IMO 40x is probably the right number. At 40x, the Dash price could fall 97.5% and the DUSD would be still collateralised 1:1 with Dash.
Issuing and burning DUSD
Anyone with Dash can take it over the DUSD contract on Platform and exchange their Dash for DUSD according to the going rate calculated by the contract. In the case that Dash is $32 and the DUSD is trading at $1.00, then $40 of Dash (1.25 D) would be required to generate the DUSD, the identity (Platform user) is credited as having added one new DUSD to circulation, this is so at a later date, this user can reverse the process and get the Dash back for the burn of the 1 DUSD. It prices of both assets remains the same, then 1.25 Dash is returned for the DUSD, if the price of the DUSD has fallen, then more Dash is returned in proportion to the collateralisation ratio, if the price of the DUSD has risen, then less Dash is returned to the issuer. This creates a market to keep the peg of the DUSD at parity with the stable coin, because you can 'make money' by trading (swapping) out the volatility of the DUSD into the Dash.
Example 1.
The price of Dash is $40 and the DUSD is 90cents. I wish to lockup Dash to mint DUSD. I need to provide $44.44 (1.11 Dash) to mint one DUSD. This is a disadvantage. When the DUSD price is less than a dollar, the system will disincentivise the creation of new DUSD by making it more expensive to mint that DUSD.
Example 2.
The price of Dash is $40 and the DUSD is $1.12. I wish to lockup Dash to mint DUSD. I need only $35.71 (0.89 Dash) to mint the each DUSD. This is an advantage. When the DUSD price is more than a dollar, the system will incentivise the minting of new DUSD to return the peg to 1 dollar.
Example 3.
I previously minted 1 DUSD and I want to convert to Dash, in the case the pool is stable at 40:1 (DUSD
ASH) I get back 40 times the value of my DUSD, ie $40 in Dash.Example 4.
I previously minted 1 DUSD and I want to recover the Dash, but the pool ratio is currently 45:1, ie Dash has increased in price, I can now swap my DUSD for $45 worth of Dash and potentially make a profit.
Example 5.
I previously minted 1 DUSD and I want to recover my Dash, but the pool ratio is now 36:1, Dash is under collateralising the DUSD. I can only recover $36 dollars of Dash, potentially making a loss in the case when the Dash price falls.
The above scenarios should create a market where there are always incentives in place for individuals to act in such a way so as to restore the peg of the DUSD.
- Things to note, only the Platform user that mints a DUSD can also burn it and redeem the Dash at the prevailing rate.
- The one who mints the DUSD does not need to hold it indefinitively, they are free to send it on, eg into an exchange, to another Platform user or anywhere else.
- DUSDs are fungible with each other, in case I send my DUSD to exchange and then get sent another DUSD from a different source, I can use that DUSD token to do a burn provided, I minted the original one.
- To make the system work all we need by way of oracles is to know the Dash price and the Masternode network is perfectly suited to that.
Masternode Oracle
To make the above system work, we need to know a few things, the target ratio of the pool, eg 40:1, the amount of Dash kept in the pool and the amount of DUSD (liability) issued by the smart contract. We also need to know the price of Dash. With all these variables, we can always solve for the price of DUSD which will be deterministic based on these facts. To avoid manipulation of the pool ratio, we need to have a solid true price feed of Dash, the MN network is perfectly suited to this, each MN can report a price of Dash over the P2P layer which can be determined similar to taking a weighting of say Binance 60% coinbase 15% Bitfinex 10% Kraken 10% Maya 5%, the ratios are not too important since arb bots ensure the same price is seen on all these exchanges. Should any feed be down (404) the active feeds are scaled up to make 100%. The masternodes confer in a quorum (to be designed) and out liers are thrown out, coming up with a price the group agrees upon and thus each masternode now publishes that price on their P2P. Every masternode must publish a price, whether they all attend different quorums to reach a consensus, or only one quorum does the work and then gossips to the rest of the network is to be determined. Ideally price quotes are updated more frequently than blocks are produced, if it is a challenge to do this, then the block time should be decreased to 60 seconds, why not?
Verification of Masternode price quotes
Ideally, the quotes would be signed with the masternode's key so we can be sure it has not been tampered with, the client however, should also poll several masternodes a time to compare the price and ensure they are equivalent. Since this is a Platfrom DAPP and Platform already has a mechanism for getting trusted data from L1, I feel this is an easy problem to solve.
Arbitrage
The primary market would be on Platform and operating 24/7 and available to anyone, anywhere with enough Dash to interact with the contract. It is expected that some users of the system will then sell their coins onto exchanges, eg MAYA, and any CEXes smart enough to adopt this and they will arbitrage any price differences between them, eg if DUSD is trading at $1.20 on Coinbase, DUSD can be moved in from MAYA or another CEX to take advantage of this market ineffeciency, in case the DUSD is now still trading above parity on all exchanges (shortage) then there is a clear incentive to mint more DUSD on Platform and send it over to the exhanges, since you need less Dash to do so, later when the price of DUSD returns to $1 or perhaps less, you will be able to do the reverse, burn the DUSD and actually get back more Dash than you locked up assuming the price of Dash had not changed during this time.
is fully operational?