# Abstract USDFI represents a new advancement in the field of decentralized finance (DeFi) by offering the first live implementation of a foundational universal DeFi banking protocol powering a truly decentralized currency. The protocol is designed to provide a one-stop solution for all DeFi needs by bringing the entire DeFi experience under one roof. The non-custodial stablecoin USDFI drives a comprehensive decentralized finance stack and is collateralized by the revenues generated from its liquidity and lending operations. These revenues are held in a protocol-owned on-chain treasury, with proof of reserves to ensure the stability of the system. The design of USDFI incorporates a low time preference approach, which means that in the short-term, the stablecoin may experience significant price instability and limited user confidence. However, the protocol incorporates various buffers and stability mechanisms to mitigate these risks. One of the key stability mechanisms is the protocol's role as a buyer and automated market maker of last resort for the USDFI stablecoin. The revenues generated by the protocol are used to buy back unlimited amounts of USDFI at a higher price, in perpetuity, until price stability is restored. Over time, this interdependency between user confidence and stability mechanisms will drive a price equilibrium and maintain price stability for USDFI. Furthermore, the USDFI protocol has been designed with scalability in mind and does not require USD-linked collateral. This enables the protocol to adapt to changing market conditions and scale as needed to meet the demands of its cryptoeconomy. In conclusion, USDFI represents a major step forward in the development of decentralized finance by providing a universal DeFi banking solution that brings the entire DeFi experience under one roof. The protocol's low time preference approach, stability mechanisms, and unlimited scalability make it a compelling solution for anyone looking for a stablecoin that is truly decentralized and does not rely on traditional collateral. # Introduction A stablecoin constitutes a protocol-based, chain-native token which has a stable price relative to an arbitrary value (i.e., USD $1) and aims to track the return of the sovereign currency on a public blockchain. In the cryptocurrency realm, peg refers to a given price the token aims to stay at. While there is no generally accepted taxonomy for stablecoins, we prefer to use a risk-based approach and distinguish between two basic categories: stablecoins which require trust in a third party (custodial stablecoins) and stablecoins which replace the trust required with economic mechanisms implemented through smart contracts (non-custodial stablecoins).\[1]

Basic building blocks of a stablecoin design. Every stablecoin design uses one or a combination of multiple blocks.

Note: *A **centralized** and a **collateralized*** ***stablecoin** (or a **decentralized** and a **non-custodial stablecoin,** respectively)* *are not the same thing*. ­­­While these terms often are used interchangeably, they actually characterize two different properties of the stablecoin: Centralization describes the governance layer of a stablecoin, while (non-)custody is an asset layer property. There can be centralized non-custodial stablecoins designs and vice versa. Note 2: Further, ***off-chain** and **custodial collateral** are note the same thing*. While these terms are often conflated, off-chain and on-chain simply describe the technological mechanics of the collateral. On-chain collateral can be custodial or non-custodial, but not vice versa. Custodial stablecoins are, inter alia, subject to counterparty and censorship risks. "Off-chaining" exacerbates these risks. This is important to understand, as decentralized non-custodial (and therefore strictly on-chain) stablecoins are one of the best and arguably *the trillion dollar use cas*e for crypto. \[1] Similar: Klages-Mundt, A., Harz, D., Gudgeon, L., Liu, J. Y., & Minca, A. (2020, October). Stablecoins 2.0: Economic foundations and risk-based models. In Proceedings of the 2nd ACM Conference on Advances in Financial Technologies (pp. 59-79). *** # Custodial Stablecoins ### 1. **Risks** Custodial stablecoins are backed (collateralized) by traditional assets off-chain and require a custodian for safekeeping these assets. The issuer (in liaison with a custodian) then offers digital representations (tokens) on-chain of the safekept assets and users get a peg maintaining token representing a claim against the assets held by the custodian. The drawbacks of custodial stablecoins are manifold. First, trust in centralized asset custodians is required, which is deeply antithetical to the ethos of cryptocurrencies. Trust in custodians not only entails the trust that the custodian will live up to his promise if called to do so, but also that the collateral truly exists in the quantum or value promised. Because these stablecoins are centralized, they can be easily censored and wallets have been repeatedly blacklisted in the past.\[1] Further, custodial stablecoins are subject to heightened (disclosed, undisclosed or unknown\[2]) custody\[3]/counterparty risks.\[4] If a custodian is unable to fulfill its obligation\[5] to return the safekept\[6] assets\[7] due to mismanagement\[8], value deterioration\[9] (economic risks of capital assets)\[10], fraud, theft, freezing orders by authorities\[11] etc. the value of the token loses its peg and can go down to zero. In other words, custodial stablecoins suffer from downward price instability due to moral hazard and/or from financial risk.\[12] ### **2. Reserves** Custodial stablecoins can be divided into full reserve stablecoins (each stablecoin is backed 1:1 by a unit of the reserve asset, i.e. USD $1) or fractional reserve stablecoins (a mix of reserve assets and capital assets). Intuitively, full reserve stablecoins appear to be the apex custodial stablecoin design, as reserve assets always fully account for the entire stablecoin supply value. However, at this point there are no relevant full reserve stablecoins available.\[13] The most popular stablecoins such as Tether and USD Coin are fractional reserve stablecoins. The issuer holds reserve assets to facilitate redemptions, usually in the form of bank deposits.\[14] The remaining assets constitute capital assets and account for the remaining stablecoin supply value. The issuer tries to earn a higher interest rate and sell capital assets to address redemptions if required. However, this design is always subject to price and default risk.\[15] ### **3. Misaligned Incentives** The design suffers from misaligned incentives: The issuer gets to profit from investment gains without taking on the economic risks.\[16] Subsequently, these risks are transferred to the token holder, who may not be able to redeem his token at par value and suffer substantial losses because of these misaligned incentives. Put differently, for both full and fractional reserve stablecoins a run similar to a run on the bank or money market funds can happen at any time. If the issuer fails to provide timely and accurate information about the reserves, users question the quality of the reserve, lose confidence, and are strongly incentivized to convert the stablecoin to cash with immediate effect, triggering a run. ### **4. Fragility** It is important to understand that stablecoin runs don’t occur because the issuer is insolvent. Rather, a stablecoin run can cause a healthy issuer to become insolvent. If users panic and rush to convert their stablecoins to cash, it will bring the issuer down even if the fears were initially unfounded. This is the reason all issuers holding reserves with price risk have a potentially fatal fragility. ### **5. Fractional reserve stablecoins?** Analogous to banks hundreds of years ago\[17], custodial stablecoin issuers are likely to embrace regulation and governmental oversight in the foreseeable future to be able to drop the less lucrative narrow banking model in exchange for a fractional reserve model similar to fractional reserve banking, all while claiming 1:1 exchangeability and adapting the modus operandi of the legacy banking system. Arguably, the result is a quasi CDBC. ### **6. Stablecoins as reserves for stablecoins** Some variants of the custodial stablecoin use other custodial stablecoins as a reserve asset to avoid the price risk of capital assets or fractional reserves. In turn, these designs not only add another layer of protocol risk and complexity, but more importantly these designs inherit all the risks from the underlying custodial stablecoin, i.e. risks they neither own, nor control, nor possess the ability to fully assess or understand or influence or mitigate in any relevant way. In other words, these designs adopt a black box of operational risks from an unrelated underlying custodial stablecoin issuer and extend them\[18] on to the token holders.\[19] ### **7. Summary** In summary, risks of custodial or generally well understood, but largely ignored by users and market participants.
*** \[1] Tether blacklist on Ethereum \[2] From launch in October 2018 – April 2021 the monthly independent reports by Grant Thornton LLP stated that “*As of the Report Date and Time, the issued and outstanding USDC tokens do not exceed* *the balance of the US Dollars held in custody accounts*”. As of May 2021, this confirmation stopped appearing in the monthly reports. \[3] Circle’s Investor Presentation names no less than 79 risks, including penalties to be paid to the SEC of over USD $10m for unauthorized trading of securities. \[4] After accumulating a deficit of $378.4m in 2020/21 Circle required, inter alia, a loan from the US government (“PPP Loan”) and $441m in additional funding from multiple lenders to be able to keep operating for another minimum of 12 months. : *“The Company has historically experienced unprofitable financial results due to the Company’s reliance on trading revenue (…) Last year there was substantial doubt of the Company’s ability to continue as a going concern.”* \[5] For example, Tether’s Terms of Service fully exclude the right of Tether Token holders to redeem the Tether Tokens for cash, defying the one single purpose of a custodial stablecoin. Further, the Terms reserve the right to postpone redemptions in theory indefinitely, stating *“Tether reserves the right to delay the redemption or withdrawal of Tether Tokens if such delay is necessitated by the illiquidity or unavailability or loss of any Reserves held by Tether to back the Tether Tokens, and Tether reserves the right to redeem Tether Tokens by in-kind redemptions of securities and other assets held in the Reserves*”. . A similar wording can be found on Circle’s website: *“We reserve the right to (i) change, suspend, or discontinue any aspect of the USDC Services at any time, including hours of operation or availability of any feature, without notice and without liability and (ii) decline to process any issuance or redemption without prior notice and may limit or suspend your use of one or more USDC Services at any time, in our sole discretion.”* Essentially, Tether or USDC token holders are unsecured creditors. Even if they weren’t, chances for legal recourse (considered the capital and time required) against offshore entities like Tether’s are de facto close to zero. \[6] It’s unclear if Tether adheres to basic governance principles such as asset segregation. Their Terms of Service state: *“The composition of the Reserves used to back Tether Tokens is within the sole control and at the sole and absolute discretion of Tether.”* \[7] Tether does not publish reserve attestations by a Big 5 accounting firm. Their attestations come from a recently hired Cayman based accounting. \[8] Tether makes substantial legal efforts in public courts to keep the reserves backing their stablecoin USDT a secret \[9] Example of more than half of Circle’s reserves not being in invested Cash & Cash Equivalents. USDSC Reserve Breakdown August 2021: Cash & Cash Equivalents: 46%. Corporate Bonds: 16%. Yankee CDs: 15%. US Treasuries: 13%. Plus, $100m are held in Municipal & US Agency Bonds. As per November 2021, Circle stopped reporting reserve details. . Notably, Circle’s reserves are capital assets and subject to price risk, however no investment risk related disclosure can be found in their public list of “USDC Risk Factors” here: \[10] Circle’s attestations are no longer “*correctly*” stated, but “*fairly*” stated. \[11] Paragraph 6 of Tether’s Risk Disclosure states that: “*(…)Tether relies on financial institutions and counterparties to hold funds (…) Reserves held at or through financial institutions or intermediaries may be subject to the risk of loss, theft, insolvency, and governmental and regulatory freezes and seizures.”* \[12] Kwon, Y., Kim, J., Kim, Y., & Song, D. (2021). The Trilemma of Stablecoin. Available at SSRN 3917430. 17. \[13] Because sitting on idle cash is not a business model. \[14] Here, a token holder additionally takes on bank run risk. \[15] Makarov, I., & Schoar, A. (2022). Cryptocurrencies and Decentralized Finance (DeFi) (No. w30006). National Bureau of Economic Research. 37. \[16] It’s worth noting that the business model of a stablecoin issuer like Circle and the failed CeFi platform Celsius are fundamentally the same: Acquire custody of a user’s financial assets and invest them with a) the minimum transparency necessary and b) the maximum returns possible (for the custodian, not for the user); while legally limiting liability to the largest extent possible. \[17] Fractional reserve banking dates back to the 17th century, popularized by the Bank of Amsterdam. \[18] For details revisit previous custodial stablecoins chapter. \[19] Essentially just a wrapped version of the underlying token. # Non-custodial Stablecoins ### 1. **Characteristics** Non-custodial stablecoins aim to avoid the various risks of custodial designs by removing the need for a custodian or intermediary to achieve a more censorship-resistant and trustless architecture. However, new designs bring new risks and attack vector which are not well understood: Deleveraging risks, price feed/oracle attacks, governance/miner extractable value, governance/DAO failures\[1], regulatory issues or smart contract bugs. In a nutshell, non-custodial stablecoin introduce different variations of collateral to establish a basis of primary value. Primary value is the concept of collateral serving as the basis for confidence in a stablecoin design.\[2] ### **2. Types of collateral** Subsequently, we can distinguish between three types of collateral: Exogenous, endogenous, and implicit. The transition between the types can blur at times. Exogenous collateral has a use case and value outside of the stablecoin design. Endogenous collateral is created to serve as collateral for the stablecoin (value is self-referential). Issuance can be agent/user-based or algorithmic (i.e., so called seigniorage shares)\[3]. For exogenous collateral, the primary value derives from the confidence in the exogenous digital asset. For endogenous collateral on the other hand, the basis for confidence lies in the design itself. Implicit/incentive-based collateral in a stablecoin design is created to adjust supply and relies on market mechanisms to achieve price stability: Speculators are incentivized to absorb losses in the event of an under peg (token oversupply) in return for rewards in the event of an over peg (token undersupply).\[4] ### **3. Risks and available buffers** We can now explore if non-custodial stablecoin designs can be price-stable over time or if price instability is to be expected; and if the price instability is expected to be transitory only, due to available buffers. Adequate buffers in a stablecoin design make the long-term expected returns positive and help survive transitory events. Most non-custodial stablecoins with exogenous collateral are based on leveraged lending markets, such as DAI by MakerDAO. A portion of a digital asset gets tied up in collateral and stablecoins are issued against this collateral based on a set of protocol rules dictating the minimum required overcollateralization. However, like leveraged lending in traditional capital markets, this design features deleveraging risks, which can cause a negative feedback loop on the design’s primary value. First, during liquidation events collateral value may be consumed too fast due to evaporation of stablecoin liquidity. Without strong price stabilization mechanisms, a limited token supply leads to price instability. Counterintuitively, a price drop of the underlying collateral leads to price appreciation during times of shock. This sort of deleveraging spiral resembles a short squeeze,\[5] and the cost of deleveraging can go significantly higher\[6] than the issuance price of the stablecoin. A negative feedback loop can also affect designs with endogenous collateral. For both endogenous and implicit collateral, its perceived (self-fulfilling) value derives from high or low confidence of the users in the design and between the participants. Endogenous/implicit collateral amplifies negative feedback and liquidations can cause a fire sale effect of the collateral in parallel with confidence spiraling down, crashing the collateral value.\[7] Notoriously, algorithmic stablecoins with endogenous/implicit collateral designs\[8] can suffer from great instability. The issue is not with transparency (all transactions are on the blockchain), but with complexity leading to fragility: Adjustments to the coin supply are not enough to permanently rule out a non-zero price as the design’s equilibrium (these designs are long-term unstable in a probabilistic sense: There always exist states where the peg can be broken). Once the threshold for a stable equilibrium in a tail event is reached, no more adjustments in quantity are possible\[9] and the price of the stablecoin becomes a negative function of the stablecoin’s primary value. In other words, there’s a certain point where the deviation from the peg becomes too big, confidence is lost, a shortage of sufficient incentives makes risk absorbers exit the system\[10] and the price of the stablecoin abruptly finds its new equilibrium at zero\[11]. ### **4. Custodial stablecoins as collateral for non-custodial stablecoins** Like custodial stablecoins, some variants of the non-custodial stablecoin designs use other custodial stablecoins as a reserve asset to mitigate price risk of capital assets or fractional reserves. In turn, these designs not only add another layer of protocol risk and complexity, but more importantly these designs inherit all the risks from the underlying custodial stablecoin, i.e. risks they neither own, nor control, nor possess the ability to fully assess or understand or influence or mitigate in any relevant way. In other words, these designs adopt a black box of operational risks from an unrelated underlying custodial stablecoin issuer and extend them\[12] on to the token holders.\[13] ### 5. **Overcollateralized stablecoin designs** Some coins use overcollateralized designs with non-USD linked collateral (i.e., ETH). Historically, it hasn’t been possible to back stablecoins at scale in an overcollateralized manner. These designs are known to shrink over time. Since only the demand for the leveraged collateral asset makes the coin supply grow, the price of the asset must go up forever. However, crypto markets (like traditional markets) are subject to cycles and in a bear market/deleveraging cycle, the coin supply will shrink substantially. The demand for leverage goes away, followed hand in hand by no demand for the stablecoin, (DeFi) integrations diminish, the general utility of the stablecoin fades and people quickly start to favor other, more scalable stablecoins with more utility. By the time the market cycle turns to the upside the more scalable stablecoins designs will have leapfrogged in utility and the overcollateralized stablecoin never recovers or scales back to the size of the previous bull market. It’s an uphill battle the stablecoin design can’t win. Today, there is not a single overcollateralized stablecoin design known which has been able to scale over time using non-USD linked collateral only. ### 6. Conclusion Today, there are no non-collateralized stablecoins available whose decentralization and scalability can be considered sufficient. The only two relevant «DeFi stablecoins» which have been able to scale to a market capitalisation greater than USD $1b are DAI and FRAX. However, these designs rely heavily on USD linked collateral to establish primary value (approx. 80% for DAI and 90% for FRAX) in the form of USD Coin, with the intent to provide maximum price stability. The risks of USD Coin have been discussed in the previous chapter. The design choices make the largest «DeFi stablecoins» of today ***decentralized custodial stablecoins.*** An unsatisfactory outcome for crypto market participants. Consequently, large design gaps persist in the realm of decentralized stablecoins, specifically for ***decentralized non-custodial stablecoins.*** It may be reasonable to expand designs beyond over- or undercollateralization to achieve risk segregation and add time as a variance factor for confidence to achieve a multidimensional design. The next section introduces such a design.
*** \[1] The shutdown of FEI triggered user losses \[2] See Klages-Mundt, A., Harz, D., Gudgeon, L., Liu, J. Y., & Minca, A. (2020, October). Stablecoins 2.0: Economic foundations and risk-based models. In Proceedings of the 2nd ACM Conference on Advances in Financial Technologies (pp. 59-79). 62. \[3] Sams, R. (2014). A note on cryptocurrency stabilisation: Seigniorage shares. Brave New Coin, 1-8. \[4] For details refer to Klages-Mundt et al., 63. \[5] «Leverage effect». Klages-Mundt, A., & Minca, A. (2020). While stability lasts: A stochastic model of stablecoins. arXiv preprint arXiv:2004.01304. 1. \[6] MakerDAO introduced the PSM to mitigate this effect. \[7] See «leverage ratchet effect», Admati, A. R., DeMarzo, P. M., Hellwig, M. F., & Pfleiderer, P. (2018). The leverage ratchet effect. The Journal of Finance, 73(1), 145-198. \[8] NuBits, Empty Set Dollar, Basis Cash, Terra’s Luna/UST. \[9] Conversely, infinite quantity adjustments of the stablecoin’s implicit collateral are possible (depending on the design of the algorithmic stablecoin and the tail risk transfer mechanism) with the same result. \[10] Stability is never assured; it’s determined solely by market psychology. Benjamin Simon: Stability, Elasticity and Reflexivity: A Deep Dive into Algorithmic Stablecoins \[11] d’Avernas, A., Bourany, T., & Vandeweyer, Q. (2021). Are Stablecoins Stable?. Working Paper. 23. Note that this result differs from the other designs, where the residual value at liquidation always pins down the value of the stablecoin at positive levels. \[12] For details revisit previous custodial stablecoins chapter. \[13] Essentially just a wrapped version of the underlying token. # USDFI Design # Introduction Decentralized, permissionless computer networks, such as blockchain, offer a new paradigm for financial tools and services that operate outside of traditional rent-seeking central or trust-providing authorities. The practicality and usability of these networks, known as decentralized finance (DeFi), is dependent on the availability of a decentralized, censorship-resistant, and chain-native stablecoin with unrestricted scalability. Stablecoins are the foundation of DeFi and represent the first and only real-world use case for cryptocurrency to achieve the trillion-dollar narrative. The concept of a stablecoin is based on the idea of pegging the value of the token to a specific reference point, making it a useful medium of exchange and store of value. We have discussed numerous risks of so-called primary stablecoin designs. Many iterations have been tried since 2012 with varying success.\[1] However, a large design gap persists in systems that combine composite assets and decentralized financial services with optimized buffers to extend regions of stability for the stablecoin architecture, utilizing the DeFi crypto stack. We believe that well-designed and adequate buffer systems can help to survive transitory downward price instability, as the long-term expected return of an adequate design is always positive and superior to any custodial alternative.
*** \[1] Wilet, J.R. (2012). The Second Bitcoin Whitepaper; Sams, R. (2014). A note on cryptocurrency stabilisation: Seigniorage shares. Brave New Coin, 1-8. # The Decentralized Stablecoin Trilemma ![](/files/q6MESZr6U9OKcHAPuTTj) Enter the trilemma of designing a decentralized, non-custodial stablecoin. This design faces the challenge of optimally balancing the aspects of decentralized (here: exogenous) collateral, peg stability and scalability. Finding the right balance while considering the trade-offs is referred to as the decentralized stablecoin trilemma. The trilemma suggests that there is always unavoidable risk.\[1] As the next step, we propose how to manage and reduce risk by adding the dimension of time to peg stability considerations to avoid compromising on the other two aspects. By decentralized collateral we understand the degree to which exogenous collateral in the design is decentralized. Non-USD linked collateral typically indicates some level of decentralization. Zero decentralization can be found in any custodial stablecoin (i.e., USD linked tokens like Tether, USD Coin), while maximum decentralization can be found in Bitcoin. Decentralization must be understood as a spectrum (a level of given risk). For example, a custodial stablecoin can achieve a better level of decentralization with the use of smart contracts (LP tokens etc.), the trade-off being added levels of smart contract, correlation, or complexity risks – while the token stays a risk pass-thru vehicle for the underlying USD-linked collateral risk. Paradoxically, many decentralized stablecoins heavily depend on custodial stablecoins as the source of primary value for the design. Peg stability refers to the ability of the stablecoin to maintain a stable price relative to an arbitrary value (i.e., USD $1). This is generally understood as a high time preference/must be always there-requirement, simply because existing stablecoin designs cannot automatically resolve for the possibility of an unpredictable destabilization or black swan event creating an under peg scenario. Generally, a stable price for a non-custodial stablecoin comes from a combination of custodial stablecoins and various stability mechanisms such as swap-based price bonding curves, liquidity provisions, arbitrageurs, liquidators and other economic (dis-)incentives or market operations. Finally, scalability is linked to capital efficiency. As discussed previously, overcollateralized stablecoin designs are known not to scale long-term and suffer from severe adoption hurdles, typically due to limited coin supply. Conversely, efficient but undercollateralized designs suffer from price instability due to financial risks: Users may lose confidence in a protocol which does not have the full/automated ability to replenish reserves, triggering a run leading to large redemptions and eventually a terminal collapse.
*** \[1] Kwon, Y., Kim, J., Kim, Y., & Song, D. (2021). The Trilemma of Stablecoin. Available at SSRN 3917430. 5. # Design Considerations ### 1. **Destable by design** USDFI introduces a novel primary stablecoin design. Simply put, it’s deliberately unstable first, but stable at last. In other words, it's a design that is deliberately unstable in the short-term, but stable in the long-term. The design is based on the principle that if the stablecoin repeatedly returns to a region of stability after transitory instability, over time the scope and scale of these under-peg events will diminish, and recovery times will become shorter as user confidence and trust in the stablecoin increases. Unlike fiat currency, user confidence in a decentralized stablecoin cannot be enforced by laws, regulations, or a judicial system. Instead, the protocol's self-regulating credibility must be earned over time to sustain long-term value. We believe that there is no shortcut to this process and that most decentralized stablecoin designs and their mechanisms directly or indirectly try to circumvent this process, despite the low-time preference required. These protocols try to shortcut an essentially years-long process of earning user confidence and trust. ### **2. Tracking errors** Every financial asset that tracks the price of an underlying financial asset suffers from tracking errors. In the case of stablecoins, the tracking error is the divergence between the price of an USD stablecoin and the price of USD $1. As the tolerance for price tracking becomes narrower, the tracking error becomes a greater source of instability. This is because smaller deviations from the tracked price trigger greater losses of user confidence in the design. The tracking error of a stablecoin can be measured by the standard deviation of the difference between the price of the stablecoin and the price of the reference point. The lower the standard deviation, the lower the tracking error and the greater the stability of the stablecoin. However, it is important to note that there is a trade-off between the stability of the stablecoin and the scalability of the design. Narrower tolerance for price tracking may lead to greater stability but may also restrict the scalability of the stablecoin.\[1] ### **3. Liquidity constraints** There is no such thing as a stablecoin whose backing is instantly fully liquid for USD. Consequently, for every stablecoin there is a condition under which it will not trade at peg. Because of this, traditional stablecoin designs are long-term unstable in a probabilistic sense. There always exists states where the peg can be broken, even if the probability of this happening is small. The loss of confidence in the stablecoin is exacerbated by the fact that once the peg breaks, users do not know what is going to happen or what to expect. This uncertainty is the enemy of investment. ### **4. Stablecoins do not have automated contingency plans** While every stablecoin design knows a conditions under which it will not trade at peg, no current design offers a protocol-based and automated remedy for this condition. The lack of a solution begets uncertainty and loss of confidence. This is highly likely to trigger more volatility exacerbating the downward instability. It is clear that a deterministic protocol acting as a backstop of last resort is needed for a stablecoin design. This protocol would provide a mechanism for restoring the stablecoin's peg in the event that it deviates from its reference point. By providing a clear and transparent mechanism for restoring the peg, this protocol would mitigate the uncertainty and loss of confidence that arises when the peg is broken. ### **5. Building confidence: Stability vs. time** We believe that money can’t buy back confidence once it’s lost, ihis is true regardless of the collateral that may be available in the design. With the USDFI stablecoin, periods of downward price instability are an integral and necessary part of the maturity process. As time progresses, the design gradually shifts towards increased price stability, moving from a softer peg to a harder peg. This gradual shift allows for the development of user confidence, which is the foundation of the USDFI design and the manifestation of its primary value. This process of developing user confidence takes time and (by lowering the time preference) it allows the design to develop the necessary rigidity and economic security to ultimately fulfill its role as a decentralized digital dollar. ### **6. The role of speculators** The USDFI stablecoin design provides incentives for speculators to bet on the stablecoin returning to its peg. These incentives are achieved by offering a higher yield in return for acquiring USDFI at a discount during temporary periods of downward price instability. This creates a reoccurring and sustainable incentive for individuals to absorb price risk, and it represents a key aspect of the USDFI design. On the other hand, users with a high time preference and a need for immediate liquidity can always sell at a discount during temporary periods of downward price instability, essentially trading time preference. This allows individuals to make trade-offs between the level of liquidity they require and the yield they are willing to accept. Vitally, there is no way to deplete the treasury/reserve assets of the protocol during these periods.\[2] Further, we believe a softer peg/exchange rate that adapts to the user’s conversion demand reduces speculative attacks. If a stablecoin design limits or even prevents speculation, all traders believe no other trader will speculate and therefore the perfect equilibrium consequently involves no speculation.\[3] ### **7. Summary: The peg coordination game** USDFI is a mechanism that aims to stabilize the value of a stablecoin by aligning the beliefs of market participants. In this game, individuals form their beliefs about the fundamental value of the stablecoin based on the value of the symbiotic cryptoeconomic mechanisms and its level of acceptance and usage in a digital economy guaranteeing utility. Additionally, they also consider the perceptions of other market participants. The role of USDFI is to coordinate these beliefs among market participants within this economy in the context of time preference. The mechanics of the Trinity and the rules governing them are publicly available on the blockchain, providing transparency and accessibility to all market participants. This allows rational users to implicitly agree on whether to support or undermine the peg in case of a temporary supply overhang. Over time, it's not rational to contravene the perpetual Buyer of Last Resort mechanism.The overarching goal of the currency peg coordination game is to limit confidence crises from in scope and scale, by ensuring available restabilisation mechanisms/automated contingency plans ultimately leading to a stable value for the stablecoin.
*** \[1] The Basel Committee is trying to address redemption and basis risks which (unwillingly) introduce substantial crypto market stability risks in return, \[2] The on-chain treasury effectively acts as a one-way crypto asset vacuum. \[3] Analogous arguments in Routledge, B., & Zetlin-Jones, A. (2021). Currency stability using blockchain technology. Journal of Economic Dynamics and Control, 104155. Put differently, if all liquidity of a stablecoin design is at a specific fixed price (the peg) that liquidity can be exhausted and is triggerable by a speculative attack if it’s profitable to do so. The solution is to have a redemption price as a function of state, i.e. a redemption curve with price versus the level of redemption activity accommodated at that price. However, in the USDFI design the reserve assets of the treasury can’t be drained. # Financial stability: AMOs, BLR, AMMLR & The DeFi Trinity ### 1. Automated Market Operations Automated market operations are a set of autonomous contract that implement specific monetary policies within USDFI's cryptoeconomy and Universal Banking Protocol. The contracts perform a series of actions to enforce given monetary policies within the confines of the protocol's rules to reduce the supply of USDFI on the open market. USDFI's AMOs can only decrease the market supply of USDFI, but they can never increase the supply. This automation is crucial for maintaining efficiency, transparency, and trustlessness of the decentralized stablecoin design. ### 2. **The Buyer of Last Resort** The foundation and primary value of the design is a decentralized cryptoeconomic system based on the universal DeFi banking model. USDFI leverages an existing decentralized finance (DeFi) economy to mature and achieve price stability long-term. A sustainable decentralized bank-like architecture in DeFi requires a protocol implementing a central bank's core financial stability instrument, engaging as the lender of last resort. For DeFi, the concept of lender of last resort is adapted from the traditional monetary system and introduced as the buyer of last resort ("BLR") to the stablecoin design. During times of downward price instability, the protocol acts as a buyer of last resort and buys back (“burns”) unlimited USDFI on the open market at a higher price, in perpetuity, until price stability/true value is restored. With the introduction of a buyer of last resort to the stablecoin design as a buffer, unlimited USDFI buy back transactions (and the resulting reduction in coin supply along with increased liquidity) help to restore confidence, attract new users and reduce extended periods of downwards price pressure. In this manner, the protocol plays the buyer of last resort in a manner that renders it no longer individually rational to sell USDFI\[1], thereby anchoring the price to USD $1 over time. A successful stablecoin design must be able to reduce the supply overhang and eventually correct the downward instability of the stablecoin into a new equilibrium; it’s an intentional and inevitably user-experience flaw that the stablecoin temporarily no longer tracks exactly one USD.\[2] However, this flaw is mitigated by the fact that every user can have the confidence that over time, he will be able to trade USDFI at the peg again. To be able to act as a perpetual buyer of last resort, the protocol operates a cash-flow generating, automated on-chain treasury along diversified revenue streams from liquidity and lending activities. For each USDFI minted, the equivalent of USD $1 flows into the treasury and gets locked on-chain in smart contracts for yield operations (liquidity pools, “LPs”) on decentralized exchanges (“DEXs”\[3]). These LPs replace centralized exchanges to define the price of digital assets and provide liquidity for automated trading. In return, the protocol’s treasury is rewarded with a fraction of the trading fees generated. ### **3. The Automated Market Maker of Last Resort** Here we introduce the second interlinked element to the stablecoin design: the automated market maker of last resort (“AMMLR”). Only the revenues from the yield operations are allocated to the AMM operations, avoiding recursion in the design. The AMM operations generate additional revenues for the treasury, which get routed back to the yield operations, steadily compounding revenues and perpetually dollar-cost averaging into new tokens, generating more liquidity. Combined, these buffers both reduce the likelihood of instability arising in the first place and improve the user’s ability to deal with instability when it occurs. The dedicated liquidity pools act as stability pools for the USDFI ecosystem during periods of temporary downward instability and help smoothen the effects of such periods as instability gets distributed over time. ### **4. The USDFI Trinity** ![DeFi cold fusion](/files/rva68xKqDPMEFR2tNIUr) A DeFi Trinity is the triangle between the fundamental core elements of DeFi consisting of stablecoins, liquidity and lending. Different protocols may offer different designs, but fundamentally everything in DeFi is a variation of one of these core elements mirroring decentralized banking functions. USDFI captures and controls the whole value proposition and powers the entire financial stack with its own stablecoin. The design of USDFI aims for integration, utility, and ultimately demand for its stablecoin. Lending and liquidity support stability, and in turn, this triangle enables mutual growth in a perpetually reinforcing and demand-generating relationship between the core elements. This symbiosis is the main differentiator to other designs, where protocols aim to expand its ecosystem by adding siloed, supplementary services to the crypto stack. Unlike other designs, there is a native, protocol-based interdependent relationship powering the USDFI ecosystem. By creating this native, protocol-based interdependent relationship, USDFI aims to create a more holistic and integrated ecosystem, where all the core elements work together to enhance the stability and liquidity of the stablecoin, and drive the growth and adoption of DeFi as a whole.
*** \[1] Hockett, R. C. (2015). Recursive Collective Action Problems: The Structure of Procyclicality in Financial and Monetary Markets, Macroeconomies, and Formally Similar Contexts. Journal of Financial Perspectives, 3(2). 27: The price follows a self-fulfilling prophecy dynamic. \[2] See Buterin, V. (2022), Two thought experiments to evaluate automated stablecoins, . The process resembles supply/demand dynamics and the necessity of having the possibility of implementing negative interest rates in an automated stablecoin design like RAI: Negative interest rates pay borrowers to borrow, driving borrowing demand and RAI supply up and help to resolve the instability of the RAI’s peg. The other alternative is to manipulate user token balances. However, it is not a feasible approach. A stablecoin cannot be considered a stable asset (even if the price of the stablecoin is fixed) when the quantity of stablecoins owned by the user fluctuates. This design abandons the stability of asset value for the sake of price stability. Different opinion: Kuo, E., Iles, B., & Cruz, M. R. (2019). Ampleforth: A New Synthetic Commodity. Ampleforth White Paper. \[3] A decentralized exchange is a peer-to-peer marketplace where transactions occur without an intermediary. # USDFI Stability Mechanisms ![A cryptoeconomic system](/files/Lq9gbW3BtaTRgkkEnGR2) ### 1. **At the peg** The USDFI price can be in three different states: at the peg, in a state of downward or upward instability. While at the peg, the revenues of the treasury are used to deepen the liquidity of the ecosystem at and around the peg of the USDFI. The protocol’s revenues are allocated to the yield operations. More revenues are generated and compounded into the AMM operations, which in return create more liquidity, lending and revenues, resulting in a cyclical reinforcement of the stability of the stablecoin. ### **2. Under peg** In a state of downward price instability (USDFI/USD exchange rate drops below USD $1), the treasury automatically engages as a buyer of last resort and redirects its revenues to buying back unlimited USDFI at a higher price, in perpetuity, until price stability at the peg is reinstated. This mechanism helps to restore confidence, attract new users, and reduce extended periods of downward price pressure. Further, the vote escrow governance contract of the dual-ve design ***always gives users USD $1 worth of voting weight for USDFI 1; or put differently, USD $1 always equals veUSDFI 1.*** At all times, every user gets the economic equivalent of USD $1 irrespective of the USD/USDFI exchange rate. For example: a) STABLE trades at USD $10 and USDFI trades at the peg. For each USD $1 spent, users get the same amount of voting weight: 1 veSTABLE = 10 veUSDFI. b) STABLE trades at USD $10 and USDFI trades under peg at USD $0.95. Since 1 veSTABLE = 10 veUSDFI, arbitrageurs have an instant arbitrage opportunity via the ve-governance contract to get 1 veSTABLE or 10 veUSDFI or USD $10 worth of voting weight while only paying USD $9.50 for it. For speculators, it can be profitable to buy USDFI at a discount and "front run" the repegging process secured by the treasury and the ve-governance contract. By buying USDFI at a lower price and holding it until it is repurchased by the treasury at a higher price, speculators can earn a profit. In parallel, "vote escrow arbitrageurs" can earn all rewards (LP fees and bribes) at a discount (equaling the under peg % - or greater when locking longer for extra "boost") forever or until eventually selling USDFI at the peg for an extra profit. This combination creates an incentive for market participants to participate in the repegging process, thus contributing to the stability of the stablecoin in a cooperative non-zero sum game not achievable in single-ve/ve(3,3) models (learn more about USDFI's [Dual-ve model](/dual-ve-tokenomics/liquidity-incentivization/dual-ve-model)). ### **3. Over Peg** In a state of upward price instability (USDFI/USD exchange rate exceeds USD $1), the protocol’s own AMM allows to mint USD $1 worth of STABLE for 1 USDFI. This creates an instant arbitrage opportunity for market participants. Users will sell USDFI in the market for a profit until the arbitrage opportunity is exhausted and the exchange rate at the peg is restored. ### **4. Hybrid function of the STABLE token supply** In a state of downward price instability, the USDFI protocol has implemented an additional buffer mechanism to support the price stability of the stablecoin. This mechanism allows for the automatic transition between user incentive distribution and the use of token supply as a buffer boost. When the price of USDFI deviates from the peg, the token's deterministic token supply is dynamically allocated to accelerate the buyback of USDFI by the protocol's stability mechanisms. # Introduction **VeTokenomics** refers to the economic model and incentives that are built into a token design. It outlines how the token will be used, distributed, and valued within an ecosystem, and how it incentivizes behavior that supports the overall health of the ecosystem. This can include things like token distribution through mining, staking, and airdrops, as well as the use of the token as a means of payment or as collateral for loans, among others. **Game theory** is a branch of mathematics that studies decision-making in situations where the outcome depends on the actions of multiple players. VeTokenomics often uses game theory to design its economic incentives, in order to encourage certain behaviors that benefit the overall health and stability of the ecosystem. This behavior can be achieved through mechanisms such as staking, governance, and network fees, which incentivize good behavior and disincentivize bad behavior. For example, staking rewards users who hold and lock up tokens, while punishing those who sell or transfer their tokens frequently. This helps to maintain a stable token price, ensure sufficient liquidity, and secure the ecosystem. By using game theory to design these incentives, VeTokenomics can create a **self-reinforcing system** that benefits all participants and helps to **ensure the long-term success of the network**. # Liquidity Incentivization Fundamentals DeFi removes centralized third-party intermediaries that control the flow of liquidity, such as banks and brokers, by utilizing a smart contract to manage rules for debt issuance and trading. However, this elimination of third-party intermediaries comes with a trade-off. To enable functionality, DeFi protocols must incentivize specific actors to participate and provide capital to the protocol. During the rapid growth of DeFi starting mid 2020, liquidity was incentivized by providing governance token-based liquidity rewards. This approach enabled protocols to gain users by granting them a percentage ownership of the network, achieving the vision of fully user-owned decentralized protocols. However, as the number of protocols increased significantly, **yield farming** became more efficient, and users would quickly transfer **mercenary capital** between protocols. This resulted in protocols launching with billions of dollars in liquidity, only to see that quantum significantly decrease once token incentives became less appealing. The following paragraph will analyse these concepts. ## **Renting vs. leasing vs. buying liquidity** The concepts of renting, leasing, and buying liquidity are used in the context of providing liquidity to a financial market. 1. **Renting Liquidity:** This refers to incentivizing users to provide liquidity to a protocol, often through the issuance of reward or governance tokens acting as pseudo-equity in the protocol. This is similar to renting a car or a house, where the user pays a fee for temporary use of the asset. This approach is described as "renting" because users can remove their liquidity at any time. This can lead to instability as liquidity can rapidly migrate between protocols based on the most attractive incentives creating inefficiency in the system. 2. **Leasing Liquidity:** Some protocols have tried to slow down the outflows and to mitigate the instability of rented liquidity by incentivizing users to lock up their liquidity for a longer time frame for a higher reward. This is referred to as "leasing" liquidity. The longer the duration of liquidity provision, the higher the expected reward. This approach allows protocols to have a more stable source of liquidity over a given timeframe, increasing the stability and efficiency of the system. 3. **Buying Liquidity:** This refers to a protocol using its earned fees and governance tokens to provide liquidity on decentralized venues. Or, a user provides liquidity to the protocol in exchange for ownership of the asset. By buying liquidity, users commit to holding the asset for a longer period of time in exchange for potential future price increases, cash flows or a monetary premium.This approach is described as "buying" liquidity. Thee concepts of renting, leasing, and buying liquidity help to illustrate the different ways in which users can provide liquidity to a financial market, and the trade-offs between short-term rewards and long-term stability and efficiency. ## Analysis A protocol should consider a combination of all three strategies - renting, leasing, and buying liquidity. However, the emphasis on each strategy would depend on the specific stage of the protocol's lifecycle, its financial resources, and its long-term goals. #### **1. Renting Liquidity** Renting liquidity is a strategy that can be particularly useful in the early stages of a protocol's lifecycle. By offering incentives such as reward or governance tokens, the protocol can quickly attract a large amount of liquidity. This can help the protocol to establish itself in the market and start generating transaction fees. However, rented liquidity can be unstable, as liquidity providers (LPs) can easily move their funds to other protocols if they offer higher returns. Therefore, while renting liquidity can be a good strategy for getting started, it should not be the only strategy that a protocol relies on for its long-term sustainability as this creates a highly competitive environment where protocols must continuously adjust their bids to attract LPs. From a game theory perspective, this can lead to a situation known as a "race to the bottom," where protocols continuously outbid each other, leading to potentially unsustainable reward rates. The Nash equilibrium in this game could be suboptimal for the protocols, as they may end up paying more for liquidity than they would like. #### **2. Leasing Liquidity** Leasing liquidity involves incentivizing LPs to lock up their funds for a certain period of time. This can provide the protocol with a more stable source of liquidity, as it reduces the risk of LPs quickly withdrawing their funds. However, to attract LPs to lock up their funds, the protocol needs to offer attractive incentives. These incentives can be costly, and the protocol needs to ensure that the additional stability provided by leased liquidity is worth the cost. Leasing can be a good strategy for a protocol that has established itself in the market and has a steady stream of transaction fees that it can use to incentivize LPs. It can also be a good strategy for protocols that operate in markets with high volatility, where the additional stability provided by leased liquidity can be particularly valuable. This changes the game from a dynamic auction to a more static one, where LPs must weigh the potential future rewards from other protocols against the guaranteed rewards from committing their liquidity - a form of repeated game, where the decision to commit liquidity affects not only the current payoffs but also the potential future payoffs. #### **3. Buying Liquidity** Buying liquidity involves the protocol using its own funds to provide liquidity. This can provide the protocol with the most stable source of liquidity, as it does not depend on the actions of LPs. However, buying liquidity requires the protocol to have a significant amount of funds. Therefore, this strategy is typically only feasible for protocols that have been successful in attracting a large amount of rented and leased liquidity, and have been able to generate significant transaction fees. Buying liquidity can be a good long-term strategy for a protocol that has established itself in the market and has a steady stream of income. It can provide the protocol with a stable source of liquidity and can reduce its dependence on LPs. #### **4. Summary** A protocol that is focused on sustainability and longevity should consider using a combination of renting, leasing, and buying liquidity. It should start by renting liquidity to establish itself in the market, then move on to leasing liquidity to increase stability, and finally consider buying liquidity as a long-term strategy once it has sufficient funds. This approach can provide the protocol with a balance of speed, stability, and independence, helping it to achieve its long-term goals. ## Applying the concepts in DeFi The correlation between the price of governance tokens and the amount of liquidity provided poses a challenge for DeFi protocols. In the event of a significant drop in the governance token price, the yield denominated in the token also decreases, leading to a potential exodus of liquidity from incentivized pools. In essence, *protocols are merely renting liquidity* from users, who have the freedom to withdraw their liquidity at will. In contrast, traditional capital markets utilize bonds and swaps rather than equity sales for liquidity payments. However, DeFi protocols only possess fees from platform usage and governance tokens held in their treasury, forcing them to often utilize governance tokens for protocol liquidity when fees do not suffice for network expansion. In an effort to mitigate capital outflows from their platforms, Curve Finance pioneered liquidity provisioning protocols that i*ncentivized long-term liquidity*. This protocol offered higher interest rates to users who locked up their liquidity for extended periods of time. Curve Finance increased incentives by providing so-called boosts that offered higher token incentives for longer lock-up commitments. By incorporating duration constraints to prevent liquidity migration (investors leaving the protocol), Curve Finance introduced a novel design to liquidity incentivization. The vesting lock-ups and incentive boosts allowed the protocols to *lease liquidity* for a specified duration, instead of just renting. During 2021, the notion of protocol-owned liquidity gained traction in the DeFi space. This concept involves a protocol utilizing its own accrued fees and governance tokens to act as a liquidity provider on various decentralized platforms. Fei was among the early protocols to adopt this strategy, utilizing create-redeem fees to provide liquidity to a Uniswap pool. Although this approach faced initial challenges, it paved the way for DeFi protocols to buy liquidity by leveraging their DAO treasury funds, with OlympusDAO being the first protocol to combine the three aspects of liquidity provisioning (buy, lease or rent).\[1] *** \[1] Chitra, Tarun, et al. "DeFi liquidity management via Optimal Control: Ohm as a case study." (2022). P. 3. # Curve Finance Overview Curve Finance incentivizes liquidity by offering higher interest rates to users who lock up their liquidity for a longer time frame. This is known as "long-duration liquidity" incentives. In particular, Curve Finance offers liquidity providers (LPs) the opportunity to earn additional rewards in the form of CRV tokens by locking up their liquidity for a certain period of time. The longer the LPs lock up their liquidity, the higher the rewards they can earn. Curve Finance achieves this by using a mechanism called "veCRV boosting". veCRV is a type of token that is earned by LPs who provide liquidity to the Curve protocol. The more veCRV a user holds, the higher their "boost" level, which determines the amount of CRV rewards they can earn. By locking up their liquidity for a longer time frame, LPs can earn additional veCRV tokens, which increases their boost level and allows them to earn more CRV rewards. This incentivizes LPs to provide long-duration liquidity to the Curve protocol, which helps to increase the overall liquidity of the protocol and improve its stability and efficiency. Curve Finance was one of the first DeFi protocols to offer long-duration liquidity incentives, and this approach has been widely adopted by other protocols in the DeFi ecosystem to counter negative feedback loops. ## Negative Feedback Loops in Liquidity Provision Negative feedback loops in liquidity provision refer to a situation where a decrease in the value of a liquidity provider's asset leads to a decrease in the amount of liquidity they provide, which in turn leads to a further decrease in the value of the asset. This can create a self-reinforcing cycle that can lead to instability and inefficiency in the financial market. In the context of DeFi, negative feedback loops can occur when liquidity providers provide liquidity to a liquidity pool in exchange for tokens, and the value of the tokens decreases due to changes in the market. As the value of the tokens decreases, liquidity providers may withdraw their liquidity from the pool, which can lead to a further decrease in the value of the tokens. This can create a self-reinforcing cycle that can lead to instability and inefficiency in the DeFi ecosystem. ## Adversarial Control Mechanism Curve's solution to negative feedback loop is the introduction of an adversarial control mechanism. The adversarial control mechanism of Curve Finance works by creating an adversarial relationship between short-term and long-term liquidity providers. Short-term liquidity providers are incentivized to sell their CRV tokens immediately, while long-term liquidity providers are incentivized to lock up their CRV tokens for a longer period of time. This creates a tension between short-term and long-term liquidity providers, which helps to stabilize the system and prevent negative feedback loops in liquidity provision. # Olympus DAO Overview ## Introduction Olympus incentivizes liquidity by offering rewards to users who provide liquidity to the protocol and stake their tokens in the Olympus treasury. This is known as "bonding" and "staking" incentives. In particular, Olympus offers a token called OHM, which is designed to maintain its value over time and provide a stable store of value for users. Users who provide liquidity to the protocol by depositing OHM and another asset (such as ETH or a stablecoin) into a constant function market maker (CFMM) and provide proof of liquidity provision to the Olympus protocol are referred to as "bonders". These users provide their assets to the protocol to ensure that new buyers who want to buy OHM have ample liquidity to enter into positions. Olympus offers different types of bonds, some that have shorter durations (weeks) and others that are longer (months). The longer the duration of liquidity provision, the higher the expected OHM reward. This represents the protocol leasing liquidity from liquidity providers rather than simply renting it. In addition to bonding incentives, Olympus also offers staking incentives. Users who stake their OHM tokens in the Olympus treasury can earn additional OHM rewards. The amount of rewards earned depends on the length of time the tokens are staked and the total amount of OHM staked in the treasury. ## Liquidity management Olympus incentivizes users to lease liquidity by offering different types of bonds with varying durations. The longer the duration of liquidity provision, the higher the expected reward. This encourages users to commit to providing liquidity to the protocol for a longer period of time, which helps to increase the stability and efficiency of the system. In addition to leasing liquidity, Olympus also incentivizes users to stake their OHM tokens in the Olympus treasury. By staking their tokens, users commit to holding their tokens in the treasury for a longer period of time, which helps to reduce the circulating supply of OHM and increase its stability. This is similar to buying an asset, where the user commits to holding the asset for a longer period of time in exchange for potential future gains. Olympus does not buy liquidity in the traditional sense, but it does use its earned fees and governance tokens to provide liquidity to the protocol. This is known as "protocol-owned liquidity". In particular, Olympus uses a portion of the fees earned from the protocol's bonding and staking mechanisms to provide liquidity to the protocol. This liquidity is then used to ensure that new buyers who want to buy OHM have ample liquidity to enter into positions. By providing liquidity to the protocol in this way, Olympus is effectively "buying" liquidity using its own earned fees and governance tokens. However, this is different from traditional liquidity provision, where users provide liquidity to the protocol in exchange for a fee or reward. The concept of protocol-owned liquidity has become increasingly popular in the DeFi ecosystem, as it allows protocols to ensure that there is always sufficient liquidity available for users to trade their assets. This helps to increase the stability and efficiency of the system and provide a better user experience for traders and investors. While Olympus does not buy liquidity in the traditional sense, it does use its earned fees and governance tokens to provide liquidity to the protocol and ensure that there is always sufficient liquidity available for users to trade OHM. ## Olympus Game Theory In its simplest form, the game theory in Olympus consists of two users with three available actions: Stake (Buy), Bond, and Sell. Users are likely to stake when they expect an increase in supply and/or price, to sell when they anticipate a decrease in supply and/or price, and to bond when they don't have a strong preference for a specific direction but don't expect significant downside. Staking causes a price increase of +2, selling causes a price decrease of -2, and the player that affects the price receives half of the result. Bonding does not impact the price but offers a discount of 1. In a nutshell, the dominant strategies are all cooperative and working together produces optimal outcomes.
By buying a bond from the Olympus Treasury, the buyer is paying a lower price in exchange for receiving a higher amount of OHM Tokens at the end of the vesting period. For example, if a person had $1,000 USD in ETH and wanted to purchase a 4% OHM-ETH bond with a 5-day vesting period, and the price of 1 OHM was equal to $1,000, the bond would be purchased for $960 in ETH. After the vesting period, the person would receive $1,000 in OHM. The "discount" is the percent reduction in price received by bonding tokens into the protocol. ## Shortcomings The idea behind (3,3) is to amalgamate the three actions (stake, bond, sell) in a way that maximizes profits for the user. For example, a user could stake their tokens to gain the highest APY, bond their liquidity to earn rewards and locked-up liquidity, and sell only when necessary to avoid losses. However, it is important to note that (3,3) is not foolproof and is based on the assumption that the value of the native token will continue to increase. In practice, the value of the token may fluctuate, and users may need to adjust their strategy accordingly. For example, if the value of the token drops significantly, it may be more beneficial to sell rather than stake or bond. While the game theory of Olympus may seem attractive in theory, it has several shortcomings that have been exposed in practice. One of the main issues is that the high APY offered by the protocol is unsustainable in the long run, as it is based on minting tokens out of thin air at high rates. This leads to the value of tokens continuously dropping due to the increased supply, which ultimately harms the early investors who sold into the liquidity pool. Moreover, the game theory of Olympus is based on the assumption that users will act rationally and in the best interest of the protocol. However, in practice, users may act irrationally and engage in behaviors that harm the protocol, such as selling their tokens at the first sign of trouble, ie value drop of the token which triggers a negative price feedback loop. The negative price feedback loop works as follows: if the value of the token drops, users may panic and start selling their tokens, which can lead to a decrease in liquidity and a further drop in the value of the token. This can cause more users to sell their tokens, leading to a further decrease in liquidity and value, and so on . Moreover, the negative price feedback loop can also harm the protocol's treasury, which holds a large amount of the native token. If the value of the token drops significantly, the treasury may become worthless, which can harm the protocol's ability to maintain liquidity and reward its users . Overall, the negative price feedback loop is a significant risk associated with the game theory of Olympus and other similar protocols based around (3,3). It highlights the importance of considering the risks and uncertainties associated with the protocol and adjusting the strategy accordingly. # Zero-sum, ve and ve(3,3) Solidly proposed to combine both design into an AMM. One of the shortfalls of Curve Solidly intended to fix was better aligning emissions of tokens with beneficials actions and solving the problem that most AMM designs temporarily support liquidity provision with token emissions; while the more sustainable incentive-generating mechanism (the fee generation of the AMM) is not incentivized. Hence the AMM fees should be paid to users locking in their assets in the protocol to ensure longer term sustainability. More specifically, lockers receive only trading fees from the liquidity pools they have voted for. Further, since Solidly tried to achieve an Olympus DAO type of game theory outcome, but did not have a treasury (and therefore a bonding-like action was no option), Solidly intended to compensate with behavioral incentives as follows 1) weekly emission are adjusted as a percentage of circulating supply 2) lockers increase their holdings proportional to emissions and 3) ve-Tokens are NFTs. However, that design failed because 1) drains liquidity from the protocol 2) inflation on inflation is worse, not better 3) transferability of ve-Tokens is antithetical to the idea of aligned interests as it does not disincentives nefarious behaviour. Here we can assume the net present value of money on hand (selling) in this zero-sum game has a higher payoff than staking and that the game is fundamentally non cooperative.

A negative feedback loop in a zero-sum game

As established by Chitra et. al. (2022), single-ve designs lack unique equilibria. The CRV bribing game is a zero-sum game. In a zero-sum game, the total amount of rewards available to the users is fixed, so any reward gained by one user is necessarily lost by the other user. In the context of the CRV bribing game, the rewards available to the players are the CRV tokens that are being used to incentivize liquidity providers in the Curve protocol. If one player is able to control the parameters A, B, C, and D in a way that gives them more CRV tokens, then the other player necessarily receives fewer CRV tokens. * A represents the "drift" of the system, which is like the average rate at which the system changes over time. * B represents the "volatility" of the system, which is like how much the system changes randomly over time. * C represents the "discount rate" of the system, which is like how much the system values future rewards compared to immediate rewards. * D represents the "liquidity" of the system, which is like how easy it is to buy or sell digital assets in the system. By understanding how these parameters work and how they can be controlled, a protocol can develop better strategies for managing liquidity in DeFi protocols. Such dynamics and models could be studied Hamilton-Jacobi-Isaacs equations. HJI equations are a type of partial differential equation that can be used to analyze the optimal control of non-linear systems in game theory . In the context of the CRV bribing game, the HJI equation would be used to find the optimal strategies for the two users to control the parameters A, B, C, and D in order to maximize their expected return. The HJI equation would take into account the fact that the game is zero-sum and that the users are competing against each other to control the system and allow would allow to analyze the optimal control of the system in a rigorous and mathematically sound way, which can help to inform the development of better strategies for managing liquidity in DeFi protocols. ## Risks of single-ve designs It's important to understand that while these "bribing games" can lead to an increase in total liquidity for a DeFi protocol, they can also introduce additional complexities and potential risks into the system. If a ve-bribing game is a zero-sum game, it means that the gains of one user are exactly offset by the losses of the other user. In other words, the total gains and losses in the game sum to zero. This can create risks and challenges for the users involved: 1. **Complexity:** Finding solutions to the CRV bribing games may require solving complex equations that may be difficult to analyze tractably. This complexity could lead to unforeseen consequences or vulnerabilities in the design. 2. **Governance Manipulation:** The CRV bribing game allows entities with significant resources to manipulate the governance mechanism of the protocol to their advantage. This could potentially lead to an imbalance in the distribution of rewards, favoring certain pools over others. 3. **Dependence on Third-Party Protocols:** The CRV bribing game relies on third-party protocols (such as Convex Finance) to incentivize users to deposit assets and reallocate them. If these third-party protocols act maliciously or incompetently, it could negatively impact the users and the overall health of the protocol. 4. **Potential for Market Manipulation:** The CRV bribing game allows for the possibility of market manipulation, as entities can influence the allocation of rewards and other parameters within the protocol. 5. **Risk of Centralization:** The game could potentially lead to centralization and cartelization, as entities with more resources could have a disproportionate influence on the protocol's governance. It's possible to analyse the dymamics of the game with Hamilton-Jacobi-Isaacs Equations. These equations can provide an equilibrium for the game, known as a Nash equilibrium, where no player can unilaterally improve their outcome by changing their strategy, assuming the other player keeps their strategy unchanged. In other words, it's a state where each player's strategy is the best response to the other player's strategy. Here, HJI equations replace the supremum (the greatest value) in the model with a minimax formulation. This minimax formulation minimizes over one users's control parameters and maximizes over the others. This reflects the zero-sum nature of the game, where one user's gain is the other player's loss. However, finding solutions to these games using HJI equations can be complex and challenging. The equations can be difficult to solve analytically. Therefore, while HJI equations can theoretically be used to find an equilibrium for the CRV bribing game, doing so is nontrivial. Instead, we suggest another solution by introducing a non-zero sum bribing game: dual-ve. # Dual-ve model ## Introduction Any adoption of ve(3,3) has an extremely high likelihood of Solidly's outcome over a given time horizon. Further, an AMM does not have a treasury backing or a bonding mechanism. There's no 3, 3. No such assumption can be made. The whole point of the Olympus DAO 3,3 equilibrium is to allow the protocol to accumulate tokens for the treasury. Even if the equilibrium changes to (-3, -3), the protocol has an undepletable treasury which incentivizes the players to coordinate a return to (3, 3). There is no comparable mechanism with an AMM. Simply put, as long as the value of emissions outweighs the value of incentives (fess and bribes), the design temporarily works - you're paying less than a dollar to get a dollar. As soon as that balance flips, the design is prone to a quick collapse without remedy. Real-world examples from forks of Solidly all share Solidly's "end state" due to a flawed game theory. To fix the shortfalls of Solidly-tape AMMs, and avoid the inherent trap of a negative price feedback loop of a project's governance token, we suggest the following framework. 1\) A balanced circulating token supply to mitigate downward price pressure 2\) No hyper-inflationary token emissions and rebalancing mechanisms 3\) No NFTS 4\) Offer adversarial control mechanisms. Comments: While the solution to 3) is a technicality (transferability deeply contradicts alignment of interests, however re-hypothecation may be an option), 1) is built into the USDFI design already. 2) aggressive token inflation can serve a specific purpose; it dilutes whales who come in early for "too cheap". Rebalancing them with more tokens even when locked is counterintuitive and adds more inflation on top of inflation. Additionally, aggressive token inflation is an incredibly delicate balancing act: A protocol with a massively inflating supply with not enough demand to offset goes to zero (what we call Pandora's Box effect). So what's the solution? Here, USDFI has an distinct advantage: being a Universal DeFi Banking protocol, it operates the only ecosystem with veTokenomics, AMM *and* a native stablecoin with a bonding-like treasury. Leveraging the composability within the same protocol, the solution 2) and 4) is: create vote-escrowed USDFI, veUSDFI. ## The Game Theory of dual-ve The assumption in the game theory of veUSDFI is as follows: Users form beliefs about the fundamental value of the veTokenomics of the USDFI ecosystem. These are based on the value and utility around the ecosystem as a whole. However, users (specifically whales) also form beliefs about the beliefs of users and whales, a Nuhmann like contra-factually stabilized belief-expectation-equilibrium. Players are most likely to stake STABLE when they anticipate an expansion in utility and/or price. Players are most likely to sell when they anticipate a contraction in utility and/or price. Players are most likely to stake USDFI when they do not have a strong directional bias but don’t anticipate significant downside. Selling has the negative effect of pushing the price down, but only when selling STABLE. In contrast to Olympus' design, the selling of USDFI has no price effect because it's a stable asset. Further, in this coordination game whales can always get diluted with capital, the equilibrium of the whale is not to speculate so the perfect equilibrium for the veSTABLE holder is to stake and the veUSDFI holders is to stake. By having two price processes, we can now engage in a non zero sum game and achieve cooperation. We establish two adversarial control mechanisms. ## The non-zero-sum game In a zero-sum game, one user's gain is exactly balanced by the other user's loss. This is the case with all single-ve bribing games, where users are competing for a fixed pool of rewards. To transform this into a non-zero-sum game, we need to change the structure of the game so that the users' interests are not entirely opposed, and there is potential for mutual benefit. It's important to understand that if players can bribe with either token, the game remains zero-sum because the total amount of rewards remains fixed. Users just have more options in terms of how they can try to maximize their share of the rewards, especially because STABLE and USDFI both have a stochastic price processes of their own. The users do not compete to modify a single price process only. Here are the high-level aspects of the non-zero-sum game design: 1. **Shared Rewards:** Instead of having a fixed pool of rewards that users compete over, we introduce a mechanism with veUSDFI where users can cooperate to increase the total pool of rewards. For example, users are rewarded for actions that benefit the overall health of the protocol, such as providing protocol-owned-liquidity or participating in governance when acquiring and vote escrowing USDFI. This way, users increase their individual rewards by working together, strengthening the design and creating a situation where the total gains with a stablecoin asset are more than zero. 2. **Cooperative Strategies:** We introduce strategies that allow users to cooperate or form alliances. For example, users can agree to vote together or pool their resources to increase their collective influence with the introduction of more capital to the protocol. This creates situations where users can both benefit from their cooperation, making the game non-zero-sum. 3. **Multi-objective Games:** Instead of having a single objective (maximizing individual rewards), we introduce multiple objectives that players can strive for. For example, users are rewarded for contributing to the stability of the protocol, promoting fair distribution of rewards, and other benefit from USDFI 1 always economically having the value of USD $1 in the protocol. This creates a more complex game where users can achieve different combinations of objectives, and the success of one user does not necessarily mean a loss for the other. 4. **Alternative Bribing Mechanism:** If users bribe with either a governance tokens or a stablecoin, and the protocol rewards players differently based on the type of bribe, the game becomes non-zero-sum. Users can earn additional rewards by bringing in the stablecoin. These rewards are not subtracted from the existing pool of tokens, thus making the total gains possible more than zero. The game changing dynamics are: * **Different Rewards:** The protocol rewards users differently based on the type of bribe. For example, bribes made with USDFI could earn different types of rewards or benefits compared to bribes made with STABLE tokens. This could introduce additional strategies and decisions for the users, making the game more complex. * **Increasing the Total Pool of Rewards:** Because the introduction of USDFI as an alternative bribe increases the total pool of rewards, the game becomes non-zero-sum. For example, if the protocol uses the USDFI to buy more STABLE tokens and add them to the reward pool, then the total gains are more than zero. User not only compete for the existing pool of CRV tokens but also for the additional rewards. * **Influence on Governance Decisions:** If average dollar cost of two different bribe tokens has different weightings in governance decisions, it creates a more complex game where users can achieve different outcomes depending on their choice of bribe. For example, if USDFI has a stronger influence on certain votings and STABLE tokens have a stronger influence on others, users would need to decide which type of bribe to use based on their goals. # Analysis of dual-ve ## Overview We introduce the innovative dynamics of the USDFI system, a pioneering model that operates akin to a financial institution, albeit in DeFi. This system allows participants to exercise control over specific parameters with the objective of minimizing their anticipated costs, akin to strategically selecting a financial product that optimizes returns while minimizing fees. A cornerstone of the USDFI system is its commitment to issuing a low-volatility asset, a digital currency designed to maintain a stable value. This stability is crucial in fostering a reliable and robust system that can withstand the inherent volatility of the digital currency market. We further delve into the "Principle of Weak Monotonicity," a concept that posits that over reasonable time periods, the controllable mean component in the model formulation remains positive. This principle suggests a system designed to appreciate in value over time, providing a steady return for its participants. Our exploration introduces the concept of a "dual-ve system", a system where two distinct assets, in this case, STABLE and USDFI, each have their own price processes. This system can be likened to having two distinct financial products, each with its unique return rates and fees. In a significant departure from existing ve models, we argue that this dual-ve system represents a non-zero-sum game. Unlike a zero-sum game, where one participant's gain equates to another's loss, a non-zero-sum game allows for mutual benefit among all participants. We posit that in the USDFI system, market participants can collaborate to create a mutually beneficial environment, thereby enhancing the system's long-term stability and usability. The USDFI design represents a novel approach to decentralized finance, employing advanced modeling to create a stable, beneficial, and cooperative environment for its users. This work stands as a testament to the potential of DeFi to reshape our understanding of economic systems and financial interactions. ## Introduction We introduce the dynamics of USDFI system as a controlled stochastic price process, in which players execute strategies $$u\_{i}$$ in order to control parameters $$\overline{\delta}$$ to minimize their expected costs $$J(\cdot)$$ in the Ito process: $$dP(t) = (\delta\_{1}P(t), \delta\_{2}\[\epsilon(t), \rho(t)]^{\intercal})dt + (\delta\_{3}P(t), \delta\_{4}\[\epsilon(t), \rho(t)]^{\intercal})dW\_t$$ With costs to player i: $$J\_{i}(u\_{i},\overline{u}*{-i}) = \limsup\limits*{T \to \infty} \frac{1}{T} \ {\int}*{t}^{T} \alpha|P(t) - \psi(t, P*{i}(t), P\_{-i}(t))|^2 + \beta u\_{i}(t)^2 dt$$ where $$\alpha, \beta \in \mathbb{R}^{+}$$ are predefined weights, $$\psi$$ is a convex trajectory function, $$ρ$$ gives the protocol rewards, and $$ε$$ giving protocol emissions. ## Principle of Stability One of the central points of this system is to issue a low volatility asset relative to a widely liquid numeraire. Demonstrating that USDFI satisfies this condition is equivalent to showing that: $$\forall t \in R \frac{\partial }{\partial t}\mu\_{usdfi}(t, \cdot) \leq 0 \leftrightarrow P(t) > 1$$ and $$\forall t \in R \frac{\partial }{\partial t}\mu\_{usdfi}(t, \cdot) \geq 0 \leftrightarrow P(t) < 1$$ Where $$R \subseteq \mathbb{R}^{+}$$, some reasonable subset of all time. In other words, the drift component of USDFI’s price process trends toward 1, irrespective of whether USDFI is at peg, above or below. Formal arguments for this will be presented in the paper to be released in late 2023. ## Principle of weak monotonicity Given the dynamics of liquidity restrictions on STABLE posed previously, we proceed with the restriction that $$\forall t \in R \frac{\partial }{\partial t}\mu\_{stable}(t, \cdot) \geq 0$$ Or in other words, for reasonable periods of time, the controllable mean component in the model formulation of $$dP(t)$$ is positive. Formal arguments for this will be presented in the paper to be released in late 2023. ## Principle of rewards We define the strategy of holding USDFI as $$u\_{hold}(t)$$ and $$u\_{locked}(t)$$ We establish that the return of locking USDFI in vote escrow is greater than that of holding: $$\forall t \in R \frac{\partial }{\partial t}\mu\_{locked}(t, \cdot) \geq \frac{\partial }{\partial t}\mu\_{held}(t, \cdot)$$ This is a reasonable assumption because so long as there is a non-zero treasury, returns are positive. The treasury can never be zero since base funds are locked and minted. Given the stability principle, it follows that $$J\_{1}(P(0), u\_{locked}(t), u\_{x}(t)) \geq J\_{1}(P(0), u\_{locked}(t))$$ due to the reasoning above, and the fact that escrow rewards for an individual are independent of exogenous market participants. ## Optimal controls of the USDFI dual-ve system We formalize our dual-ve system in terms of a stochastic price processes, governed by linear quadratic regulators from players 1 and 2 with strategies $$u\_1(t)$$and $$u\_2(t)$$, posed originally by Chitra et. al. (2022). One central difference between the USDFI and Curve Finance's type single-ve systems, is that within the zero-sum bribing game played to govern the single-ve system, and subsequently regulate the underlying price process, we have a single asset’s price process granting governance authority to users of the system: $$dP\_{crv}(t) = \mu\_{crv}(P(t), u\_1(t), u\_2(t))dt + \sigma\_{crv}(P(t), u\_1(t), u\_2(t))dW\_t$$ an extended form of: $$dP(t) = (\delta\_{1}P(t), \delta\_{2}\[\epsilon(t), \rho(t)]^{\intercal})dt + (\delta\_{3}P(t), \delta\_{4}\[\epsilon(t), \rho(t)]^{\intercal})dW\_t$$ Where $$P(t)$$ gives the price as a function of time, $$μ$$ the controlled mean component of the system, $$σ$$ the controlled variance component, and $$Wt$$ a standard Weiner process. The costs written as: $$J\_{1}(P, u\_1, u\_2)$$ and $$J\_{2}(P, u\_1, u\_2)$$ The central difference between the Curve type single-ve and USDFI systems are that rather than gaming the system to manipulate a fixed allocation of emissions in terms of a single price process, we extend this notion to both STABLE and USDFI which both have stochastic price processes of their own. By the stability principle outlined in the introduction, and the weak monotonicity principle outlined above, we demonstrate firstly that the game is non-zero sum. We formalize this system in terms of two processes: $$dP\_{usdfi}(t) = \mu\_{usdfi}(P(t), u\_1(t), u\_2(t))dt + \sigma\_{usdfi}(P(t), u\_1(t), u\_2(t))dW\_t$$ and $$dP\_{stable}(t) = \mu\_{stable}(P(t), u\_1(t), u\_2(t))dt + \sigma\_{stable}(P(t), u\_1(t), u\_2(t))dW\_t$$ with costs $$J(P, u\_1, u\_2) = \limsup\limits\_{T \to \infty} \frac{1}{T} {\int}*{t}^{T} \alpha|P(t) - \psi(t, P*{1}(t), P\_{2}(t))|^2 + \beta u\_{1}(t)^2 dt$$ To demonstrate the non-zero-sum nature of this system, it is sufficient to show: $$\exists u\_{1}, u\_{2}:J\_{1}(P(0), u\_{1}(t), u\_{2}(t)) - J\_{2}(P(0), u\_{1}(t), u\_{2}(t)) \neq 0$$ Although transaction fees create some market friction, we assume this to be trivial (a reasonable assumption given the non churning nature of the vote escrow process) such that moving between USDFI and vote escrow USDFI is frictionless (zero cost). It follows directly from the above assumption, the formalization of vote escrow, and the principal of stability that players may arbitrarily construct strategies with costs $$J(·)$$ such that $$|J\_{locked}(P(0), u\_{locked}(t), u\_{held}(t))| > |J\_{held}(P(0), u\_{locked}(t), u\_{held}(t))|$$ The extension to games with arbitrarily many players follows directly from the formalizing of escrow rewards above. While this is not a concrete proof, it is a sufficient basis by which to outline the dynamics of the system. We show above that because of the dual-ve dynamics, the near-frictionless vote escrow environment, and the comprehensive finance platform that USDFI substantiates, that we have constructed a non-zero-sum game in which market participants may cooperate to yield greater benefit to all players, subsequently enforcing the long-term usability and stability of the system. We leave concrete proofs of the above theorems, as well as the existence of $$\epsilon$$-Nash Equilibria to a separate paper. # How to get deep liquidity for your token Do you want to offer your community the opportunity to trade your token with deep liquidity and excellent security? Do you want to maximize the utility of your token seamlessly across all DeFi services for better capital efficiency? Do you want to earn fees and rewards on your token? \ Then USDFI's dedicated full-service liquidity and banking tech stack is a great solution for you. Read about the advantages of partnering with USDFI in this chapter or use the links in the bottom section (menu on the left) to contact us via any time! We're here to help. # Problem: Bootstrapping your liquidity As a project, you may be facing hurdles and high costs when considering options like other AMMs/DEXs and Liquidity Bootstrapping Pools: * Problems getting whitelisted * High listing costs (2%+ of listing volume) * Your liquidity pool must be incentivized with a high APY by the project itself to attract enough new liquidity "Self-Bootstrapping" of liquidity leads to: * Token inflation * Dilution of existing token holders * Permanent sell pressure on your token * High costs * A negative feedback loop driving liquidity and price down Not a comfortable situation to be in!
# Solution: USDFI P4P Enter USDFI P4P: Full tech stack for all your token liquidity needs. With USDFI, we can guide you through a simple whitelisting process and help you with the setup of your pools. More importantly, liquidity incentivization on USDFI is based on *bribing* (think Curve, Convex, Solidly) and not on maintaining a high APY by supplying more and more of your own token. A bribing mechanism is proven to be *more capital efficient*.\* The USDFI P4P flywheel gives you: * Better liquidity for your tokens at a fraction of the cost, but with a full tech stack * The opportunity to earn fees on your own liquidity * The solution to stop diluting existing token holders * Reduced sell pressure on your token * Liquidity of your token with “all of DeFi” * A positive feedback loop boosting price, rewards and liquidity * Best-in-class protocol security guaranteed by an auditor with outstanding reputation
For partnership and whitelisting inquiries, please contact us via \*For reference {% embed url="" %}

Fees vs Bribes earned on Velodome

# Vision USDFI in a nutshell ## What's USDFI? * USDFI is crypto’s first **Universal Banking Protocol** and DeFi’s native ominchain banking layer * USDFI offers a complete **marketplace for digital asset liquidity & investment management** by integrating **liquidity, lending and stablecoins** into one full-service protocol * USDFI introduces new DeFi primitives to leverage a seamless cryptoeconomoy with DeFi's first **non-zero-sum tokenomics** powering a **truly decentralized currency**. # Dual-ve tokenomics Governance overview ## **Problem** * Current ve and ve(3,3) tokenomics lack unique equilibria * Users try to maximize their OWN payoff only * It's (nearly) impossible for users to engage in an optimal "locking-strategy" of their ve-Tokens * Lack of equilibria is a **big problem because it introduces fragility and leads to uncertainty, unpredictability, and instability** of the entire ve-design - and the protocol itself. The longer it operates, the higher the likelihood of collapse. ## **Solution** * USDFI's novel dual-ve design fixes the lack of equilibria: Here, users are able to vote escrow the governance token veSTABLE or the stablecoin veUSDFI * With dual-ve, users can cooperate to yield greater benefit to ALL participants. It's a non-zero-sum game! * Key to success: The design enforces usability and long-term stability of USDFI * **Users can optimize for risk, vol and incentives of the protocol**, turning STABLE into most efficient governance token available today! # STABLE/veSTABLE Governance token overview ## STABLE * STABLE is USDFI's governance token * It's not a stablecoin, but it stabilizes the protocol! * STABLE holders get bribes & protocol fees * STABLE's inflation is only 7% per year * All STABLE holders benefit from USDFI's protocol-based, perpetual buyback ## veSTABLE * Users can lock STABLE up to 4 years and get veSTABLE * A 4-year lock max boosts all fees, bribes and rewards earned - and max boosts voting power, too * veSTABLE allows users to vote on pool gauges * STABLE is one half of the revolutionary dual-ve design, crypto's first anti-fragile ve-Tokenomics # USDFI/veUSDFI Stablecoin overview ## USDFI * USDFI is the soft-pegged stablecoin of the USDFI protocol * USDFI has a novel stablecoin design focussing on max decentralization, unrestricted scalability & stability as a function of time * USDFI is a truly decentralised DeFI currency: It does not rely on any USD-linked assets * USDFI is backed by all revenues, cash flows and the undepletable protocol-owned liquidity (POL) of the entire USDFI cryptoeconomic system * USDFI does not rely on overcollateralization and offers max capital efficiency * USDFI is, by design, unstable first but stable at last: It resolves the stablecoin trilemma over time. It MUST depeg to work. Users frontrun or trade the depeg in line with time preference * USDFI is a low vs high time preference marketplace: The long-term expected return is always positive as all depegs are transitory * USDFI is the only stablecoin in crypto with a fully automated, protocol-based contingency plan in case of a depeg * USDFI holders can get bribes & protocol fees if they lock USDFI ## veUSDFI * Users can lock USDFI up to 4 years and get veUSDFI * A 4-year lock max boosts all fees, bribes and rewards earned - and max boosts voting power, too * veUSDFI allows users to vote on pool gauges * USDFI is ALWAYS worth USD $1 of voting weight in the protocol, offering a) an immediate arbitrage opportunity and b) a return-on-investment (ROI) boost on all fees, bribes and rewards earned * USDFI is one half of the revolutionary dual-ve design, crypto's first anti-fragile ve-Tokenomics * Dual-ve features a governance token with high price volatility (STABLE) and a stablecoin with low price volatility (USDFI), enabling users to trade volatility and time preference # Understanding Automated Market Makers Welcome to the hub of our innovative hybrid DEX model - our exchange page. Here, you'll discover the details of the unique hybrid AMM approach and how it sets USDFI apart. The USDFI protocol incorporates multiple AMM models, which have been combined into a single system. The design also includes the implementation of a unique master router to provide traders and liquidity providers with a range of options. ## Why USDFI? The primary function of the AMM Operations is to facilitate secure trading of digital assets with minimal fees and low slippage. Slippage refers to the discrepancy between the current market price of an asset and the price at which the trade or transaction is executed, which can result in a higher or lower amount of the desired tokens being received. To ensure access to the most favorable rates, there are two categories of digital assets: a) highly correlated in price vs a reference price (such as $USDC, $USDT, $BUSD and $DAI, ie stablecoins and liquid staking derivatives), and b) uncorrelated in price - digital assets not in category a) **The USDFI protocol provides two types of liquidity pools, stable pools (sAMM) and variable pools (vAMM)**, to cater to the needs of different token pairs. The liquidity of a given pool, measured by the value locked in it, has a direct correlation with the level of slippage it can offer, with deeper liquidity resulting in price impact. # How-to execute a token swap 1\) Select the topens you want to swap ![](/files/ekFwglCRirDrdNeksZAz) Clicking on a token icon enables you to browse a token list and search for tokens by name. ![](/files/4Z0CNv8StJdqzhYCtCs1) 2\) After the token selection, enter an amount you would like to swap. You can enter either the desired input amount or output amount. 3\) In case your wallet is swapping the selected token for the first time on the USDFI protocol, you will be asked to approve the token. 4\) Please review your swap and click "SWAP" to confirm # Token prices In the context of USDFI and other decentralized exchange platforms, token prices are determined by the supply and demand of the tokens in question. The smart contract that governs the platform utilizes an algorithm known as a constant product market maker, which maintains a constant ratio between the amount of two different tokens in a pool. This constant, represented by the formula $$x × y ≥ k$$, is adjusted during each trade to maintain equilibrium in the market and determine the current price of the tokens. The amount of each token in the pool is influenced by the actions of users buying and selling on the platform, resulting in fluctuations in token prices. # Price Impact The change in the token's value resulting from a trade in a pool is referred to as **Price Impact**. This is calculated as the discrepancy between the current market value and the effect that the trade has on the overall liquidity within a pool. The degree of Price Impact experienced is contingent on the volume of the liquidity pool. When there is *high liquidity* in the pool, the effect of your trade on the token's price may be minimal. In contrast, when *liquidity is low*, the impact of your trade on the token's price may be more significant. Consequently, a larger price impact may result in a less favorable overall price for the trade. It's important to keep in mind that the rate of price impact is *continually fluctuating* as the total value of the liquidity pool shifts based on the supply and demand of each token. In the event of an anticipated high Price Impact, USDFI will issue a warning as the swap may result in a significant loss. The decision to proceed with the transaction despite the warning is at the user's own risk. # Price Slippage **Price Slippage** refers to the difference between the expected price of a token after a trade and the actual price received after the trade is completed. It is affected by the overall movement of the market. The minimum amount received from a trade is determined by the market price and the user-set slippage limit. When using the USDFI dApp, the market price offered will be based on the slippage limit, with a default setting of 0.50%. Two main factors can contribute to Price Slippage: a) **Liquidity:** Some tokens and token pairs have low liquidity due to low demand, resulting in a high difference between the lowest asking price and the highest bid. This can cause a dramatic change in price when a trade is executed. b) **Price Volatility:** Tokens with high price volatility can experience rapid and unexpected changes in price, which can impact the market for that token. You can adjust your slippage at your own risk using Settings Menu. The Settings Menu provides experienced users with the option to make high slippage trades. High slippage trades may lead to a lower exchange rate when swapping tokens, resulting in lower returns. Despite this, experienced traders may choose to override the default settings as they believe they can achieve a high rate of return from the trade, even with the potential losses. # Price Impact vs Slippage **Price Impact** and **Price Slippage** are two terms commonly used into describe the outcome of a change in price when swapping cryptocurrency. While the terms are often used interchangeably, it is important to note that they *refer to different concepts*. **Price Impact** refers to the change in token price directly caused by a specific trade. It is reflected as the difference between the current market price and the impact of the trade on the total liquidity in a pool. **Price Slippage**, on the other hand, refers to the change in token price caused by the overall movement of the market. It is reflected as the difference between the expected price after a swap and the actual price received after the swap is completed. # Understanding liquidity pools ## Introduction In traditional finance, an order book is used to match buyers and sellers at a specific price. In contrast, A liquidity pool is a pool of assets that are made available for trading on a decentralized exchange (DEX). The assets in the pool are typically locked up by individuals or organizations called liquidity providers, who earn a percentage of trading fees in return for providing liquidity to the pool (the mechanism with USDFI is slightly different, here the veSTABLE holders can earn the fees). The primary function of a liquidity pool is to **ensure that there is always a buyer and seller** available for a given asset pair on the DEX. By depositing assets into the pool, liquidity providers are effectively making a market for that asset, allowing traders to buy and sell it without having to wait for a counterparty. The price at which an asset can be traded in a liquidity pool is determined by the relative value of the assets in the pool. The price is set by a mathematical formula, called an Automated Market Maker (AMM) algorithm, which takes into account the total value of the assets in the pool, as well as the relative amounts of each asset. When a trader wants to buy or sell an asset, they interact with the liquidity pool smart contract, which executes the trade and updates the pool's balances. The AMM algorithm ensures that the price of the assets remains stable and that liquidity providers earn a fair return on their investment. Overall, liquidity pools play a crucial role in making DEXs functional, by providing a mechanism for ensuring that assets can be bought and sold without the need for a centralized intermediary. ## Liquidity Pools on USDFI Providing liquidity carries certain risks. In this section, the different pools within the USDFI ecosystem will be reviewed, in order to assist users in finding a pool that aligns with their risk tolerance. The risks associated with being a liquidity provider on USDFI will also be explained. At present, there are several USDFI pools available, with new pools being added on a regular basis subject to whitelisting. It is important to note that when providing liquidity to a pool, one is exposed to both tokens within the pool regardless of the tokens deposited, therefore it is crucial to choose a pool with coins that a user is comfortable holding. All USDFI liquidity gauges receive STABLE based on how much the DAO allocates to it. {% hint style="info" %} All USDFI liquidity gauges receive STABLE based on how much the DAO allocates to it. {% endhint %} ## The AMM concept Liquidity pools are pools of tokens that exist within smart contracts. They can be a complex concept to understand, particularly for those new to Ethereum or DeFi. As an example, if one were to create a pool consisting of both USDT and USDC, where 1 USDT is equal to 1 USDC, and the pool contains 1,000 tokens of each (1,000 USDT and 1,000 USDC), If a trader exchanges 100 USDT for 100 USDC, the pool would then contain 1,100 USDT and 900 USDC, causing the price of USDC to slightly decrease in order to encourage another trader to exchange USDC for USDT, thus balancing the pool again. ![](/files/7h0w9P7kspZfu73mK5QZ) ## APY It is important to understand the role of the different pools in USDFI and how liquidity providers earn money. USDFI earns revenue from trading fees. When a user exchanges tokens through the USDFI website, 1inch, Paraswap, or another decentralized exchange aggregator, a small fee is earned and distributed as a bribe to veSTABLE holders, split evenly among all holders. APY may be higher on days with high volume and volatility; and may be low on some days. ## Fees Swap fees on USDFI for sAMM are generally 0.04% and for vAMM 0.30%, which is considered to be one of the most efficient ways to exchange stablecoins and other tokens on the any EVM blockchain. **Deposit and withdrawal fees are 0% in the protocol**. There may be network fees. # vAMM vs sAMM 1\) **Variable pools (vAMM)** are a type of pool that are intended for use with assets that have a high degree of price volatility. These pools utilize a generic constant product market maker formula, which is represented by the equation: $$x × y ≥ k$$ This formula is used to determine the value of assets within the pool, taking into account their volatility. The standard fee for this liquidity pool type is 0.30%. 2\) **Stable pools (sAMM)** are a type of liquidity pool that are intended for use with assets that have minimal to no volatility in reference to a specific asset price. This means that the formula used to determine the value of the assets within the pool is able to maintain low slippage, even when large trade volumes are present. The formula used in these pools is represented as $$x³y + y³x ≥ k$$ The standard fee for this liquidity pool type is 0.04%. The mathematical formulas used in both pools are implemented to maintain a balanced total pool liquidity at all times. # Understanding AMM users USDFI AMM Operations are made up of a diverse group of users who all play important roles in making the platform function smoothly. These users can be broken down into three main categories: Liquidity Providers (LPs), Traders, and Developers. These users all interact to create a **positive feedback loop** for the ecosystem. **Liquidity Providers**, or LPs, are individuals or organizations who provide their crypto assets to liquidity pools. These pools are crucial for facilitating trades and ensuring that there is always enough liquidity available for users to buy and sell their tokens. LPs earn a fee, and they can choose to provide liquidity passively, as a way to earn passive income, or actively, by focusing on market making as their primary strategy. **Traders**, on the other hand, are the individuals who actually use the AMMs to swap one token for another. These traders can include speculators, who use various community tools and products to make trades, arbitrage bots, which compare prices across different platforms to find any competitive advantages, and dApp users, who buy tokens from USDFI and then trade them in other applications on the same network or bridge to other chains. **Developers** also play a crucial role in the USDFI ecosystem, as they are the ones building dApps and services on top of the USDFI protocol. Developers are invited to launch their own front-ends to interact with the USDFI protocol. There can be also many USDFI protocol tools built by the community, such as DEX aggregators that pull liquidity from several liquidity protocols to offer traders the best available prices. # Understanding USDFI's AFSA-Shield USDFI's AMM offers a built in trading shield called AFSA (anti-frontrunning-and-sandwich-attack-shield) to protect its traders from market manipulation ## What's frontrunning in DeFi? Frontrunning is a potential issue that can occur on automated market makers (AMMs) like Uniswap, as they use an algorithm to determine the prices of tokens. In a frontrunning attack, a trader can take advantage of the algorithm by predicting its next move and executing trades before the algorithm can adjust the prices. For example, if a trader knows that a large buy order is about to be placed on Uniswap, they can place their own buy order at a slightly higher price, before the large order is executed. This allows them to purchase tokens at a lower price than the market price, as the algorithm adjusts the price upward after the large order is filled. ## What's a sandwich attack in DeFi? A sandwich attack is a type of exploit that takes advantage of a loophole in a decentralized finance (DeFi) protocol. It is a form of front-running, where an attacker takes advantage of a delay between the time a trade is executed and when it is settled on the blockchain. The basic concept of a sandwich attack is to place an order for a token at a specific price and then execute a second transaction that buys the same token at a lower price, essentially "sandwiching" the first order. The attacker then sells the token back to the original buyer at the higher price, profiting from the difference. For example, an attacker could place a buy order for a token at $100, then execute a second transaction to buy the same token at $90 from another user. The attacker then sells the token back to the original buyer at $100, making a profit of $10. These types of attacks are possible because of delays between the time a trade is executed and when it is settled on the blockchain. This delay creates a window of opportunity for attackers to exploit, as they can take advantage of the delay to execute a second transaction at a lower price before the first trade is settled. This type of attack is difficult to detect and prevent, as it relies on exploiting a delay in the system. However, some protocols have implemented measures such as price oracles to help mitigate the risk of sandwich attacks. It is important to note that while the AFSA-Shield reduces substantially the risks of being frontrun on an AMM, it is not a guaranteed outcome. In theory, timestamps can also be subject to manipulation. The code used for the Shield is: `require( tx.gasprice <= BaseV1Factory(factory).maxGasPrice(), "gas is too high!" );` With each trade , this code does not allow for transactions to be put in front of a user's transaction by offering more gas. # Becoming a liquidity provider Providing liquidity requires some initial setup effort. To participate in a pool, you must acquire "LP Tokens" specific to that pool. For Variable Pools you'll receive vLP-Tokens and for Stable Pools you'll receive sLP tokens. For instance, the USDT-BNB Pool will only accept vLP-Tokens for the USDT-BNB trading pair. To obtain the specific LP-Tokens, you must add liquidity to the corresponding trading pair. To get vLP-USDC-BNB-Tokens, you must first provide liquidity for the USDC-BNB pair. Though it may seem daunting, the process is relatively straightforward when broken down step by step. There are two ways to provide liquidity: a) the convenient way with using USDFI's 1-click functionality or b) the "old school" manual way. Let's dive into the convenient way first. ## 1-click liquidity provision ### Choose your pool Before you become a liquidity provider, choose the pool that's right for you. Visit the Pools section to see al available Pools. Use search option or Filters to narrow down your list. ### Provide liquidity Once you've identified the pool that's right for you, you will need to add liquidity in order to get vLP-Tokens. Click on "Review" to see the Pool details.
Click on the token selection of the top left box to open the search box. Select any crypto in your wallet or the corresponding LP (if already available). ![](/files/817pbpyehHGbdB7m43Iw) Click on confirm to automatically create your LP Token and have it deposited in the pool. Done! ## Providing liquidity manually ### Choose your pool Before you become a liquidity provider, choose the pool that's right for you. Visit the Pools section to see all available Pools. Use search option or Filters to narrow down your list. ### Provide liquidity Once you've identified the pool that's right for you, you will need to add liquidity in order to get vLP-Tokens. Click on "Get LP Token". ![](/files/BFYrtRadpvJNUlXd59ui) In the liquidity section, select the two tokens you want to create either a Stable Pool LP Token or Variable Pool LP Token with.
Click review and then confirm if you're happy with your choices. You can now use the "zap directly" switch to finish the process. If you don't enable the switich, please continue following the inistructions below.
After you've created your vLP-Token, you can start providing liquidity to the pool. Simply go back to your preferred pool and click review. Click on the token selection of the top left box to open the search box. Select your newly created LP Token and click confirm. Done! # Whitelisting USDFI is the protocol for protocols offering the full tech stack In a unregulated ecosystem, the creation of new pools is open to all projects. At USDFI, the responsibility of managing this process is delegated to a DAO to ensure a higher level of security and user convenience. Although new projects are permitted to create and manage their own pools, USDFI differentiates itself by relying on regulatory mechanisms to safeguard the system and its users from a deluge of new pools. For developers seeking to create a new pool on the USDFI network, they must first request approval from the DAO, which subsequently provides the project the opportunity to generate deep liquidity and volume on their own token. It is important to specify which tokens are to be used (including contract addresses), any existing audits, project information, how many fee rewards the partner would like to receive and whether and how much you would like to contribute to the pool yourself.\ \ If this information is available, the application is checked by the USDFI team and the respective farm is activated. We consider an ecosystem farm that is whitelisted to be less perceived risk because the development team responsible for adding that farm has contacted us, giving us the opportunity to perform due diligence on the project, similar to our token whitelisting process. This prior review minimizes the risk to the community. However, there is of course always some residual risk, which is why each user is responsible for their own actions.
# Dynamic pool fees for partner protocols ## What are dynamic pool fees? In the context of the USDFI financial ecosystem, partners receive a customizable share of fees collected. This does not impact the fee paid by users, but rather the distribution of the collected fee. By default, 80% of the fee goes to the USDFI protocol and 20% to the DAO. However, partners can negotiate a proportion of the fee for themselves in advance. For example, if a partner agrees to receive 50% of the collected fees, then half of the vLP 0.3% or sLP 0.04% fee will go to them, with the remaining 50% being distributed between the DAO and protocol. # Understanding USDFI Pools Providing liquidity carries certain risks. In this section, the different pools within the USDFI ecosystem will be reviewed, in order to assist users in finding a pool that aligns with their risk tolerance. The risks associated with being a liquidity provider on USDFI will also be explained. At present, there are several USDFI pools available, with new pools being added on a regular basis subject to whitelisting. It is important to note that when providing liquidity to a pool, one is exposed to both tokens within the pool regardless of the tokens deposited, therefore it is crucial to choose a pool with coins that a user is comfortable holding. All USDFI liquidity gauges receive STABLE based on how much the DAO allocates to it. {% hint style="info" %} All USDFI liquidity gauges receive STABLE based on how much the DAO allocates to it. {% endhint %} ## Revisiting the concept of liquidity pools Liquidity pools are pools of tokens that exist within smart contracts. They can be a complex concept to understand, particularly for those new to Ethereum or DeFi. As an example, if one were to create a pool consisting of both USDT and USDC, where 1 USDT is equal to 1 USDC, and the pool contains 1,000 tokens of each (1,000 USDT and 1,000 USDC), If a trader exchanges 100 USDT for 100 USDC, the pool would then contain 1,100 USDT and 900 USDC, causing the price of USDC to slightly decrease in order to encourage another trader to exchange USDC for USDT, thus balancing the pool again. ![](/files/7h0w9P7kspZfu73mK5QZ) ## APY It is important to understand the role of the different pools in USDFI and how liquidity providers earn money. USDFI earns revenue from trading fees. When a user exchanges tokens through the USDFI website, 1inch, Paraswap, or another decentralized exchange aggregator, a small fee is earned and distributed as a bribe to veSTABLE holders, split evenly among all holders. APY may be higher on days with high volume and volatility; and may be low on some days. ## Fees Swap fees on USDFI for sAMM are generally 0.04% and for vAMM 0.30%, which is considered to be one of the most efficient ways to exchange stablecoins and other tokens on the any EVM blockchain. **Deposit and withdrawal fees are 0% in the protocol**. There may be network fees. # Understanding the USDFI Router USDFI's custom Multirouter

Click to enlarge!

# Peer-to-Pool Money Markets The money market of USDFI employs a Peer-to-Pool lending mechanism, which has gained significant traction among various DeFi lending protocols. In order to explicate the functioning of this methodology, it is helpful to understand the more conventional Peer-to-Peer lending approach first. ## Peer-to-Peer Lending In Peer-to-Peer lending, a lender and a borrower are matched with one another to create a specific loan. This method of lending is often facilitated through online platforms that directly connect borrowers and lenders. The aim of Peer-to-Peer lending is to eliminate the need for intermediary institutions, such as banks, which can reduce costs and enable lenders to earn higher interest rates on their loans while borrowers can access lower interest rates. ## Peer-to-Pool Money Markets In Peer-to-Pool Money Markets, lenders contribute tokens as liquidity to a shared pool of assets, while borrowers draw from that same pool by borrowing liquidity in the form of tokens. Rather than dealing directly with each other, both parties engage with the communal pool. These pools, which are governed by smart contracts on EVM compatible blockchains, use algorithms to dynamically calculate the interest rates that lenders earn and borrowers pay. This automated process eliminates the need for intermediary parties and significantly reduces associated costs. The Money Markets (MMs) established by the Compound protocol embody this concept, where users enter and exit the market as lenders or borrowers in response to the rates quoted by the Market. ## Overcollaterization In USDFI's Peer-to-Pool Money Markets, the lending process is based on the over-collateralization mechanism. This entails that to secure a loan from one Money Market, a borrower must first deposit tokens of higher value into another Money Market as collateral. Furthermore, the borrower is obligated to maintain an adequate amount of collateral throughout the entire loan duration. This approach is prevalent in DeFi lending because users are typically anonymous when interacting with smart contracts. This means that traditional identity-based methods of enforcing loan repayment are not feasible in the DeFi context. # Lending vs Liquidity There are three fundamental building blocks in DeFi: * Liquidity (Automated Market Makers such as Uniswap, Curve Finance or Balancer) * Lending (Lending Protocol such as AAVE, Compound or Liquity) * Stablecoins (Non-Custodial stablecoins such as FRAX or USDFI) Although liquidity, lending and stablecoins are all crucial to the growth of DeFi, they differ in their ability to promote inclusivity within the ecosystem. While we delve into the technicalities of how swaps are executed in another chapter, we shall explore some key distinctions between these two mechanisms. ## Persmissioned and Permissionless Advanced AMMs such as Uniswap provide a feature called permissionless listing, allowing anyone to create a pair or pool of tokens and have it displayed on the Uniswap interface. This means that any token project can obtain on-chain liquidity for swaps from the beginning without the need for approval or listing fees. In contrast, leading lending networks such as Compound and Aave require a governance decision to add a new Money Market, a process that is challenging to pass. As a result, only a limited number of privileged tokens have access to lending and borrowing services. ## The challenges of listing a new token on a Money Market Let us delve into the distinct risk management approaches of Money Markets and AMMs by examining Compound and Uniswap as examples. Uniswap consists of numerous isolated pools that operate independently of one another. Each pool imposes its own risks on users, meaning that individuals who do not interact with a particular pool are not subject to its risks. Uniswap's security strategy relies on this isolation principle, allowing anyone to create any pool they wish, and providing users with the freedom to interact with the pools they deem safe or trustworthy. However, this method is not feasible for Compound. If a single Money Market in Compound turns out to be problematic, all users, including those who have not interacted with it, will be exposed to risk. This is because borrowers in the risky market can obtain funds from any other market, and any market could suffer losses if the borrowers fail to repay their debts. Thus, Compound's risk management differs greatly from Uniswap's, as it assumes responsibility for the safety of its users and follows a gated approach. Compound's users must trust its governance processes to make prudent decisions that mitigate risk and safeguard their collateral. # Lending ## Introduction Lending refers to the process of supplying tokens to a pool, with lenders earning interest on their deposit. Borrowers seeking to obtain tokens pay interest to those lending, which forms the revenue source for the lenders. The lenders have the freedom to withdraw their tokens at any time, as long as they are not being used as collateral and the entire supply is not being borrowed. This model does not feature any time-based locking or punitive measures for withdrawal. Lending refers to the act of supplying tokens to a common pool, with lenders earning interest on their deposit. Borrowers seeking to obtain tokens pay interest to those lending, which forms the revenue source for the lenders. The lenders have the freedom to withdraw their tokens at any time, as long as they are not being used as collateral and the entire supply is not being borrowed. This model does not feature any time-based locking or punitive measures for withdrawal. ## How to earn interest In USDFI's lending pools, once a user deposits tokens, the pool will generate oTokens, or "receipt tokens," which serve as proof that the user has provided assets to the pool. When the user decides to withdraw their tokens, they must return the oTokens as well. It's essential to hold onto these oTokens. The conversion rate between oTokens and the deposited tokens accounts for the interest paid by borrowers. Therefore, upon withdrawal, users receive more tokens than they initially deposited, proportionate to the token's Annual Percentage Yield (APY). It's crucial to note that the APYs in USDFI's Money Markets are dynamic and not static. They are updated at the block level and can fluctuate considerably in a short period. The interest rates received by lenders are determined by the rates paid by borrowers. ## Example Let us consider an illustrative scenario. Suppose you deposit 10f ETH with an average annual percentage yield (APY) of 5%. Once you complete the deposit, you will observe that your wallet will reflect 10 units of oETH, which represents your receipt tokens. Upon requesting the withdrawal of your original ETH after 1 year, you will exchange the oETH tokens and receive a total of 10.5 units of ETH in return. This reflects your initial 10 ETH deposit, along with the additional 5% interest that you earned over the 1-year period. # Borrowing In DeFi, borrowing refers to the process of acquiring a loan from lending networks, where users withdraw tokens from the pool of assets rather than supplying them as in lending. ## How-to borrow tokens In order to engage in borrowing tokens, a user must first supply tokens as collateral to the USDFI's Money Markets, as the system relies on loans that are over-collateralized. It should be noted that a user has the option to lend tokens and earn interest without borrowing any tokens. Once a user deposits tokens and designates them as collateral, they can borrow any of the available tokens from the Money Market, even the same token that was deposited as collateral. Any interest earned from depositing funds can help counterbalance the interest accrued from borrowing. ## Borrowing limits A user's borrowing limit on a lending network is determined by the amount of collateral they deposit and the Collateral Factor associated with the token they deposited. The Collateral Factor is expressed as a percentage and acts as a multiplier on the user's deposited assets. For instance, if a user deposits $1000 worth of WBTC as collateral and the collateral factor for WBTC is 70%, they can borrow up to $700 of any token ($1000 x 70%). Each token in USDFI Money Market has a unique Collateral Factor set by the USDFI DAO. The amount that a user can borrow is calculated based on the Collateral Factor associated with the asset they deposited, regardless of which token they choose to borrow. ## Interest payments In line with traditional financial practices, borrowers in USDFI's Money Markets are required to pay interest on their loans. This interest is paid directly to the lenders or suppliers of the token, with the Reserve Factor deducted. The interest rate for borrowers is determined by the Annual Percentage Yield (APY) of the token(s) they are borrowing. **It is noteworthy that APYs in USDFI's Money Markets are not fixed**, but are floating and can be updated on a per-block basis. Therefore, interest rates can fluctuate significantly over relatively short periods of time. The accrued interest for each block is added to a user's borrow position, which increases over time in proportion to the APY. To settle this accrued interest, a borrower pays back a portion of their loan. ## Using borrowed tokens Borrowing enables users to access the value of their assets while retaining ownership of them. For instance, if someone owns ETH but needs USD for a car payment, they can use the ETH as collateral to borrow USD. If the value of ETH increases, they can sell it and repay the loan while keeping the difference. This is just one example of borrowing, which is typically used for financial purposes. Other applications of borrowing include taking a short position on a token, leveraging a long position on a token, or borrowing a token to participate in a profitable liquidity mining opportunity while minimizing exposure to the token. ## **Risk of borrowing tokens** It is crucial to regularly keep track of your borrowing position in a lending network to ensure that you have sufficient collateral to support your loan. Due to the volatility of token prices, your position may be at risk of liquidation if not monitored closely. # Liquidiations Liquidators play a crucial role in maintaining the stability of a lending network and preventing defaults. They ensure that there is enough liquidity in the system to cover open positions. However, borrowers should exercise caution and take preventative measures to avoid being liquidated. ## What happens if a loan gets liquidated Liquidation is the act of repaying a borrower's loan on their behalf in the protocol for a fraction of their collateral. In a healthy lending network, liquidators are incentivized to regularly identify eligible loans for liquidation. This process involves monitoring the value of a position and determining when it has crossed the liquidation threshold. Once a signal is received indicating eligibility for liquidation, a liquidator steps in to repay a part of the loan on behalf of the borrower. The liquidator receives a share of the collateral corresponding to the amount they paid off, plus the Liquidation Incentive. ## When does a position get liquidated? A position may become eligible for liquidation when the collateral value falls below the value of the amount that has been borrowed. The **Liquidation Factor** is a percentage multiplier used to determine when liquidation may occur. For instance, suppose a user deposits ETH with a *Liquidation Factor of 80%*. In that case, a liquidation can take place when the value of the borrowed position reaches 80% of the deposited ETH value. ## What triggers a liquidation? It is important to monitor a position's exposure to liquidation by paying attention to two price movements: the collateral token's value and the borrowed token's value. In the event that either of these values changes and moves the position closer to liquidation, it is necessary to adjust the loan accordingly. For instance, if a user deposits 1 ETH as collateral when 1 ETH = $1000 USD, and uses it to borrow $400 DAI, and if the price of ETH falls to 1 ETH = $500, the new liquidation point becomes $400 (80% x $500). Similarly, if a user deposits $1000 DAI as collateral and uses it to borrow 0.5 ETH when 1 ETH = $1000 USD, and if the price of ETH rises to 1 ETH = $1500 USD, the position becomes eligible for liquidation as the value of the borrowed tokens increases to $750 USD (0.5 ETH x $1500 USD). ## How much of a loan gets liquidated? In USDFI's Money Markets, liquidations are limited to a maximum of 50% of a position's value (the *Close Factor*). This means that only a portion of the borrower's outstanding debt can be repaid during the liquidation process. For instance, let's say you have a position where you deposited $1,000 worth of DAI and borrowed $400 worth of ETH, and it becomes eligible for liquidation. Assuming the *Liquidation Incentive* for DAI is 10%, a liquidator would repay up to $200 worth of ETH (50% of what you borrowed) on your behalf. In return, the liquidator would receive $220 worth of your DAI: $200 DAI + $20 DAI for the Liquidation Incentive. After the liquidation, your new position would have a *Deposit Value* of $780 in DAI and *a Borrow Value* of $200 in ETH. You can find the Liquidation Incentives for each asset by clicking on the asset in the "Network" tab of the app. ## Avoiding Liquidiations To minimize the risk of liquidation, it's crucial to have a thorough understanding of how and when it can occur. Besides, you can take some steps to reduce the likelihood of liquidation. * One such measure is to avoid borrowing the maximum amount possible, which allows you to create a buffer between the Collateral Factor and the Liquidation Factor. * Using stablecoins for lending or borrowing can also decrease the chances of liquidation as the value of these tokens remains stable. * Regularly monitoring your position and having a repayment plan can help you avoid liquidation. However, the best way to prevent liquidation is to ensure that the value of your collateral is significantly higher than the amount you've borrowed. If you're still at risk of liquidation despite following these tips, consider paying back a portion of your loan or depositing more collateral to reduce your loan-to-value ratio. Be aware that each form of collateral has its own *Liquidation Factor*, so using multiple types of collateral could impact your overall position. # Advanced Money Market Strategies This section provides an overview of how individuals can leverage a lending network to their benefit. However, it is essential to read the sections on Lending, Borrowing, and most importantly Liquidations first to grasp the potential risks involved. ## Going short a token Shorting a token refers to the act of betting against it, with the aim of profiting from a decrease in its value. For instance, to short ETH, an investor can deposit USDC as collateral and borrow ETH against it. Assume the investor borrows 5 ETH and sells them for USDC. If the price of ETH falls, the investor can buy back the 5 ETH for less USDC, close the borrow position, and earn the difference as profit. ## Going leveraged long a token Leverage involves using borrowed funds to increase the amount of an asset held in order to potentially amplify returns, but also increase the risk of losses. For instance, to leverage a long position in ETH, one can deposit ETH as collateral and borrow USDC against it. The borrowed USDC can then be used to purchase more ETH. If the price of ETH rises, a portion of the additional ETH purchased can be sold to repay the USDC loan, resulting in a profit. ## Looping After opening a leveraged long or short position, it's possible to increase the exposure to the position by looping the leverage. For instance, a user who has created a short position against ETH would supply USDC, borrow ETH against it, and then sell the ETH. To enter a leverage cycle, they would use the USDC generated from the ETH sale as additional collateral to borrow even more ETH and repeat the process as many times as they wish. However, there is a limit to the number of cycles that can be performed, as each deposit of collateral permits a smaller borrowing position. # Contracts ### USDFI Money Markets #### Core * **Unitroller:** [0x87363d74cd88a6220926cf64bdefd23ae63be115](https://bscscan.com/address/0x87363d74cd88a6220926cf64bdefd23ae63be115#code) * **oETH** (CErc20Delegator): [0xc1ea72c901c014a76dd9656b1c5965a86a6b735c](https://bscscan.com/address/0xc1ea72c901c014a76dd9656b1c5965a86a6b735c) * **oBTCB** (CErc20Delegator): [0xd6c50114aa0f6a569e47c28620de49725f9c8f45](https://bscscan.com/address/0xd6c50114aa0f6a569e47c28620de49725f9c8f45) * **oCAKE** (CErc20Delegator): [0xfA246eEF86D6E58409C8b5AD7e778e336321f7Cb](https://bscscan.com/address/0xfA246eEF86D6E58409C8b5AD7e778e336321f7Cb) * **oBNB** (ONativeDelegator): [0x32c13d51188afD2d882b5DE6447387Dc8B528a59](https://bscscan.com/address/0x32c13d51188afD2d882b5DE6447387Dc8B528a59) * **oUSDC** (CErc20Delegator): [0x62c79F52041887ED095a5697BcC89ab1297384d6](https://bscscan.com/address/0x62c79F52041887ED095a5697BcC89ab1297384d6) * **oSTABLE** (CErc20Delegator): [0x147BA3Da72064eADcdB7Eaba4e930B6a233b7304](https://bscscan.com/address/0x147BA3Da72064eADcdB7Eaba4e930B6a233b7304) * **oUSDFI** (CErc20Delegator): [0xf34992AD64ccACb0b86d4CABaDd1aF0797C3Fb3B](https://bscscan.com/address/0xf34992AD64ccACb0b86d4CABaDd1aF0797C3Fb3B) * **oUSDT** (CErc20Delegator): [0xD577BBC634104811d3288F27a31E441EA9Eb0277](https://bscscan.com/address/0xD577BBC634104811d3288F27a31E441EA9Eb0277) * **oBUSD** (CErc20Delegator): [0x0e8ca6aa4BfB21666b8f19E61A606954C17cC016](https://bscscan.com/address/0x0e8ca6aa4BfB21666b8f19E61A606954C17cC016) * **Maximilion:** [0xba5dEeb106D0f02f57211e607B3c4D04fB551324](https://bscscan.com/address/0xba5dEeb106D0f02f57211e607B3c4D04fB551324) #### Proxy Implementations * **Registry** (implementation for Ministry): [0xcd56d03ebb487a2dc58a0f7871760370f6e8b3a3](https://bscscan.com/address/0xcd56d03ebb487a2dc58a0f7871760370f6e8b3a3) * **Comptroller** (implementation for Unitroller): [0x8f062f0bd37e5f4ce35f6b5042fda070f59f5f2f](https://bscscan.com/address/0x8f062f0bd37e5f4ce35f6b5042fda070f59f5f2f#code) * **ONativeDelegate** (implementation for ONativeDelegator): [0xb2f5dc97298ad5739c6d714b503155275b73381d](https://bscscan.com/address/0xb2f5dc97298ad5739c6d714b503155275b73381d) * **CErc20Delegate** (implementation for CErc20Delegator): [0x48fbf245ae17a19d0b91a1b622518a205e2a98cc](https://bscscan.com/address/0x48fbf245ae17a19d0b91a1b622518a205e2a98cc) #### Incentive * **RainMaker:** [0xe4447530eb55dd94ee9dd499b5d2bdcd08d44805](https://bscscan.com/address/0xe4447530eb55dd94ee9dd499b5d2bdcd08d44805) #### Ola Platform * **Ministry:** [0xae933da5860559080f47e594504ce5445d86f78a](https://bscscan.com/address/0xae933da5860559080f47e594504ce5445d86f78a) #### Interest Rate models * **ImmutableJumpRateModel** (oUSDC): [0xd1d46150ff687c5e224691963528d40386f42ced](https://bscscan.com/address/0xd1d46150ff687c5e224691963528d40386f42ced) * **ImmutableJumpRateModel** (oETH, oBTCB, oBNB): [0x17b43552c58cc6423f9c2527fc1dd60adb94fd7e](https://bscscan.com/address/0x17b43552c58cc6423f9c2527fc1dd60adb94fd7e) * **ImmutableJumpRateModel** (oSTABLE, oUSDFI): [0x4a194402e7065208b120f3867f23e27d3a953abd](https://bscscan.com/address/0x4a194402e7065208b120f3867f23e27d3a953abd) #### Oracles * **Chainlink:** [0x7c37BF8dBd4Ae90cdf45d382cEB1580c5d9300CC](https://bscscan.com/address/0x7c37BF8dBd4Ae90cdf45d382cEB1580c5d9300CC) * **FixedPriceOracle:** [0x8F1755EBe8Fb4f7f57476652a476BC4F957B094e](https://bscscan.com/address/0x8F1755EBe8Fb4f7f57476652a476BC4F957B094e) #### Utility * **CompoundLens:** [0x183019dc7a8f8f1456df735862761cccf2e23009](https://bscscan.com/address/0x183019dc7a8f8f1456df735862761cccf2e23009) **Administrative** * **Captain:** [0x41aaad8241c95d9f171fa44028c0a533ee495da0](https://bscscan.com/address/0x41aaad8241c95d9f171fa44028c0a533ee495da0) # Security USDFI's Money Market's are a joint-venture with [Ola Finance](https://ola.finance/). Ola's smart contract audits can be found here: ### Audit 1: Solidified and ZK Labs (Oct. 11, 2021) The [Solidified](https://solidified.io/) and [ZK Labs](https://zklabs.io/#welcome) teams performed a joint audit on Ola's smart contracts. The results from their analysis can be found [here](https://drive.google.com/file/d/1NbJNRIYwIZ7uDxB6sXDUYwH38EYMa5JB/view). ### Audit 2: Solidified and Oak Security (May 18, 2022) The [Solidified](https://solidified.io/) and [Oak Security ](https://www.oaksecurity.io/)teams performed a joint audit on Ola's smart contracts. The results from their analysis can be found [here](https://drive.google.com/file/d/1Rpuaxm5xxZAZWRxPWjYE6_bxVbPNcwJz/view?usp=sharing). # Token Report (BSC) The Money Market Token Report evaluates key properties of listed tokens to ensure the safety of our Money Markets and establish a transparent onboarding process for new tokens. This report is an ongoing document that will be updated with new tokens added to the platform. The analysis begins with checking the transfer logic of each token to ensure proper execution within the contracts. Additionally, we assess whether the contract is upgradable through proxy-implementation patterns or metamorphic contracts. Tokens with a destructor are not allowed, but we permit proxy tokens and monitor their implementation for changes, flagging any high-risk alterations until further analysis. ## ETH Token - 0x2170Ed0880ac9A755fd29B2688956BD959F933F8 Market - [0xc1ea72c901c014a76dd9656b1c5965a86a6b735c](https://bscscan.com/address/0xc1ea72c901c014a76dd9656b1c5965a86a6b735c)
## BTC Token - 0x7130d2A12B9BCbFAe4f2634d864A1Ee1Ce3Ead9c Market - [0xd6c50114aa0f6a569e47c28620de49725f9c8f45](https://bscscan.com/address/0xd6c50114aa0f6a569e47c28620de49725f9c8f45)
## BNB Token (Native) - 0xEeeeeEeeeEeEeeEeEeEeeEEEeeeeEeeeeeeeEEeE Market - [0x32c13d51188afD2d882b5DE6447387Dc8B528a59](https://bscscan.com/address/0x32c13d51188afD2d882b5DE6447387Dc8B528a59) ## USDC (Proxy) Token - 0x8AC76a51cc950d9822D68b83fE1Ad97B32Cd580d Implementation - 0xBA5Fe23f8a3a24BEd3236F05F2FcF35fd0BF0B5C Market - [0x62c79F52041887ED095a5697BcC89ab1297384d6](https://bscscan.com/address/0x62c79F52041887ED095a5697BcC89ab1297384d6)
## CAKE Token - 0x0e09fabb73bd3ade0a17ecc321fd13a19e81ce82 Market - 0xfA246eEF86D6E58409C8b5AD7e778e336321f7Cb
## STABLE Token - 0xE7Df6907120684add86f686E103282Ee5CD17b02 Market - 0x147BA3Da72064eADcdB7Eaba4e930B6a233b7304
Risks: Whitelist + Blacklist implementation. Pause functionality. Line 335 - STABLEProxy.triggerProxy(): 1. triggerProxy function is not a view function 2. STABLEProxy is a settable by the owner Currently STABLEProxyTrigger is false so no action is taken but could be in the future. Worth mentioning: Line 305 - referrals.getSponsor (View function so not real risk). Line 331 - dontTrigger.isDontTrigger (View function so not real risk). But both referrals and dontTrigger are settable by the owner ## USDFI Token - 0x7DF1938170869AFE410098540c051A8A50308988 Market - 0xf34992AD64ccACb0b86d4CABaDd1aF0797C3Fb3B
Risks: Whitelist + Blacklist implementation. Pause functionality. Line 335 - USDFIProxy.triggerProxy(): 1. triggerProxy function is not a view function 2. USDFIProxy is a settable by the owner Currently USDFIProxyTrigger is false so no action is taken but could be in the future.
Worth mentioning: Line 305 - referrals.getSponsor (View function so not real risk). Line 331 - dontTrigger.isDontTrigger (View function so not real risk). But both referrals and dontTrigger are settable by the owner. ## BUSD Token - 0xe9e7CEA3DedcA5984780Bafc599bD69ADd087D56 Market - 0xEb818d27aaB6776D50c9DaB560016447a63eEe10
## USDT Token - 0x55d398326f99059fF775485246999027B3197955 Market - 0x2763d553E990E269427ABe4F37288da9b2916462
# Minting How to mint USDFI ### Coming soon. ![](/files/1XnWjtl9HN9xoOtsUzIp) # Understanding the Minter ### Minter flow
# Introduction USDFI's mission is to create market-leading DeFi products that connect all crypto users in one digital ecosystem. With Money Legos, both liquidity miners and liquidity providers are offered a unique marketplace. USDFI's platform provides the infrastructure with the best user experience, minimizing complexity and costs for users while maximizing capital efficiency and yields. DeFi is constantly changing. USDFI strives to offer its users an as large and up-to-date environment as possible to help allocating liquidity to the latest DeFi opportunities available. In addition, users can create custom money legos themselves, subject to a whitelist approval. A gatekeeper function helps to avoid the creation random money legos. ## What are Money Legos? What is composability? Money Legos or DeFi Legos refers to the idea of composability, the combination of simple protocols that are already doing something very well on their own, into a brand new protocol or service. The traditional financial system has limitations on practical composability due to its permissioned nature, high barrier to entry, costs, and more. Composability is one of the core features of decentralised finance. When you use DeFi, you can interact with protocols in limitless combinations, stacking your activities on top of one another like building blocks (Money Legos) to create previously unimaginable use cases and financial products. ## What are USDFI's Money Legos? In a nutshell, USDFI's Money Legos is Money-Legos-as-a-Service (MLaaS). USDFI offers the most convenient "1-Click stake now" option in DeFi; all while leveraging the best investment opportunities available. ## How can users benefit from USDFI's Money Legos? DeFi today lacks user experience. It's a complicated network of specialised protocols where users need to jump from one protocol to another to find the services they need. This can be inefficient, costly, or risky. That’s not a good thing. USDFI introduces a DeFi solution that provides a complete DeFi ecosystem under one roof. A simple solution to reduce complexity and costs. USDFI's "1-Click stake now" Money Legos form an integral part of the ecosystem for the benefit the community. Less costs, less complexity and less time wasted equals happier users. ## Does USDFI charge fees for Money Legos? Investing in USDFI's Money Legos is free: There are no deposit or withdrawal fees. USDFI charges a 10% performance fee. Users and the protocol will incur standard blockchain transaction fees. Underlying protocols may charge fees. USDFI has no influence on this. ## How do USDFI's Money Legos help DeFi? USDFI is creating, allocating and pooling liquidity into stacks of the most exciting DeFi protocols with sustainable yields. Rather than trying to incentivise liquidity directly with a reward token that will inevitable go to zero, USDFI strives to incentivise indirectly by offering sustainable returns to all users involved. USDFI helps to channel liquidity into blue chip DeFi partner protocols with zero extra costs for its users. Pooled liquidity flowing into money legos helps to reduce costs for the individual user, leading to higher returns. Because liquidity is the lifeline of DeFi, USDFI helps the underlying protocols to become more sustainable and scalable. As the building blocks of DeFi scale, users of USDFI's Money Legos get more sustainable and predictable yields. Win-win. ## Whats the difference between money legos and farms/pools? With money legos it's possible to achieve higher yields more sustainably, because a clever combination of money legos and pooled liquidity is more profitable than "direct-single-user-staking" in liquidity pools. Additionally, you can transfer liquidity back to your wallet quicker while keeping custody of your funds at all times. Simply put, Money Legos help to overcome the complexity of DeFi and help you to navigate your crypto towards the most attractive opportunities in DeFi. ## How can USDFI's Money Legos help to stabilize returns? USDFI's Money Lego rewards are paid in USDFI. Because you're receiving a stablecoin and not a volatile reward token, you're able to "lock-in" the APR you see on a daily basis. What you see is what you get. USDFI helps to mitigate downward price risk, without the need to constantly claim and sell your rewards. Reward tokens typically suffer from intense selling pressure and tend to trend down in price over time, forcing liquidity miners to repeatedly claim and sell as quickly as possible. ## Why USDFI and what's "Boosted USDFI APR"? USDFI is the first and only truly decentralized non-custodial stablecoin. USDFI does not rely on any $USD-linked assets (like other $-stablecoins) to maintain its peg. It's by design unstable at first but - as the design matures - stable at last. During this process, USDFI users have the opportunity to earn extra yield if they hodl USDFI until parity is re-established. If USDFI is trading under peg, the additional yield is reflected in the "Boosted USDFI APR" value (calculated as potential upside until repeg). **a) Money Lego XYZ: USDFI is trading temporarily under peg (USDFI/USD=0.9)** Current USDFI APR: 10% LP Base APR: 5.2% USDFI APR: 4.8% Repeg boost APR: 0.53% USDFI boost factor: x1.11 Boosted USDFI APR: 10.53% **b) Money Lego XYZ: USDFI is trading at peg (USDFI/USD=1.0)** Current USDFI APR: 10% LP Base APR: 5.2% USDFI APR: 4.8% Repeg boost APR: 0% USDFI boost factor: - Boosted USDFI APR: 10% # Protocols # Thena Money Lego partner protocol Thena.fi is a decentralized exchange (DEX) and liquidity layer designed to enhance the DeFi ecosystem on the BNB Chain. It operates using a community-driven approach, leveraging a self-optimizing ve3,3 model to reward all contributing participants sustainably. Key features of THENA include: 1. **Spot and Leverage Trading**: Users can trade hundreds of spot and perpetual pairs with up to 60x leverage in a permissionless and non-custodial manner​​. 2. **Liquidity Provision**: THENA focuses on optimizing liquidity provision and fee generation, allowing users to provide liquidity, earn yields, and participate in governance through voting on pools​​. 3. **Staking and Passive Income**: Users can stake their assets to earn passive income. THENA offers various staking pools with attractive Annual Percentage Rates (APRs)​​. 4. **Social Layer**: The platform integrates social features to enhance user engagement and community building, making it a unique player in the DeFi space​​. 5. **Comprehensive Ecosystem**: THENA is supported by a robust ecosystem of partners, grants, and audits, ensuring a secure and dynamic environment for users​. For more details, you can explore their official website or join their official Socials. # Risks Please read this risk disclaimer carefully before using Money Legos. By using the Protocol, you acknowledge and accept the risks outlined below. If you do not agree with any of these risks, you should not use the Protocol. 1. **Smart Contract Risk**: Smart contracts are immutable once deployed. If there is a bug or vulnerability in the code of the Protocol or any of the underlying strategies, it could lead to a loss of funds or other unintended consequences. Even with thorough auditing, there's no guarantee of absolute security. 2. **Strategy Risk**: Money Legos deploy funds into various strategies that interact with other DeFi platforms. A failure or vulnerability in any of these underlying platforms or strategies could result in a loss of funds. 3. **Economic Risks**: Money Legos involve various economic risks, including but not limited to impermanent loss, liquidation, and slippage. The performance of strategies can be unpredictable and may result in losses. 4. **Liquidity Risk**: There's no guarantee that liquidity will always be available when you wish to withdraw or interact with the Protocol. Reduced liquidity can lead to increased slippage or inability to exit a position. 5. **Composability Risk**: DeFi protocols often build on top of or integrate with other protocols. A change or failure in one protocol can have cascading effects on others, including the Protocol you're interacting with. 6. **Oracle Failure**: If the Protocol relies on external price oracles, there's a risk of manipulation, failure, or inaccuracies in these oracles, leading to incorrect data and potential losses. 7. **Network Risk**: The blockchain network on which the Protocol operates might experience congestion, high fees, or other issues, which can impact the Protocol's operations and user interactions. 8. **Governance Risk**: Changes to the Protocol, often decided by token-based governance, can affect its functionality, the security of funds, or the yield of strategies. 9. **Regulatory Risk**: The legal and regulatory status of yield farming and yield aggregation is uncertain in many jurisdictions. There's a risk of regulatory actions or changes that could adversely affect the Protocol or its users. 10. **APR/ROI Misrepresentation**: The advertised annual percentage rate (APR) or return on investment (ROI) can be highly variable and is no guarantee of future performance. It's essential to understand how these figures are calculated and the risks associated with them. 11. **Volatility Risk**: Assets deposited into the Protocol and potential rewards can be highly volatile, leading to significant price fluctuations. 12. **Custodial Risk**: While many DeFi protocols are designed to be non-custodial, there's always a risk associated with sending tokens to a smart contract. Always ensure you're interacting with the correct contract address and understand the terms of the Protocol. 13. **Competitive Risks**: The DeFi landscape is rapidly evolving. New protocols or innovations could render existing yield aggregation platforms less attractive or obsolete. This Disclaimer is not exhaustive, and there may be other risks associated with yield farming and yield aggregation. Always conduct your own research and consult with financial, legal, and technical experts before interacting with any DeFi platform. Remember that all investments carry risks, and past performance is not indicative of future results. # About Chainsecurity USDFI is audited by Chainsecurity ## ChainSecurity history and credentials In 2017, at ETH Zurich, one of the leading universities for computer science in the world, academic researchers developed Securify \[1]. Securify was the first static analyzer for Solidity smart contracts. As the tool gained in popularity, the team of researchers was approached multiple times for smart contract security services. Hence, ChainSecurity was founded. The team quickly grew and audited over 70 projects for more than 50 clients. With the support of the Ethereum Foundation, Securify became open source \[3] and publicly available. Furthermore, in collaboration with ETH Zurich, ChainSecurity developed formal verification tools such as VerX \[4]. The team also received visibility during the Constantinople \[5] and Berlin \[6] hard forks, as it discovered two issues. Other multiple low-level issues in Ethereum client were reported and resulted in the 5th place on the global Ethereum bug-bounty leaderboard \[7]. Beginning of 2020, ChainSecurity was acquired by PwC Switzerland \[8]. The goal was to provide a joint business offering for smart contract code audits and financial audits, thus spearheading the tokenized securities industry. However, in April 2021, as our DeFi clients became increasingly decentralized, it was challenging to serve them from such an established and regulated company. Hence, ChainSecurity amicably spun-off from PwC. ChainSecurity learned from the best practices of the financial audit sector and, with leading blockchain security engineers and PwC- alumni, we make up a world-class team bringing quality, reliability, and experience. In 2021, after the spin-off from PwC, ChainSecurity performed approximately 50 audits, hired talent from leading universities, and identified a vulnerability in live Compound code \[9] during an audit on a different scope \[10]. In 2022, ChainSecurity continued performing audits with increased capacity, won Ethereum Foundation’s underhanded Solidity contest \[11], identified a live vulnerability in the Fuse pools of Rari Capital \[12], and another one in Balancer \[13]. More live vulnerabilities will soon be disclosed publicly after being patched. ## Selected smart contract audit reports ### MAKER – Liquidations 2.0 Liquidations 2.0 for multi collateral DAI has been developed to mitigate uncovered shortcomings in the previous liquidation system. \ ### MAKER – Optimism DAI-Bridge & Starknet-DAI bridge [https://chainsecurity.com/security-audit/makerdao-optimism-dai-bridge/ ]() ### CURVE FINANCE – Tricrypto Curve Finance’s Tricrypto system extends their exchanges to swap 3 coins instantly, where the coins no longer need to be equivalent in value. \ ### COMPOUND – Comet Compound Comet is a gas-efficient lending platform allowing more efficient liquidity use due to a streamlined application of borrowing stablecoins against various collaterals. ### 1INCH – Farming 1inch implements two types of farming contracts. While the first one is a traditional farming contract where tokens need to be deposited for reward eligibility, the second one is as ERC-20 library contract which has farming capabilities built-in and, thus, allows for participating in multiple farms without requiring individual deposits in each one. \ ### KYBER – KyberSwap Elastic (based on UNISWAP V3) KyberSwap Elastic is an automated market maker (AMM) implementation, that allows liquidity providers to concentrate the liquidity in a certain price range. \ ### POA (Gnosis) – Omnibridge OmniBridge is a system of smart contracts that allows cross-chain token transfers between Ethereum-compatible blockchains. \ ### GEARBOX – Generalized leverage protocol This system allows users to take leverage in one place and then use it across various DeFi protocols and platforms in a composable way. \ \[1] \ \[2] [https://chainsecurity.com/audits](https://chainsecurity.com/audits/)\ \[3] \ \[4] \ \[5] \ \[6] [Ethereum blog post](https://blog.ethereum.org/2021/05/18/eth_state_problems/) and [submission](https://hackmd.io/@iwck0wkoSzauVnsYI0h7JA/SkyFmk4_r)\ \[7] \ \[8] \ \[9] \ \[10] \ \[11] \ \[12] \ \[13] # Audits Here you can find the details of all our previous audits! We continuously and actively conduct audits to ensure that USDFI provides a safe and reliable platform for all users. ## Chainsecurity USDFI is the first AMM, gauges and bribes protocol to score a perfect zero Critical-Severity, zero High-Severity and zero Medium-Severity issues with Chainsecurity. {% embed url="" %} ## CertiK [CertiK Blockchain Security](https://www.certik.com/) Leaderboard CertiK is the leading security-focused ranking platform to analyze and monitor blockchain protocols and DeFi projects. {% embed url="" %} ## Solidified, ZK Labs and Oak Security For the USDFI Money Markets, [Ola finance](https://ola.finance/) is our trusted partner. {% embed url="" %} ## SolidProof ✅ Certificate of Compliance ✅ Vulnerability Report & Code Recommendations ✅ Automated Vulnerability Test (Slither, MythX, Custom Scripts) ✅ Manual Security Testing (Manual Code Check, SWC-Registry) {% embed url="" %} {% embed url="" %} {% embed url="" %} {% embed url="" %} # Contracts ## USDFI V3 BSC: [0xC9f5955f6dA20e44A068f3d58FB2404f56f9a6f2](https://bscscan.com/address/0xC9f5955f6dA20e44A068f3d58FB2404f56f9a6f2) Arbitrum One: [0x249c48e22E95514Ca975De31f473F30c2f3C0916](https://arbiscan.io/address/0x249c48e22E95514Ca975De31f473F30c2f3C0916) Ethereum: [0xa7a0B3Fe94121E366D774d60D075F6386F750884](https://etherscan.io/address/0xa7a0B3Fe94121E366D774d60D075F6386F750884) ## STABLE V3 BSC: [0x8bF75bc68FD337dfd8186d731Df8b3C2CB14B9E6](https://bscscan.com/address/0x8bF75bc68FD337dfd8186d731Df8b3C2CB14B9E6) Arbitrum One: [0x666966Ef3925B1c92fa355FDA9722899f3e73451 ](https://arbiscan.io/address/0x666966Ef3925B1c92fa355FDA9722899f3e73451) Ethereum: [0x60b9C41d99FE3Eb64Ecc1344baD31D87f1bceD6D](https://etherscan.io/address/0x60b9C41d99FE3Eb64Ecc1344baD31D87f1bceD6D) ## USDFI (OLD) Contract [0x11a38e06699b238d6d9a0c7a01f3ac63a07ad318](https://bscscan.com/address/0x11a38e06699b238d6d9a0c7a01f3ac63a07ad318) ## veUSDFI Contract [0x2bA5088a3786B138cd647D7d442D95bE70813a73](https://bscscan.com/address/0x2bA5088a3786B138cd647D7d442D95bE70813a73) ## STABLE (OLD) Contract [0xa3870fbBeb730BA99e4107051612af3465CA9F5e](https://bscscan.com/address/0xa3870fbBeb730BA99e4107051612af3465CA9F5e) ## veSTABLE Contract [0xdA6C70B91DD6D7e3df58aC031658170b41a86D34](https://bscscan.com/address/0xdA6C70B91DD6D7e3df58aC031658170b41a86D34) # The USDFI vision ## USDFI is the first Universal DeFi Bank: Liquidity, lending and stablecoin in one place

Sagittarius A*

* USDFI is crypto’s first live implementation of the Universal Banking model * The protocol powers a truly decentralized currency * Security is guaranteed by Chainsecurity of Zurich, Switzerland * USDFI is the Superdapp With DeFi, the power and sovereignty of money is moved back into the hands of the users. However, DeFi today lacks user experience. It's a complicated network of specialised protocols where users need to jump from one place to another to find the services they need. This is challenging, costly, and risky. Users feel frustrated as fees, complexity, and time add up. That’s not a good thing. There’s an opportunity. USDFI introduces a DeFi solution that provides a complete DeFi ecosystem under one roof. The protocol brings your digital asset experience into one place, one stop. Liquidity, lending, and native stablecoin are integrated into one financial stack. This delivers a seamless user experience and helps crypto users interact with all DeFi services without jumping from one protocol to another. USDFI allows you to do what you already do better, more often, in more ways, and more quickly. STABLE is the protocol's native and value-generating governance token with a unique protocol-based, perpetual buyback mechanism. USDFI, the ecosystem's stablecoin, introduces a novel decentralised stablecoin design. It offers real censorship resistance and full, uncompromised on-chain transparency with proof of reserves. The stablecoin design doesn't depend on infrastructure and decisions of other protocols and has no limitations on scalability or autonomy. With USDFI, security is the most important thing. USDFI is the only dedicated DeFi protocol globally with a ChainSecurity audit on BSC and offers best-in-class security. Supported by the Ethereum Foundation, ChainSecurity is deeply rooted in ETH Zurich (Switzerland), one of the leading universities for Computer Science in the world. Today, Chainsecurity is responsible for the security of the biggest names in blockchain and DeFi worldwide, safeguarding the Ethereum Blockchain itself and other leading protocols such as MakerDAO, Lido, Curve Finance, AAVE, Compound, Uniswap, Polkadot, and 1inch. With USDFI, you don’t need to trust anyone. That’s the promise. The only thing you need to trust is the math. Everything at USDFI is transparent, immutable, and verifiable to all. # Roadmap This section is regularly updated.
# Tokenomics
## Epoch Emmission Details
# Pitch Deck ## TL;DR There's a new opportunity in DeFi: Product maximalism / dApp layer first * DeFi needs products that people ultimately going to want to use * The application will determine what the infrastructure looks like * Users will follow the best dApps * Build the best dApp by owning the full stack * USDFI is the Superdapp
# Connecting a wallet to USDFI Connecting your wallet to USDFI can be done in a few simple steps, as outlined below for both mobile browsers and web browsers. ## **Mobile Browser** 1\) Go to USDFI.COM. 2\) Select the Connect Wallet icon, which can be found in the top right corner of the page. 3\) Choose from the available wallets or select Wallet Connect to access a list of supported wallets if your desired wallet is not listed. ## Web Browser 1\) Go to USDFI.COM. 2\) Select the Connect Wallet icon, which can be found in the top right corner of the page.
3\) Choose from the available wallets or select Wallet Connect to access a list of supported wallets if your desired wallet is not listed. Additionally, some wallet providers may offer the option to connect directly to USDFI from within the wallet. Once the wallet is connected, you are ready to use USDFI and make your swaps. # Switching networks The USDFI protocol is compatible with all EVM networks, including the BNB Chain, Ethereum, Polygon, Optimism, or Arbitrum. **Currently, only the BNB Chain is supported.** If you are currently connected to a different network, you will need to change the network. The process for doing this is as follows: 1\) Locate the Network icon in the upper right corner of the screen. 2\) Select the desired network (BNB Chain) from the options available. 3\) Allow the USDFI site to switch the network in your wallet. This may be done through a notification in your wallet or by a prompt on the screen. 4\) Once the network has been switched, confirm that the new network has been selected by checking the network name. Once confirmed, you will be ready to make a swap! # What's a wallet address? A wallet address is a public address that is associated with a crypto wallet. It is typically represented as a randomly generated string of characters. **This address is used to send and receive cryptocurrency, making it safe to share with others.** Some examples of when you might share your wallet address include when friends want to send you tokens or NFTs or when you want to be on the whitelist for a specific project or airdrop. Additionally, your wallet address can be used to locate *transaction hashes* on a *block explorer*. Your wallet address can be found within the crypto wallet that you are using. # Getting a crypto wallet A crypto wallet is a digital wallet that allows you to store, send, and receive cryptocurrencies on a blockchain network. There are different types of crypto wallets, each with their own unique features and security level. Before selecting a wallet, it is important to research the different types of wallets available. Choosing the right wallet can mean the difference between safekeeping your assets or losing them. ## Software Wallet First type of crypto wallet is a software wallet, also known as a hot wallet. Software wallets can be browser or mobile app-based and can be divided into two categories: custodial wallets and self-custodial wallets. **Custodial wallets are controlled by a third-party** who holds your cryptographic private keys and securely stores your funds. These wallets are typically regulated entities, similar to traditional banks, and users log in with a username and password to access their account. Examples of custodial wallets include Coinbase. However, it is important to note that custodial wallets cannot be used to trade on USDFI and other decentralized finance (DeFi) applications. **A self-custodial wallet is a type of cryptocurrency wallet in which the user is solely responsible for the management and security** of their private keys. These wallets typically allow the user to directly interact with blockchain networks and decentralized applications, such as USDFI. In order to set up a self-custodial wallet, the user must download the wallet application to their phone or computer and create an account. It is important to note that when setting up a self-custodial wallet, the user will be given a recovery phrase, which should be written down and kept in a secure location. This is because the recovery phrase is used to access the wallet if the user forgets their private keys or login information. Additionally, some self-custodial wallets may allow the user to connect a fiat funding source, allowing them to convert traditional currency to cryptocurrency. Examples of self-custodial wallets include Metamask, Rainbow Wallet, and Coinbase Wallet. It is important for users to research and carefully consider the options available before choosing a self-custodial wallet. ## Hardware Wallet A hardware wallet, or a cold wallet, is a **physical device that stores your cryptographic private keys offline** and provides an added layer of security for your cryptocurrency funds. It is a type of self-custodial wallet, which means that you have full control over your private keys and are solely responsible for securing them. When considering a hardware wallet, it is important to research the different options available and choose one that fits your needs. Some popular hardware wallets include Ledger or Trezor. Each device may have different features and compatibility with different cryptocurrencies, so it is important to do your own research to find the best option for you. To get started with a hardware wallet, you will need to purchase one directly from the manufacturer. This ensures that you are receiving a brand new, unopened device. Once you have your hardware wallet, you can follow the set-up instructions provided by the manufacturer. This may include creating a new wallet or restoring an existing one, and setting up a passcode or PIN to access the device. One of the most important steps in setting up a hardware wallet is to save your recovery phrase. This is a set of words that you will need to write down and store in a secure location. If you ever lose access to your hardware wallet, you can use your recovery phrase to restore your funds to a new device. It is important to remember that anyone who has access to your recovery phrase can access your funds, so it is essential to keep it safe and not share it with anyone. After setting up your hardware wallet, you can connect it to USDFI and other DeFi platforms to store, send and receive cryptocurrency. # Understanding Networks and Layers A network is a system of interconnected devices or nodes that are able to communicate with one another. In the context of Ethereum, a network refers to the environment where users can test, develop, and interact with smart contracts and decentralized applications (dApps). There are different Ethereum networks available, each with their own unique characteristics. The most widely used networks include the Ethereum Mainnet, the Ethereum Testnet, and Layer 2 networks. The Ethereum Mainnet is the original and primary blockchain network where on-chain transactions occur. This is where real Ether (ETH) is used to pay for transaction fees, and where smart contracts and dApps are deployed and executed. **This is also referred to as Layer 1**. **Layer 2 networks**, on the other hand, are additional networks that operate on top of the Ethereum Mainnet, and offer faster and cheaper transactions. These networks use off-chain transactions, which means that they do not need to be recorded on the Ethereum Mainnet, thus reducing the cost and time of transactions. Examples of Layer 2 networks include Optimism and Arbitrum. The **BNB Chain** is a blockchain platform that is compatible with the Ethereum Virtual Machine (EVM). This means that developers can use familiar programming languages, such as Solidity, to write smart contracts and deploy them on the BNB Chain. This compatibility allows developers to easily port their existing Ethereum-based projects to the BNB Chain giving them access to the high-performance and low-cost transactions offered by the BNB Chain. # Understanding Layer 2 A Layer 2 is a second network or blockchain built on top of the Layer 1 Ethereum blockchain while preserving the security and decentralization guarantees of Ethereum. It aims to increase the scalability of the Ethereum blockchain by allowing more transactions to occur off-chain, rather than on the blockchain itself. This can help to reduce the cost and time associated with processing transactions on the Ethereum network. The USDFI protocol is currently considering to launch on two Layer 2 networks: **Optimism and Arbitrum**. These networks use a technology called "optimistic rollups" to increase scalability. This technology allows many transactions from different users to be bundled together and processed as a single transaction on the Ethereum blockchain. This can lead to lower transaction fees and faster confirmation times for users. To use one of these Layer 2 networks, you will first need to deposit funds from your Layer 1 wallet to the Layer 2 network. This is an important step as it ensures that your funds are stored securely on the Ethereum blockchain while still being able to take advantage of the benefits offered by the Layer 2 network. It's important to note that both Optimistic Ethereum and Arbitrum are still in beta release and generally should be used with caution. There is a real possibility that errors can occur on a Layer 2 network which may result in a total loss of funds. Therefore, it is important to understand the risks associated with using a Layer 2 network before depositing any assets. # Understanding transaction hashes A transaction hash, also known as a transaction ID, is a **unique string of characters** that is assigned to every transaction that occurs on the blockchain. This hash can be used to track and verify the status of a particular transaction. To view the details of a transaction, users can use a tool called a block explorer, such as [etherscan.io](https://etherscan.io/) or [bscscan.com](https://bscscan.com/). These tools allow users to enter the transaction hash and view information about the transaction, including the amount, the sender and recipient addresses, and the status of the transaction. # Understanding approval transactions When using the USDFI Protocol for the first time, you will be required to **approve the token that you wish to swap** or add liquidity to. This gives the USDFI Protocol permission to access the token in your wallet and execute the swap or liquidity addition. It is important to note that **each token** from a specific wallet will require a one-time approval. This means that once a token has been approved for use in the USDFI Protocol, it will not need to be approved again for future swaps or liquidity additions. When swapping tokens on USDFI Protocol, you will be prompted with a message asking for approval. This message may appear as a pop-up or a button labeled "Allow" or "Approve". Once you select this option, you will be able to proceed with the token swap. It is important to note that approving a token is considered a transaction, and as such, it will **require a network fee** to be paid. This fee will vary depending on the current network congestion and the specific blockchain being used. # Network Fees When conducting a cryptocurrency transaction, a fee known as a **network fee or gas fee (GWEI)** is required to be paid to the miners of the blockchain network being used. These miners are responsible for verifying and processing transactions, and are compensated for their work through these fees. The amount and method of payment for the network fee may vary depending on the specific blockchain network. Additionally, the demand for miner services, as determined by the volume of transactions on the network, can affect the cost of the network fee. It is worth noting that the **USDFI protocol does not benefit financially from network fees.** # Buy Crypto You can use the "Buy Crypto" button on the top right to direclty buy crypto either with your credit bard or by wire tranfser via our service provider[ Mt. Pelerin](https://www.mtpelerin.com/). # Credit Card The payment system accepts only credit cards from Europe. Users from the US cannot use the payment service. Further, Mt. Pelerin does not accept payments with cards issued to a company. #### **What is KYC?** "Know Your Customer" (KYC) is the identification and verification of new and existing customers on the basis of money laundering requirements. #### **Why is KYC required?** KYC serves to prevent money laundering. In order to support these legal requirements, time-based limits are set by Mt. Pelerin. #### **KYC-free-limits for crypto purchases:** | **Timeframe** | **KYC account** | **non-KYC account via Mt. Pelerin** | | ------------- | --------------- | ----------------------------------- | | 1 day | Unlimited | CHF 1,000 (ca. USD 1,050) | | 1 month | Unlimited | CHF 15,000 (ca. USD 15,750) | | 1 year | Unlimited | CHF 100,000 (ca. USD 105,000) | # Bank transfer Click "Buy Crypto" ![](/files/BfzYpEH5tQ1IYTdG2W66) You can choose between bank transfer or pay via Credit Card. Click "By bank transfer". Enter your Country code and your Phone number. ![](/files/Olb9G5gOELjvqZpZGDqM) You will receive a six-digit confirmation code via SMS, which you must enter in the boxes. ![](/files/Shca3KUiFPZXpULNEwXM) Enter your E-mail address for verification and accept the terms and conditions of Mt. Pelerin. ![](/files/dTZDlu8rKwXxQLHi7X0E) Now you are registered for non-KYC transactions within these limits. ![](/files/Ru2JwhYls5Qvg5FWJ2ib) Select your wallet for verification. ![](/files/pBxw4SyUR8r7MCjtuaSU) For this **example**, we choose MetaMask. Select your wallet address in MetaMask to be connected. ![](/files/0t32oQx923C3ycs5NmCZ) Use the Button "Validate this address" to start the validation process between the Mt. Pelerin App and your MetaMask ![](/files/vW9XBmjeRxHNKX2QqowG) Confirm the pop-ups ![](/files/T1OwuxjWLVAdEGNsY2jP) Check your e-mails. You'll get a confirmation e-mail from ![](/files/jyGKPFXjSo8rbuzVTsyp) You have to wait until the compliance department has reviewed your data. When the review is finished, you can complete your KYC if required. KYC registration removes all transaction limits ![](/files/S97GrJTQoTd4huG0V7YO) Upload a picture of your ID card or passport and a selfie ![](/files/ijAy3LNwPTaHNd05V3RD) Enter additional information ![](/files/g6tgAyx5AZCljkrYiHzk) Enter your residential address ![](/files/JwztneEGcNt1yD2tNcfA) Upload proof of address ![](/files/EXM8gBYdbXS9M6KOtBsa) The KYC review can take up to 3 business days. You'll get an update via e-mail once identification is complete ![](/files/RGSWWImMMgwIl7vVeaxR) # How to become an USDFI affiliate USDFI's affiliate program is fully on-chain and enables powerful cash rewards! ## What sets the USDFI Affiliate Program apart? USDFI offers all users the opportunity to participate in their unique Affiliate Program - in addition to the regular features such as Lending/Borrowing, DEX, and others. To obtain an Affiliate Link, it is important to distinguish between the USDFI Community Sale and the period after the launch of the DEX. During the Community Sale, members receive a referral bonus for inviting others to participate in the sale and purchase at least $0.1 worth of STABLE. This referral bonus amounts to 10% of the deposited amount in BUSD and is distributed directly to the referral's wallet via Smart Contract, without the need for a back-office or waiting for payouts. In other words: **You can earn 10% of ALL funding you refer during the Community Sale! Example: You refer a sale worth $100, you get $10 worth of BUSD immediately deposited to your wallet.** USDFI's Affiliate Program is based on blockchain technology, which ensures that referrers are rewarded immediately, without worrying about payout procedures or other issues. Moreover, the distribution in the form of BUSD guarantees that users receive real cash immediately available for withdrawal... or for the purchase of more STABLE and USDFI! ## How can I obtain an Affiliate Link? **Step 1:** Click on your sponsor's affiliate link **Step 2:** Connect your favourite wallet on the USDFI Community Sale page (use the "Connect Wallet" button) **Step 3:** Choose from a large list of supported tokens and and buy STABLE worth at least USD $0.1 to active your referral on the blockchain and your wallet **Step 4:** Your own affiliate link will be displayed as "Active" in the dashboard. Now your personal affiliate link is ready to be shared. **NOTE:** **Both "Invited" and "Active" must have a green "YES" status before you can copy your affiliate link to the clipboard!** ![](/files/7s6hsMzfGoVhFkTUtQRh) ## Affiliate rewards after protocol launch in May 2023 Following the launch of the protocol, there will be a referral bonus of 2% available for each affiliate registering as an affiliate during the Community Sale. This bonus is structured as follows: **Level 1:** 1.2% of all rewards generated through liquidity and bribes. **Level 2**: 0.6% of all rewards generated through liquidity and bribes. **Level 3:** 0.2% of all rewards generated through liquidity and bribes. For example, if User 1 shares their affiliate link with another person who in turn shares their own affiliate link with two more users, User 1 will receive a total of 2% of all rewards earned by these three users. The payout will be made in cash (BUSD) directly to the respective wallet, offering the possibility of unlimited and perpetual referral bonuses for every referred user. # SVGs

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USDFI logo black letters

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# General questions about USDFI ### What is the USDFI Protocol? The first live implementation of a foundational universal DeFi banking protocol powering a truly decentralized currency. Short description, but there’s a lot to unpack! ### What’s so special about USDFI? It’s DeFi’s first Universal Banking layer offering all core DeFi services in one place. No matter if you require liquidity, lending/borrowing or a stablecoin, we’ve got you covered. Also, USDFI serves as your universal DeFi UX/UI-Layer and offers access to your favorite Money Legos across DeFi with 1-click. ### What’s USDFI? A protocol or a stablecoin? I’m confused. There’s USDFI (the protocol) and USDFI (the token - and native stablecoin of the protocol). That’s it. Short and simple! ### Why would I use USDFI? DeFi today lacks user experience. It involves navigating through a complex network of specialized protocols, often requiring users to switch between multiple platforms to access the services they require. This can lead to frustration, high costs, and increased risks. USDFI is here to fill the gap and provide a seamless DeFi experience across all verticals. # How is USDFI different from... ### …Curve Finance? Curve Finance maximizes for efficiency around stableswaps. USDFI maximizes for efficiency around the synergies of having liquidity, lending and stablecoin in one place. ### …Convex? Convex is a yield optimizer for the Curve protocol with its own CVX token. In very short, CVX token holders can be bribed to vote reward liquidity providers with more rewards. The same compelling mechanism is built directly into the USDFI layer already for a more seamless experience. ### ...Uniswap V2? Uniswap is DeFi’s original, foundational liquidity layer and AMM protocol. While USDFI technically offers the same AMM, it rewards liquidity providers with the protocol’s STABLE token emissions and its governing members with trading fees. This prioritizes fee generation over liquidity provision for a more sustainable ecosystem. Also, there is no native stablecoin or money market available on the Uniswap protocol. ### …from Yearn Finance? Yearn Finance is a DeFi yield farming optimizer. The protocol socializes gas costs, rebalances and allocates automatically for selected tokens. USDFI’s Money Legos provide a streamlined UI-Layer for selected protocols, where you can de-risk, lock-in, or boost your APY’s by having your reward tokens automatically converted to USDFI. ### …from MakerDAO and DAI? DAI is a stablecoin that is collateral-backed and maintained through a system of smart contracts. Users can generate DAI by depositing a stable or widely used cryptocurrency, such as USDC and Ethereum, into the MakerDAO system as collateral. DAI collateral consists of mostly USDC, a highly centralized custodial stablecoin, greatly limiting scalability and decentralization. In contrast, the USDFI stablecoin design can have a treasury with up to 100% decentralized, volatile cryptocurrencies and has no limitations on scalability. The trade-off is a softer peg. ### …from Solidly? Solidly launched as a very popular DEX on the Fantom chain and sported smart AMMs for correlated and uncorrelated assets; with a novel governance system called ve(3,3). Solidly ultimately proved to be unsuccessful due to a combination of various factors, including hyperinflationary tokenomics, incorrect assumptions regarding game theory, and the absence of a protocol-based risk management mechanism. In contrast, USDFI’s follows Uniswap’s and Curve Finance’s AMM designs, but with reengineered tokenomics, voting and bribing mechanisms. The novel dual-veToken design integrates seamlessly with the whole USDFI ecosystem, its game theory, and incorporates automated protection protocols. ### …from AAVE? AAVE is a decentralized non-custodial money markets platform. It allows users to deposit and lend out various cryptocurrencies and stablecoins, earning interest in return, similar to USDFI. However, it does not offer liquidity, ve-Token governance, a native stablecoin, or Money Legos. ### …from Balancer? Balancer is a decentralized AMM protocol. The main function of Balancer is to provide a platform for the creation and management of multi-asset liquidity pools with up to 8 tokens. Creating positive a feedback loop with swaps only is very challenging. This is because there is a lack of avenues to generate income through borrowing and lending of assets (available in USDFI) or to leverage tokens for greater capital efficiency. ### …from Compound? Compound is very similar to AAVE, but differs in various technical aspects (flash loans, liquidation, penalties, LTVs etc.) Please see AAVE. # Questions about the USDFI ecosystem ### What’s the difference between the USDFI and STABLE tokens? STABLE is the ecosystems governance token, while USDFI is the ecosystem’s native, decentralized stablecoin. Please refer to the documentation for more info [here](https://docs.usdfi.com/) ### Is STABLE a native BNB chain token? What about USDFI? STABLE is a multichain native token, just like USDFI. It’s native on the BNB chain and all other EVM compatible chains and features the same hash on all chains. ### The USDFI protocol is a buyer of last resort and automated market maker of last resort of last resort. What does that even mean?! The buyer of last resort (BLR) is a mechanism used DeFi to stabilize the price of a specific cryptocurrency. It is based on the concept of the lender of last resort in traditional monetary systems, where a central bank acts as a lender of last resort to stabilize the financial system. The protocol’s treasury automatically engages as a BLR and redirects its revenues to buying back unlimited USDFI at a higher price, in perpetuity, until price stability at the peg is reinstated. The automated market maker of last resort (AMMLR) is a mechanism used in DeFi to stabilize the price of a specific cryptocurrency by providing liquidity to the market. For example, when the price of a cryptocurrency drops, the AMMLR mechanism is triggered and uses its revenues to buy the cryptocurrency at a discount, providing liquidity to the market, and helping to restore price stability. The opposite occurs when the price of a cryptocurrency rises, the AMMLR mechanism sells the cryptocurrency at a premium, providing liquidity to the market, and helping to restore price stability. Both mechanisms are unique to USDFI. # Terms of Use / Legal information ### What are the Terms of Use of this community sale? Are they legally binding for me? Yes, they are legally binding for everyone participating in the Community Sale. Please find the relevant documents here: [Terms of Use](https://usdfi.com/documents/USDFI-Terms-Of-Use.pdf) # Where to find more information ### How do I use the USDFI Protocol? Please find detailed instructions in our Help Center on [Gitbook](https://docs.usdfi.com/) ### How does USDFI Protocol design work? For your reference, our working paper can be found [here](https://docs.usdfi.com/usdfi-working-paper-v2/abstract) ### Where can I learn more about USDFI or STABLE? Telegram: \ Twitter: \ Github: \ Medium: \ Discord: ### Where’s your roadmap? Available on our Gitbook here: [https://docs.usdfi.com](https://docs.usdfi.com/) ### Where’s your white paper? The working paper is on our Gitbook (follow the “Help Center” link), including the analysis of the dual-ve design. The white paper should follow late 2023. ### You didn’t answer my question in this FAQ. What am I supposed to do? Visit us on Telegram to get help! Please join here: # Security and audit ### Are my assets safe? Have you been audited? USDFI is the only dedicated decentralized exchange globally with a ChainSecurity audit on the BNB chain, offering the best-in-class blockchain security known. Some background: Security is the most important thing at USDFI, bar none. That’s why we’re proud to say USDFI is audited by ChainSecurity. ChainSecurity has its roots in ETH Zurich (Switzerland), one of the leading universities for Computer Science in the world, where a team of researchers (with the support of the Ethereum Foundation) founded ChainSecurity. The team has developed tools like Securify and VerX; and gained visibility during the Ethereum Constantinople and Berlin hard forks, as it discovered issues. Today, ChainSecurity is responsible for the security audits of the biggest names in DeFi and is responsible for the security of, inter alia, MakerDAO, Lido, Curve Finance, AAVE, Compound, Uniswap, Polkadot, KyberSwap and 1inch. ### Do you take custody of my assets when you provide any of your services? Never ever! With USDFI, you don’t need to trust anyone. That’s the promise. The only thing you need to trust is the math. Everything at USDFI is transparent, immutable, and verifiable to all. Always. # The most important question ### Wen moon? Come on... really :-)