USDFI - The revolution will not be centralized.
  • USDFI Working Paper
    • Abstract
    • Introduction
      • Custodial Stablecoins
      • Non-custodial Stablecoins
    • USDFI Design
      • Introduction
      • The Decentralized Stablecoin Trilemma
      • Design Considerations
      • Financial stability: AMOs, BLR, AMMLR & The DeFi Trinity
    • USDFI Stability Mechanisms
  • Dual ve-tokenomics
    • Introduction
    • Liquidity Incentivization
      • Curve Finance
      • Olympus DAO
      • Zero-sum, ve and ve(3,3)
      • Dual-ve model
    • Analysis of dual-ve
  • USDFI: The protocol for protocols
    • How to get deep liquidity for your token
    • Problem: Bootstrapping your liquidity
    • Solution: USDFI P4P
  • USDFI explained in 120 seconds
    • Vision
    • Dual-ve tokenomics
    • STABLE/veSTABLE
    • USDFI/veUSDFI
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    • Understanding Automated Market Makers
      • How-to execute a token swap
        • Token prices
        • Price Impact
        • Price Slippage
        • Price Impact vs Slippage
      • Understanding liquidity pools
      • vAMM vs sAMM
      • Understanding AMM users
    • Understanding USDFI's AFSA-Shield
    • Becoming a liquidity provider
      • Whitelisting
      • Dynamic pool fees for partner protocols
    • Understanding USDFI Pools
    • Understanding the USDFI Router
  • USDFI Money Markets
    • Peer-to-Pool Money Markets
    • Lending vs Liquidity
      • Lending
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      • Advanced Money Market Strategies
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      • Token Report (BSC)
  • USDFI Stablecoin
    • Minting
    • Understanding the Minter
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    • Introduction
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      • Thena
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  • Security
    • About Chainsecurity
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    • Pitch Deck
  • GETTING STARTED
    • Connecting a wallet to USDFI
    • Switching networks
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    • Getting a crypto wallet
    • Understanding Networks and Layers
    • Understanding Layer 2
    • Understanding transaction hashes
    • Understanding approval transactions
    • Network Fees
    • Buy Crypto
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  1. USDFI Working Paper

Introduction

PreviousAbstractNextCustodial Stablecoins

Last updated 2 years ago

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]

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 case 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).


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