What is UXD Protocol?
UXD Protocol is a fully collateralized decentralized stablecoin backed by delta-neutral position using derivatives
UXD is issued on Solana, an incredibly fast, cheap, and permissionless blockchain. UXD is a next-generation decentralized stablecoin that integrates with top derivative trading exchanges on Solana in order to create a "delta-neutral" position that collateralizes the stablecoin. Our first derivative dex will be mango markets. Through UXD's construct, we are able to solve the "stablecoin trilemma", allowing UXD to be stable, capital efficient, and decentralized. Moreover, the stablecoin has native yield from the "funding rate" of the perpetual futures position it puts on, allowing UXD stakeholders to generate yield as a result. See UXD Basics for an explanation of concepts like Derivatives, Delta, Perpetual Futures, Funding Rates, etc.
When thinking about what features an ideal stablecoin would have, three come to mind as incredibly important:
- 1.Stable: The goal of a stablecoin is to keep a direct peg to a non-crypto asset like US Dollars. If a stablecoin wildly fluctuates above or below this peg, it is fundamentally not very useful.
- 2.Decentralized: The issuance, trading, and flow of the stablecoin should not rely on any centralized entity. Minting and redeeming the stablecoin should be permissionless and decentralized, and the community of stablecoin users should own the platform that creates the stablecoin.
- 3.Capital Efficient: Anyone should be able to mint the stablecoin with $1 of assets. Requiring more than $1 to mint a stablecoin, such as the case with DAI, is extremely inefficient for users.
The stablecoin trilemma that we referenced above states it is impossible to be Stable, Decentralized, and Capital Efficient at the same time. Stablecoins can have at most 2 of these 3 features. UXD believes that all stablecoins currently in the crypto ecosystem fail in one of these three key features, whereas UXD has novel solutions for all three at the same time.
Think of your favorite stablecoin designs - they will fail in one of these three features to some extent. Of course, UXD comes with its own Risks, which should be fully understood before minting or using UXD.
UXD is pegged to the US dollar using derivatives. Since it is backed 100% (meaning fully collateralized) by a delta-neutral position, users will always be able to redeem 1 UXD for 1 USD worth of assets. If UXD deviates above or below the USD peg for any reason, traders will be able to make risk-free profits and bring the price of UXD back to the peg. See Delta-Neutral Position section for an explanation of the mechanics of UXD's stability.
UXD Protocol is non-custodial, and does not hold user's deposited crypto assets. Users can mint/redeem UXD on a permissionless basis. Although the UXD team will control initial design choices for the protocol, eventually UXP holders (UXD's governance token) will have DAO authority over future design proposals. This will ensure that UXD is decentralized over the longer term, and never relies on any individual entity.
Unlike many popular stablecoins that require more than $1 of crypto assets (sometimes $1.50+ of assets) to mint $1 of a stablecoin, UXD users can mint 1 UXD for $1 worth of crypto assets. UXD does not require any over-collateralization.
A major benefit of this fact is that users don't have to actively monitor their deposits to guard against the risk of getting liquidated and taking a significant loss. UXD users can passively deposit their assets and feel confident that they can reclaim $1 of crypto asset for 1 UXD at any time.
When UXD token is minted, UXD protocol establishes a derivatives trading position on decentralized exchanges that has a yield component through the perpetual futures funding rate. This yield component means that stakeholders in UXD will receive yield when the yield is positive. When the yield is negative, the insurance fund will be used to pay the negative yield from the perpetual futures funding rate, so long as the insurance fund remains capitalized. This ensures that holders of UXD do not have to worry about funding rates