The three major ecological stablecoins of Ethereum, Polkadot, and Cosmos have made a big bottom

Stablecoins are developing rapidly, and USDT is leading the way, but it has been questioned due to compliance issues.

As a latecomer, compliant stablecoins are catching up and are also shining brightly.

As for the synthetic stablecoins that are more in line with the spirit of the blockchain (mortgaging other assets to generate stablecoins), only Maker's DAI has been able to make a splash in the stablecoin battlefield for a long time.

But now with the emergence of Kava and Acala, DAI will no longer be alone, and the stable currency battlefield will also usher in the spoiler of two new forces.

These two new forces belong to the Cosmos and Polkadot ecosystems respectively, and both aim to become the DeFi infrastructure in their respective ecosystems.

This article will try toUnderlying model, generation mechanism, liquidation mechanism, scenario expansion, value capturesecondary title

1. The underlying model

Maker is an application based on Ethereum that generates the stable currency DAI through overcollateralization.The collateral assets were only ETH at first, and later upgraded to a multi-collateralization model. In addition to ETH, BAT, WBTC, USDC, and TUSD were added as mortgageable assets.

Data source: https://debank.com

Data source: https://debank.com

Data source: https://debank.com

Data source: https://debank.com

Kava is a multi-asset DeFi platform based on the Cosmos ecology. At the same time, Kava is also a separate public chain, which is very different from Maker based on Ethereum.

Maker is based on the bottom layer of Ethereum. After several years of development, Ethereum has become the second public chain project in terms of market value. Both security and decentralization are at the top level, and the ecological prosperity is developing well. Based on Ethereum, Maker can directly enjoy the excellent features of Ethereum.

Kava is a separate public chain, and the public chain is primarily about security. As a new chain, Kava needs to build its own security system. Moreover, the development and governance of the public chain itself will consume a lot of resources.

However, Kava also has its unique features based on the Cosmos ecology. The unique cross-chain feature of Cosmos makes it easier for public chains in the same ecology to achieve cross-chain interoperability. This is also the main direction of Kava.

And the Cosmos ecology is not barren. Binance Chain and OKChain among the three major exchange public chains are based on Cosmos, and Kava has reached in-depth cooperation with both, which is of extraordinary significance to the DeFi platform.

Acala is a public chain based on Polkadot (Polkadot), but due to the characteristics of Polkadot, Acala does not need to build its own security system. The parallel chain of the Polkadot system is guaranteed by Polkadot and realizes cross-chain communication.

However, if you want to access the Polkadot mainnet, you need to rent a parachain slot (obtain the qualification to use it), and the slot is likely to be very expensive. The slot auction is very important. Many behaviors of Acala in the early development stage are designed around acquiring slots, which will also have an impact on the value capture of Acala tokens, which will be discussed in the value capture section.

The Polkadot ecology based on Acala is also strong, and the market has high expectations for it. The two years of Ethereum 2.0 upgrade will be the last window of opportunity for all Ethereum killers, and it is also very important for Polkadot.

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2. Generation mechanism

Maker, Kava, and Acala use the same model, which is called the CDP collateralized debt warehouse model. The core principle is to generate stable coins by over-collateralizing high-quality assets.

Maker generates stable currency DAI through over-collateralization, now supports ETH, BAT, WBTC, USDC, TUSD five assets for mortgage, the mortgage rate is different, between 120%-150%. At present, generating stable coins through Maker only needs to pay a stability fee of up to 1% (which can be understood as loan interest), but parameters including mortgage rate and stability fee are adjustable.

Kava Generates Stablecoin USDX Through Overcollateralization, the first supported collateral asset is Binance’s platform currency BNB. Kava’s lending platform was officially launched on June 10, but the cross-chain bridge linking Binance Chain and Kava Chain has not yet been officially launched (expected to be launched on June 14), so as of the time of publishing, no USDX has been minted come out.

The mortgage rate of Kava's first mortgage assets is set at 150%, and the stability fee is tentatively set at 5%. For the compliant stablecoins supported in the future (such as BUSD), the mortgage rate may be set at 120% like Maker.

Acala generates stablecoin aUSD through overcollateralization, since it has not yet been launched, it is impossible to know which assets will be supported first, but it is likely to be the Polkadot mainnet token DOT. The official launch of Acala will have to wait until the official launch of the Polkadot mainnet. The current testnet supports the use of DOT, XBTC, and LDOT to mortgage to generate aUSD.

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3. Adjustment mechanism

The loan interest rate is charged when the loan is repaid, and there is no big difference between the three.

However, for the issuance of deposit interest rates, Maker needs to deposit DAI through specific channels in order to obtain interest, some exchanges with mining pool functions also integrate the deposit function of DAI, such as OKEx.

Kava truly realizes the "interest-bearing stable currency", whether your USDX is in the wallet or in the exchange, you can earn interest, the annualized interest rate is about 4-5%, and the income is distributed on a weekly basis.

Acala has the same interest rate adjustment mechanism, and the specific data will not be known until it is officially launched.

Through changes in loan interest rates and deposit interest rates, the number of stablecoins in the market can be adjusted. A high loan interest rate will inhibit the demand for borrowing, and the generated stable coins will decrease; a low loan interest rate will encourage the generation of stable coins, and the generated stable coins will increase. If the deposit rate is high, the number of depositors will increase, and the number of stablecoins flowing into the market will decrease; if the deposit rate is low, the number of depositors will decrease, and the number of stablecoins flowing into the market will increase.

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4. Liquidation mechanism

The importance of the liquidation mechanism was fully reflected in the 312 incident.

Stablecoin platforms will set a mortgage rate. The assets that users generate stablecoin mortgages must exceed the mortgage rate. Once the asset value falls below the mortgage rate, the liquidation process will be initiated. Liquidation is to eliminate risky loans and keep the system in a sufficiently high overcollateralized state.

During the 3.12 epic plunge, the liquidation robot operated by the Maker Foundation encountered technical problems due to extreme network congestion, making it unable to participate in bidding for several hours.

Some bots drained the Dai liquidity and were unable to make any bids for hours until they acquired more Dai. With no competitors, two bots started submitting zero bids, and eventually about $5 million in collateral (ETH) was auctioned off for $0. The balance of assets and liabilities of the Maker system has been broken.

The liquidation robot obtained a large amount of collateral at 0 yuan, resulting in the value of the mortgage assets in the Maker system being less than the total value of the generated DAI, that is, insolvency. In the end, Maker issued additional governance token MKR, obtained funds through auctioning MKR to repurchase the excess DAI in the market, and rebalanced assets and liabilities.

And those users whose collateral was taken away by 0 yuan seem to have not heard of any compensation measures for these unlucky users. Normally these users would get the DAI quoted by the liquidation bot while losing their collateral, but now they lost their collateral but did not receive any DAI.

On March 16, Maker's liquidation mechanism added an auction fuse mechanism.When the market fluctuates violently, the collateral auction can be suspended, allowing the liquidator to have a longer period of time to raise capital and participate in the bidding and liquidation of the collateral.

Kava's liquidation mechanism is similar to Maker's auction model, but the specific auction method is different from Maker's.

During the normal liquidation phase,Kava's auction is divided into two phases, namely forward auction and reverse auction (fixed price auction).

The first stage is a normal auction, listing the amount of collateral, and bidders bid for the auction. Once the bid reaches a level that can pay the system debt, such as 1000USDX, the first stage auction will end.

Then there will be a reverse auction, where the bidder bids 1000USDX in exchange for how many liquidated assets (for example, the liquidated asset is 100 BNB, worth 1500 US dollars), if the best bidder is willing to exchange 1000USDX for 80 BNB, the 80 BNB will be Will be used to pay off the debt of 1000 USDX. The remaining 20 BNB will be returned to the liquidated person, and the liquidated person will be able to get 1000 USDX and 20 BNB.

In fact, it is also easy to understand, that is, how many BNBs the liquidator is willing to exchange for 1000 USDX, if the liquidator is willing to exchange 60, then leave 40 for the liquidated person; if the liquidator is only willing to exchange 90, then give the liquidated person The liquidator keeps 10.

If an event similar to 312 occurs, the system becomes insolvent, and like Maker, it will also auction kava tokens to pay for it.

At the same time, Kava has established a committee governance mechanism to make quick decisions in major events. The committee is elected by users and can be changed.

Acala's liquidation mechanism is innovative compared to Maker and Kava. Acala introduces the concept of a triple liquidation mechanism.

Acala's auction mechanism is basically the same as that of Kava introduced above, and it is also divided into two stages, which will not be introduced here.

The main reason is that the way to participate in the liquidation has been innovated. Both Maker and Kava use robots to participate in the liquidation, and there is a threshold.

Acala combines clearing and DEX. Acala's built-in DEX uses the exchange pool model (refer to Uniswap), and users can inject funds into the exchange pool to obtain fee income.The funds injected by users into DEX will automatically participate in the liquidation of collateral, and the liquidation proceeds will also be distributed to liquidity providers. Of course, it is completely OK to participate in liquidation through robots.

In addition, there are two mechanisms of dSWF fund and auction ACA to cover the bottom line.secondary title

5. Scene expansion

Maker's DAI has fully bloomed in the Ethereum ecosystem and is widely welcomed with many partners.

Relying on the Cosmos ecology, Kava has reached in-depth cooperation with Binance Chain, OKChain, etc., and has strong investment institutional partners, and relies on mainstream exchanges to do DeFi, which actually adds endless imagination.

Scott Stuart said in an AMA in the Kava community that Kava is working hard to allow USDX to be minted directly on the exchange.

There is too much room for imagination here, which also corresponds to the integration of CeFi and DeFi mentioned by Brother Qu before may be the development trend of the industry.

For details, please refer to"CeFi, DeFi must have a battle? No, more likely to fuse"、"Exchange public chain, gimmick or revolution? "。

In order to encourage users to mint USDX, Kava took out 3.848 million Kavas as early USDX minting rewards. But in fact, besides trading, USDX itself has not seen other usage scenarios so far.

Acala relies on the Polkadot ecology and also has great potential. By staking DOT through Acala, you can obtain LDOT tokens through Acala while obtaining Staking income. LDOT can independently conduct transactions, pledge loans and other operations. It not only provides users with ultra-high liquidity, but also solves the problem of Staking and DeFi competing for assets.

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6. Value capture

Kava is a public chain. In addition to the stability fee income, the network will also have service fee income, and these values ​​can be captured by kava tokens.

Users can also participate in Staking to obtain income. Regarding Staking, it should be noted that Kava’s target inflation rate is 7%. If the locked-up amount of Kava tokens does not reach two-thirds of the total supply, the inflation rate will gradually increase to 20% %; if the locked-up volume exceeds two-thirds, the inflation rate will gradually decrease to 3%. In this way, the amount of locked positions can be increased and the network security can be protected.

Acala is also a public chain, and like kava, in addition to stability fee income, it will also have service fee income.

Acala has a built-in DEX, and liquidity providers will receive transaction fee dividends and stablecoin liquidation penalties. At the same time, in order to encourage more users to provide liquidity for DeX, the transfer fees of the Acala network are also distributed to users.

Circulating LDOT can be generated through Acala, and a small agreement fee will be charged when LDOT is used to redeem DOT.

Therefore, in addition to the distribution to users, the Acala network mainly has two pieces, namely the stability fee and the L-DOT protocol fee. And this part of the profit is not set into a deflation model like most projects, but is deposited into the dSWF fund.

The primary goal of the dSWF fund is to enable the Acala network to achieve its own sustainable development, so the revenue part will first purchase as many DOTs as possible to achieve the goal of independently renting parachain slots. Afterwards, the dSWF Fund used the income surplus to purchase other valuable, value-added and market-demanding assets inside and outside the ecosystem, enriching the platform's income structure and reserve asset types, thereby strengthening its risk resistance.

When the black swan comes, after the DEX is liquidated, the dSWF fund will be used as the risk taker. However, since the network surplus is injected into the dSWF fund, it is unlikely to provide an exchange channel for ACA (Acala token) and reserve assets in the early stage, soIn the early stage of development, ACA could not capture the system value well.

In fact, the opening of the exchange channel is not impossible. As long as the community votes, the exchange can be carried out, and ACA can indirectly realize value capture.

In fact, in addition to the explicit value capture such as stability fees and handling fees, if the scale of the stablecoin is large enough, the governance parties will play games because of the development direction, the demand for governance tokens will rise, and the governance tokens will realize hidden value. Sexual value capture.

Acknowledgments: Some of the details in the article were confirmed with the help of LYZ@Acala&Polkawallet and Ferry@Kava. The article only represents the author's personal opinion and does not constitute any investment opinion or suggestion.

References:

References:

MakerDAO Cuts Dai Deposit Rate to Zero and Introduces Auction Circuit Breaker

What has MakerDAO experienced from Black Thursday? What have you learned?

Kava community AMA finishing | Things you need to know before officially using the CDP system

DeX | How much do you know about Acala?

Kava will take out 3.848 million KAVA as early USDX minting rewards

Disclaimer: This article is the author's independent opinion, and does not represent the position of the Blockchain Institute (public account), nor does it constitute any investment opinion or suggestion.

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Disclaimer: This article is the author's independent opinion, and does not represent the position of the Blockchain Institute (public account), nor does it constitute any investment opinion or suggestion.