Original source: Chain Tea House

Original source: Chain Tea House

The view of traditional financial circles on DeFi is inseparable from "the wanderer will eventually return home". They believe that the ending of Crypto cannot be separated from being incorporated by traditional finance, because as long as the bottleneck between the chain and the application cannot be solved, it will always be acquired , The outcome of being regulated.

If it is classified by isolating the risk of centralization, stablecoins can be divided into centralized stablecoins and decentralized stablecoins. This is also an era when the threat of centralized supervision is approaching. Whether or not decentralization is an important attribute of stablecoins one. Furthermore, decentralization is solved, and there is also the so-called "stable" concept of stablecoins. If we really want to move towards the end of the stablecoin, we must create our own demand scenarios, not only the general equivalent currency, but even create unique economic activities to truly reflect the value of the decentralized stablecoin.

The following will detail the characteristics and latest developments of four decentralized tokens with great development potential in the market today, MakerDAO Endgame Plan, AAVE GHO, CRV crvUSD and SNX V3 sUSD.

1. MakerDAO’s final plan

(1) USDC and RWA (real world assets) bring potential risks to MakerDAO

MakerDAO founder Rune Christensen specifically mentioned USDC (US dollar stablecoin) in 2021 as one of the biggest potential risks of DAI stablecoin. DAI is essentially completely different from USDT/USDC. The former is issued in a decentralized manner, and the main collateral is Ethereum, while the latter USDT/USDC stablecoins have considerable friction with the current regulatory system. Considerable risk.

In addition to stable currency risks, Maker has continuously increased collateral related to real assets in the past few years, such as national bonds or corporate bonds, etc., which makes Maker increasingly dependent on other real assets, cross-chain bridge assets and other assets that may be affected An asset to pressure from regulators and law enforcement. It also caused users to criticize Maker for putting themselves in an untenable situation, because these assets fundamentally undermine Maker's goal of being a "censorship-resistant stablecoin".

Rune hopes that when he announces the “Clean Money” initiative, Maker will be able to transfer assets from USDC to other bonds, thereby increasing its yield, so that regulators or law enforcement cannot block DAI.

(2) Development of final plan

Rune put forward the "Endgame Plan" (The Endgame Plan) proposal in August last year. The main goal is to repair and improve MakerDAO and its governance and ecosystem, so that the whole can achieve a balance of self-maintenance, which is the so-called "endgame state". (Proposal for "The Endgame Plan" (The Endgame Plan), readers who want to know more details can refer to this article) In short, Rune believes that if the whole reaches the "endgame state", DAI can become "the world's fair currency "(Unbiased World Currency), completely unaffected by external factors, has become the infrastructure of both the encryption ecology and the world economy, that is to say, Rune wants DAI to become the next Bitcoin.

According to the original proposal, select several key parts:

First of all, Rune needs to reorganize the existing decentralized work ecology and transform it into a decentralized autonomous organization "MetaDAO" that can operate on its own. Decentralized governance for holders of MKR tokens.

"Maker Core" will support collaboration with "MetaDAO", and "MetaDAO" will also have its own profit model, governance token and parallel governance process. Rune explained more about this, MetaDAO is like a fast and flexible application layer Layer 2, while Maker Core is slow and expensive, but Layer 1 is the cornerstone of deployment security. Therefore, MetaDAO is responsible for trying to innovate and take more risks, while L1 provides security.

Then, now that Maker is heavily embedded in Ethereum and relies on Ethereum as collateral, it's time for Endgame to move to the next step, because Ethereum's dependence and Ethereum's dominance are fundamentally in line with Maker Core, and Endgame needs to take full advantage of it. This symbiotic relationship launched EtherDai (ETHD).

EtherDai (ETHD) can be regarded as a new synthetic asset controlled by the Maker governance group, and integrates top-level liquid collateral loans, which can be imagined as Lido Finance's stETH. Rune said that the key to the long-term survival and success of the DeFi protocol is to accumulate pledged ETH collateral as much as possible. At the same time, Maker must also construct pledged ETH products in order to maintain the status of the top DeFi protocol and decentralized stable currency protocol.

To put it simply, EtherDai (ETHD) is a new asset generated through "staked ETH", which helps Maker to obtain more "staked ETH". In the future, more mechanism details of ETHD will also be completed through MetaDAO. Maker believes that this product may be as important as DAI in the long run.

(3) Yield farms increase the supply of DAI?

MetaDAO will also have MDAO tokens, and there will be a total of 2 billion MDAO tokens, which will be distributed in the form of pledge mining. Staking mining is divided into three categories:

20%: DAI Farm, designed to drive DAI demand and broad token distribution.

40%: ETHD, or ETHD vault farming (vault farming), in addition to providing MDAO farm income, also provides pledge income.

40%: MKR entrusts the management of the farm, and entrusts the voting rights to the preferred representatives to get rewards.

These 3 asset allocations ensure a broad and heterogeneous distribution of MetaDAO governance tokens, while aligning with Maker and MKR holders, maximizing the creation of a broader Maker ecosystem.

Simply put, distributing MetaDAO token MDAO through yield farming will help increase the supply of DAI collateralized by decentralized assets rather than the demand for DAI; more user activities will Turn to ETHD Farm. In the ending described by Rune, Maker will have more RWA as collateral, that is, the final mortgage asset type will be the model of on-chain + off-chain.

(4) MetaDAO definition? What is the core of operation?

As mentioned above, "Maker Core" will support collaboration with "MetaDAO", and "MetaDAO" will also have its own profit model, governance token and parallel governance process.

Further explain that MetaDAO can be divided into three categories: Governors (governors), Creators (creators) and Protectors (protectors).

Governors (governors): Responsible for organizing the decentralized manpower of Maker Core and increasing governance participation

Creators: responsible for the growth and innovation of the Maker ecosystem

Protectors: Responsible for the intermediary between Maker Core and the real world, configuring RWA assets, and protecting RWA from physical and regulatory threats

Finally, Rune also sets up three stages for Maker:

Pigeon Stance: Basically the state of Maker when the endgame plan was implemented. During this phase, which is planned to last for two and a half years, Maker focuses on earning income and storing ETH for the next phase. After two-and-a-half years, the Eagle Stance phase will enter unless it is delayed or started earlier.

Eagle Stance: Reduce seizeable assets to less than 25% of total assets. They intend to break DAI's peg to the dollar at this time if necessary.

Finally there is Phoenix Stance, which will only be activated during times of global instability or when the collateral may be attacked. This situation can arise at any time and without warning. At this stage, all remaining seizeable assets are sold for more ETH. Finally, if the treasury is insufficient to pay off debts and the protocol surplus is insufficient, MKR will be sold to the market to keep the protocol solvent.

The above is the prototype and general structure of the "Endgame Plan" (The Endgame Plan) proposal that was first proposed in August last year. On March 20, a few months before writing this article, MakerDAO announced that it would split "The Endgame Plan" into five stage.

Rune Christensen outlined three main reforms in the Endgame proposal, including clear and specific rules (implemented immediately after passing the Maker Governance MIP proposal), implementation of "governance participation incentives" by the end of 2023, and the transfer of operational complexity from MakerDAO to SubDAO (implementation in 2024), etc.

Here is a special explanation for SubDAO. SubDAO will serve as a semi-independent professional department in MakerDAO. The main tasks include maintaining the decentralized front-end, allocating DAI collateral, dealing with operational efficiency risks, marginal decision-making, testing innovative products and operating plans, etc. SubDAO will Take advantage of key governance processes and tools in MakerDAO to streamline its operations.

Under the framework of implementing Endgame, Maker will gradually no longer maintain the original treasury, but let SubDAO stabilize the rate at a low base rate, and generate DAI in batches from the Maker Protocol. SubDAO will also bear all costs, including employees, oracles, maintenance, upgrades, and other costs, and bear first loss on all collateral exposures.

Next, the five stages can be divided into:

Phase 1 Beta Launch: Continue to improve MakerDAO's core product, the DAI stablecoin, by increasing its reach and usability. It is planned to launch more types of DAI to meet the needs of different users.

Phase 2 SubDAO launch: In this phase, MakerDAO will release six new SubDAO products to expand MakerDAO's ecosystem. At the same time, MakerDAO will integrate with external projects and partners, including the introduction of new synthetic assets, expanded lending, deposit options, and more financial derivatives, expanding its influence and usability in the decentralized financial ecosystem.

Phase 3 Governance AI Tool Launch: Following the launch of SubDAO, MakerDAO will aim to revolutionize governance within MakerDAO by introducing production-grade AI tools. Powered by Alignment Artifacts, these tools will improve decision making and level the playing field between insiders and community members.

Phase 4 Governance Participation Rewards Program: As the governance ecosystem proficiently manages DAOs through governance AI tools, MakerDAO will launch a Governance Participation Rewards Program to provide financial incentives to participants to promote community participation and consensus building.

Phase 5 Final Endgame State: The final phase will deploy a new blockchain, currently called NewChain. The new chain will have the ability to use hard forks as a governance mechanism, and will also have optimization features that make it an "AI-assisted DAO governance process and AI tool user backend", including smart contract generation, state rent, and in-protocol MEV capture ... and other characteristics.

Rune also said that the launch of the new chain will be the final step in the Endgame launch process. Once it is deployed, MakerDAO will permanently enter an end-plan state where further major changes will be impossible and its core processes and balance of power will remain decentralized, self-sufficient, and permanent.

(5) Latest progress

On May 8, MakerDAO announced the Spark protocol, which aims to enhance the liquidity and profitability of the DAI stablecoin, that is, end users deployed on Ethereum and DAI-centric DeFi products all have ETH, stETH, Supply and borrow functions for DAI and sDAI, and all DeFi users can use the Spark protocol.

The Spark protocol is also an integral part of MakerDAO's plan to expand Endgame, focusing on reshaping DAI into a free-floating asset backed by real-world assets.

2. AaVE GHO

Aave, a non-custodial liquidity market protocol known as the king of Defi lending, depositors can provide liquidity to obtain passive income by depositing assets into Aave's public fund Pool, and borrowers at the other end can use over-collateralized or unsecured A variety of methods, freely lending assets from the pool of funds, and all credit activities on the platform can be carried out without any credit review, not only high liquidation efficiency, bad debt probability is far lower than the traditional lending model, and even Aave does not have repayment the term.

Aave was established on Ethereum in 2017, and now it has expanded into a large-scale protocol that can span 7 chains. On January 27 this year, Aave V3 was officially launched on the Ethereum mainnet, completing the upgrade of 7 major chains. The established DeFi protocol has increased its own tokens by nearly 60% this year.

In July 2022, the Aave community released an ARC proposal, which is to introduce the decentralized stablecoin GHO, which is pegged to the US dollar, natively Decentralized, and generated by over-collateralization. This currency can not only be launched first on the Aave protocol, but also allow users Based on the collateral they provided to mint GHO, as the leading lender in the DeFi field, the news that AAVE will launch a stable currency will definitely attract a lot of attention.

(1) GHO development stage

The first stage: On July 28 last year, the Aave community proposed to issue the stable currency GHO. Users can obtain interest income through the collateral in the AAVE protocol and generate Decentralized stable currency GHO at the same time. When users want to redeem the collateral, they need to destroy and mint GHO to redeem it.

For AaveDAO, the GHO income belongs to the DAO and the borrowing rate is determined by it. stkAAVE holders who participate in the pledge of the AAVE security module can enjoy a discounted interest rate to generate GHO.

The difference here is that the collateral of GHO can provide continuous income, and AAVE introduces the concept of a "facilitator". The facilitator is designated by the AAVE community through governance, usually an agreement, an institution, Promoters can generate or destroy GHO without any collateral according to different strategies to regulate the market. For each promoter, Aave Governance must also approve the so-called "bucket".

The bucket represents the upper limit of GHO that a particular facilitator can generate and the AAVE protocol itself will act as the first facilitator.

The second stage: The GHO proposal was issued on July 31 last year, with an approval rate of 99.99% (501,000 AAVE). Aave realized the creation of the GHO stablecoin through the new Aave Improved Protocol (AIP), and Aave DAO was responsible for managing it when the stablecoin was created, allowing users to use the collateral they provided to mint GHO, and the borrowing income of GHO will be Owned by Aave DAO, Aave and GHO are completely separated into two products.

Aave has also been iteratively upgraded to Aave 3 in terms of capital efficiency, protocol security, decentralization, and user experience with continuous research, market data analysis, and community feedback.

Here is a brief explanation of the Aave 3 upgrade. The launch of Aave V3 will further improve capital efficiency, security and cross-chain functions, promote the development of the entire protocol ecosystem and enhance decentralization. Including: first, asset cross-chain flow (Portal), which promotes "cross-chain" transactions, allows seamless transfer of assets in the Aave V3 market of seven chains, and solves the current problem of differences in liquidity requirements of each chain; second, the efficient model ( eMode), users use "similar" assets as collateral, which will greatly increase the borrowing limit; third, isolation mode (Isolation Mode), newly listed assets labeled "isolation" will have a limit on the borrowing limit , and can only lend specific assets, and cannot be used as collateral with other assets at the same time.

Therefore, through the isolation mode (Isolation Mode), users can generate GHO using multiple assets currently supported by the Aave protocol, while reducing risk through collateral guarantees. Supply and borrowing caps also help reduce risk. For example, in a market downturn, as the price of the mortgage contract rises, the demand for GHO increases, and users will use other non-volatile mortgage assets to borrow more GHO to repay the position. This will increase the amount of GHO entering the market and reduce demand.

At the same time, the efficient mode (eMode) can also enable stablecoin holders to exchange GHO at a ratio close to 1:1, with zero slippage. The asset cross-chain flow (Portal) allows GHO to distribute across the network without trust, and at the same time, it is created on Ethereum with higher security. The entire process requires simple message passing without the use of bridges, reducing overall risk.

The third stage: On February 9 this year, GHO was officially launched on the Ethereum Goerli test network for developers and community users to access its interface to detect potential problems in its workflow. The test network supports DAI, USDC, The four assets of AAVE and LINK, as well as the addition of a new facilitator (Facilitator) to support the FlashMinting (lightning casting) mode, can play the same role as flashloan and improve the overall transaction efficiency.

To briefly explain, FlashMinting (flash casting) and flashloan (flashloan), the most famous reason for Aave is that it is the first protocol for the "flash loan" service, allowing users to complete loans in the "same block", allowing Users can perform quick arbitrage operations, but flash loans can only complete all operations within one block, and if the funds are not returned, all operations will be returned.

To put it simply, when the user borrows a sum of funds using the flash loan and does not make a repayment operation, the funds will be automatically rolled back to the original place and back to the original point, because this operation is in a block A work item that is a failure cannot evolve into a "true fact". Flash loans are generally used for arbitrage, and only need to pay the cost of the GAS fee and the flash loan agreement fee once. If there is a good arbitrage opportunity, the user can use the flash loan to obtain unlimited high profits, but because the flash loan needs to be To complete all operations in one block, you need to use code to complete the flash loan operation, and the usage threshold is relatively high.

Finally, it is worth mentioning the completeness of the audit, GHO has undergone four complete audits to ensure its security. Taking the latest ABDK review as an example, functional tests and security audits were carried out on all codes. A total of 6 revisions were proposed in 85 categories. According to the progress of GHO, there will be a security review before the official launch. audit.

(2) Conclusion

To put it simply, GHO is the assets that users deposit into the AAVE protocol for over-collateralized casting. Therefore, the increase in demand for GHO will prompt more users to deposit assets in AAVE. In addition, stkAAVE holders who participate in the security module pledge can obtain a discounted interest rate to mint GHO, which encourages more users to participate in the pledge. At the same time, the rising demand for AAVE makes the price of AAVE more favorable, and the interest generated by GHO also becomes the AAVE agreement. Therefore, for AAVE, the launch of GHO will directly enhance the competitiveness of AAVE as a whole.

However, not all aspects point to advantages. The facilitator in AAVE has the right to cast GHO without any collateral. This is too centralized. Once someone with a heart intervenes, it may cause the risk of GHO being unanchored, even if AAVE sets The bucket mechanism is used to limit the upper limit of GHO generated by facilitato, but both are selected through AAVE voting. If there is a collusion of interests, the governance will turn around and become more and more centralized.

Finally, for holders who obtain a large amount of AAVE at a very low cost, GHO is equivalent to a perpetual motion machine for interests. In the future, it is very likely that there will be a risk of thunderstorms caused by cashing out a large amount of AAVE with GHO in the market value of AAVE.

3. CRV crvUSD

Curve Finance, a decentralized exchange, was launched in 2020. Among them, CurveDAO token (CRV coin) is the native token of the platform, and all liquidity providers who have provided liquidity for Curve have the opportunity to obtain its governance token CRV. award.

The difference between Curve and other DEXs on the market is that Curve mainly focuses on providing low-slip trading services between different stablecoins (such as: Usdt, Usdc, Dai), allowing users to reduce the amount of tokens in the exchange process. Curve exchange losses, so the Curve platform will not charge too high user fees, and the source of Curve's profit lies in the issuance of stable coins and lending platforms or financial derivative platforms.

As of today (5/24), Curve has a locked position of 4.02 billion US dollars. Previously, 5/4 publicly tweeted that crvUSD has deployed smart contracts on the Ethereum mainnet, but the front-end UI interface has not yet been completed and is expected to be released soon. release. According to Etherscan data, the crvUSD smart contract was successfully deployed on the Ethereum mainnet around 3 am on 5/4, and 20 million crvUSD were minted through 5 transactions in a short period of time.

Then Curve CEO Michael Egorov borrowed 1 million crvUSD with 957.5 sfrxETH as collateral. It skyrocketed to $0.975, a 6% jump in 24 hours.

(1) Mining the operating mechanism of crvUSD from the white paper

Curve released a white paper last year to discuss the overall operating mechanism. First of all, it has three core principles, namely "Lending-Liquidation Automated Market Maker Algorithm (LLAMMA)", "PegKeeper" and "Monetary Policy". The first LLAMMA can be regarded as a dynamic loan liquidation algorithm, that is, an automatic market maker is introduced into the loan liquidation, so it is different from ordinary mortgage loan stablecoins. Normal mortgage loan is stable, like MakerDAO is an excess Mortgage, the user needs to have a sufficient amount of collateral mortgaged into the vault to lend out a corresponding proportion of stablecoins according to the mortgage rate. If the value of the collateral falls to a certain extent, there will be a liquidation line. Once it exceeds The liquidation line collateral will be automatically sold by the system to repay the debt.

The LLAMMA proposed by Curve is still issued through over-collateralization, but a special-purpose AMM is used to replace the traditional lending and liquidation process. When the liquidation threshold is reached, the liquidation will not happen all at once, but will be transformed into a continuous liquidation/de-liquidation process.

For example, borrow crvUSD with ETH as collateral. When the value of ETH is high enough, the collateral will not change, just like traditional mortgage lending. When the price of ETH fell and entered the liquidation range, ETH began to be gradually sold as the price fell. After falling below the range, all of them are stable coins, and there will be no change if they continue to fall, which is also the same as other lending agreements.

However, in the middle liquidation interval, if ETH rises, Curve will use stablecoins to help users buy ETH again. If it fluctuates in the middle liquidation range, the process of liquidation and de-liquidation will be repeated continuously, and ETH will be sold and bought continuously.

Compared with MakerDAO's one-time liquidation loan agreement, if the market rebounds after liquidation, in MakerDAO, users only have a little residual value after liquidation, while in Curve they will re-buy ETH during the rising process.

The above is how LLAMMA solves the mechanism of liquidating collateral, while PegKeeper and Monetary Policy are the mechanisms used by Curve Finance to anchor crvUSD at 1 USD.

To put it simply, LLAMMA is Curve is an algorithm for collateral liquidation. It reduces losses during liquidation by dispersing collateral in different price ranges. It generates arbitrage opportunities through greater changes in external prices to dynamically liquidate. Collateral, which turns into crvUSD when the price falls, and turns back into collateral when the price rises.

After the crvUSD lending interface was officially launched, Curve's front-end page can already see the complete data of the crvUSD liquidity pool. Currently, the TVL of each liquidity pool is between 2 and 3 million US dollars.

4. SNX V3 sUSD

As an important partner of Optimism, Synthetix has been deployed on Optimism as early as July 2021. Then Synthetix encourages users to transfer their pledged SNX to Optimism, and transactions and income are gradually transferred from the Ethereum mainnet to Optimism. According to defilama 5/26 data, Synthetix occupies the second place on Optimism, with a TVL of 149 million US dollars.

Synthetix's revenue mainly comes from Synths spot transactions and perpetual contract transactions. It was launched in the market as a synthetic asset platform at the beginning, and also specially set up a very special "debt pool" operation mechanism: users borrow by pledge SNX sUSD is issued, which is different from MakerDAO’s mortgage assets to cast DAI. Although Synthetix will also liquidate when the SNX mortgage rate is insufficient (the current liquidation line is 160% mortgage rate), the essence of the logic is completely different.

In Synthetix, all users who pledge SNX to mint sUSD share a "debt pool". When a user mints sUSD, the ratio of minted sUSD to all sUSD becomes the ratio of the user to the entire debt pool, and all minted sUSD is the debt of the entire system. Also because everyone shares a debt pool, if other users increase the value of their assets through operations, it will lead to an increase in the debt of the remaining users. For example, if the user's asset appreciation rate is not higher than the system average, he will lose money.

It can be seen that Synth in Synthetix relies on the oracle machine Chainlink to provide prices, but the update of the oracle machine price on the chain will completely lag behind the spot market price, and indirectly there is a risk of front-running transactions.

Synthetix is ​​aware of this risk, and in 2021, it directly uses the oracle machine to feed the price exchange without considering the depth of the slippage-free transaction, and officially started the new narrative of Atomic Swap (Atomic Swap).

Atomic swaps allow users to exchange assets atomically by pricing Synth through a combination of Chainlink and the DEX oracle Uniswap V3 (representing the latest spot price). In simple terms, in the case of Synthetix composability, stakers are also protected from front-running attacks.

In June 2022, Synthetix announced that 1inch has integrated Synthetix's atomic swap, so that transaction users can enjoy better liquidity, and SNX stakers can also obtain additional fees.

The Synthetix Perps V2 solution was launched in December of the same year, which can reduce costs, improve scalability and capital efficiency.

From Synthetix to Synthetix V2 to today's Synthetix V3, the team has demonstrated extremely efficient update capabilities, which can not only meet various customization needs, but also reflect the ambition to make Synthetix a liquidity center.

Currently, the functions of Synthetix V3 are being gradually launched, which is a comprehensive reform of the protocol from the ground up.

(1) Differences before and after V3 upgrade

Improvement 1: pegged stablecoin snxUSD

Synthetix V3 will launch a new stablecoin, snxUSD, to solve the problem of insufficient scalability of sUSD and possible de-anchor in the past.

snxUSD before upgrade: Even though most sUSD is minted by staking SNX, Synthetix has also enabled the function of minting snxUSD with over-collateralized WETH. The way to get the price back to $1 is to create a small number of users.

Upgraded snxUSD: In the new version of Synthetix V3, snxUSD and some collaterals are allowed to be swapped 1: 1, which allows users to limit the price of sUSD to a small range only through arbitrage activities. At the same time, this is designed to The convenience-based minting method may also increase the circulation of snxUSD.

Improvement 2: Reward distribution and liquidation

The upgraded snxUSD: Let the pool owner use the reward manager to distribute the rewards to the users. It can provide a more flexible value distribution scheme according to the pledge ratio or by referring to factors such as pledge time.

Synthetix V3 also proposes a liquidation mechanism where the collateral and liabilities of liquidated positions are distributed among other participants in the vault. If the entire vault is liquidated, the entire collateral will be seized by the system and sold to pay off the debt.

Improvement 3: Isolate the debt pool

snxUSD before upgrade: In the existing Synthetix V2, all transactions have to go through a single SNX debt pool, and because many existing risks need to be considered, most functions are limited, such as the snxUSD casting method mentioned at the beginning .

Upgraded snxUSD: Synthetix V3 introduces the concept of pools, allowing stakeholders to customize risk exposures for specific markets, so that the risks and returns of debt pools can be differentiated. Governance can determine the collateral type and upper limit of each pool, and even if there is risk, it can be limited to a small range. At the same time, it also provides SNX stakers with the opportunity to take higher risks and obtain higher returns.

(2) Conclusion

At present, functions such as atomic transactions are less used, but the demand for Perp V2 is strong. Synthetix V3 will be more flexible to meet various customized needs, while reducing risks to a small range. The new stable currency snxUSD is easier Being minted, the price is also more easily anchored at $1.

V. Conclusion

V. Conclusion