Res ®️ Profile picture
Aug 8 25 tweets 5 min read
After recent events, it is time the crypto space develops a new stablecoin that is

- 100% decentralized
- censorship resistant
- truly resilient

In this thread I'll explain and summarize one interesting idea to issue a BTC/ETH-backed stablecoin using derivatives contracts 🧵👇
1/ Let's understand the motivation first


- The US sanctions Tornado Cash and following this event
- Circle blacklists Tornado cash addresses by freezing USDC
- Github suspends accounts of Tornado contributors

2/ USDC, USDT and BUSD are the biggest stablecoins in the market and they have an aggregated market cap of $138bn+

These stablecoins are issued by centralized entities

And the vast majority of "decentralized" solutions are also backed by these centralized stables
3/ Being a centralized issuer means that Tether or Circle have full control of the tokens and can actually decide to

- Blacklist addresses
- Freeze assets, i.e. DAOs treasuries might be affected
- Control decentralized assets heavily backed by them

4/ Lately, for example, there has been a discussion around ETHPoW / ETHPoS due to the speculation of some major stablecoin issuer honoring redemptions on a fork instead of on ETH2.0

Regardless of the speculation, it just shows how powerful these institutions might be
5/ It's therefore imperative that other solutions emerge and are adopted to the same level

The problem accentuates as the other major stablecoins such as $DAI or $FRAX are also heavily backed by USDC

What happens if USDC collateral for those is blacklisted or frozen?
6/ There are some truly decentralized solutions such as $RAI or $LUSD as their collateral is just $ETH

I highly recommend reading about them (Vitalik is a big supporter of RAI)

However, being collateralized stablecoins means that their scalability depends on ETH market cap
7/ How can we then create a fully decentralized, censorship resistant AND scalable stablecoin?

The solution is to use, quoting Arthur Hayes, the most pristine crypto collateral: Bitcoin. I'd also argue that ETH can be considered in the same league

(pls btc maxis leave me alone)
8/ How would it work?

The idea seems pretty obvious and it has been widely known, but I read it for the first time in one of Arthur's posts so I will basically summarize his explanations…
9/ This stable is based on inverse perpetual swaps & future contracts

We need

- Contracts w/ an underlying of BTC/USD, margined in BTC
- This means profit, loss & margin are denominated in BTC, while the quoted price is USD
- Each derivative contract is worth 1 USD at any time
10/ Contract Value in BTC = ($1 / BTC_price) * number_of_contracts

- If BTC / USD = $1, then the contract value is worth 1 BTC
- If BTC / USD = $10, then the contract value is worth 0.1 BTC

Note also ETH can be used instead of BTC. Using just one for simplicity
11/ We can now create $100 synthetically

Assume that 1 BTC = $100 (let's hope not lmao)

What are $100 worth of BTC (or 100 contracts, since 1 contract = $1) at BTC/USD price of $100?
12/ Using our formula:

($1 / $100/BTC) * 100 contracts = 1 BTC

which means that

100 USD = 1 BTC + 100 short derivatives contracts
13/ If the price of BTC goes to infinity, the value of the short derivatives contract in BTC terms approaches a limit of 0

Let's further explore an example:

If the price of BTC goes up to $200, what’s the value of our derivatives contracts?

($1 / $200/BTC) * 100 contracts = 0.5 BTC

- We have an unrealized loss of 0.5 BTC
- When we subtract the unrealized 0.5 BTC loss from our 1 BTC of pledged collateral, we now have a net balance of 0.5 BTC
- At a new BTC price of $200 --> 0.5 BTC x $200 = $100
15/ Therefore, we still have 100 USD even though the price of BTC increases and caused an unrealized loss on the derivatives position

It is mathematically impossible for this position to be liquidated on the upside
16/ The flaw with this system occurs when the price of BTC approaches 0

When that occurs, the contract value becomes greater than all BTC tokens that will ever be in existence, making it impossible for the short side to ever pay you back in BTC terms
17/ ETH does not have a fixed max supply but if ETH tends to 0 then ($1 / ETH_price) tends to infinity and the contract value would become greater than all ETH in circulation
18/ This is denominated as negative convexity and shows how this peg breaks as the price of BTC or ETH approaches 0

However, this scenario shouldn't stop anyone to go for this model because, if BTC or ETH go to 0... you know 😅😅
19/ At the end, we all support BTC and ETH

The benefit of this model is that it is scalable and doesn't depend dramatically on BTC or ETH demand

Overcollateralized stables rely on the collateral market cap, since you just can borrow a certain amount, know as LTV (Loan To Value)
20/ Arthur says that now we must introduce some centralization since the only places where these inverse contracts trade in sufficient size to accommodate a BTC/ETH-backed stablecoin are CEXs

This doesn't make sense, as the sole goal is to create a truly decentralized stable
21/ I believe that with effort and the talented people that we have in our beloved crypto space, we can create a stablecoin as such that can steadily scale thanks to these derivative contracts being offered in DeFi with sufficient liquidity

Our end goal is to scale DeFi
22/ This idea could actually be applicable to any other crypto, with this other asset being used as collateral for the derivatives contract

However, BTC and ETH are proposed in this example as they are the 2 biggest, most liquid and most decentralized assets in the world
23/ What are your thoughts on the idea?

Is it possible to build such tool on DeFi and bring such liquidity or it is only possible in CEXs?

Any other better alternative?
Everyone that is commenting that this idea is equal to $UST is dumb af

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More from @resdegen

Jul 29
While you are too busy with FOMC, CPI, unemployment data, GDP, recession, Powell, FED, Lagarde, Japan bonds, etc etc.

I just have notifications on for @Bitboy_Crypto

He is the HERO you don't deserve

He gave you a clear signal to max long at the bottom Image
Sometimes it's just this easy

The signals are so good that you don't even need to know anything about markets to make money

Don't overthink

Just follow Image
I don't disagree with the strategy to take profits on the way up but if we follow his high-success pattern... Image
Read 5 tweets
Jun 30
$USN v2.0 has just been announced:

"A flexible stablecoin that can adapt to any market conditions"

v2.0 Phase I Design: collateralized 1:1 with $USDT + offers a sustainable native yield thanks to $NEAR staking rewards

Keep reading 👇🧵

TLDR; $USN v2.0 shifts to a flexible model that will be split in 2 phases:

- Phase I: USN is 1:1 backed w/ USDT and offers a sustainable native yield obtained from NEAR staking rewards

- Phase II: USN will also be collateralized by non-stable assets, starting w/ NEAR

In this thread we will understand:

1⃣ Why $USN v2.0 was released
2⃣ What is $USN v2.0 and how does it work
3⃣ How the APR depends on pure offer / demand mechanics by the market
4⃣ Arbitrage opportunity
5⃣ Roadmap & use cases

Read 24 tweets
Jun 19
$USDD might go down to $0.85, but it must stay above $0.85

JustLend shows that $USDD is $1. It seems this is hardcoded

As Collat. Factor = 85%, this means that if USDD goes below $0.85, then ppl can buy worthless $USDD and borrow $USDC for a profit, draining the protocol
Things don’t look good

I wouldn’t touch it. Collateral in stablecoins is higher than USDD in circulation

However, if they buy USDD they are spending money
They minted USDD out of TRX. It doesn’t cost them anything.

As a redemption mechanism does not exist for the market to profit, they need to spend USDC to send USDD back to $1

That would actually cost them money
Read 5 tweets
Jun 15
1/ Given the market situation & extreme fear, you might be tempted to short $TRX due to the $USDD depeg at $0.96-0.97


Pls understand the math first 👇🚨
2/ I don't precisely like their tactics, you know that. The problem is always how they convey information


- $USDD is +158% collateralized by $USDC & $USDT
- Adding $BTC @ $20k, Collat. Ratio increases to 197% (it doesn't rly matter given the stablecoin collateral)
3/ But then, why is $USDD trading at $0.96-0.97?

The reason is because there is no redemption mechanism and therefore no arbitrage opportunity:

if you buy 1,000 USDD with 960 USDT, you can't get $1,000 worth of TRX/BTC back or directly 1,000 USDT
Read 19 tweets
Jun 13
1/ Update on $USDD 👇

I just woke up and saw that USDD has slightly depegged to $0.97

Now trading at around $0.98 Image
2/ The Curve pool for $USDD - 3CRV is getting unbalanced

$USDD = 82.82%
3CRV = 17.18%

Even the native, which has deeper liquidity, is getting more unbalanced:

$USDD = 60.94%
$USDT = 39.06% ImageImage
3/ This is the orderbook in Huobi, and looks empty

The liquidity is very thin: $577k at $0.97

Below that... unless MMs step in to fight the peg, it would get destroyed

There's definitely some sell pressure here as well. Probs because they are keeping an eye on on-chain pools ImageImage
Read 13 tweets
Jun 12
1/ And it's starting

$USDD is currently just 92% collateralized by the Reserves (even considering $TRX funds) ⚠️

If you subtract $TRX, it turns out collateralization ratio is currently 73%

Also, the 140M $USDT are not really USDT, but jUSDT 👇
2/ That means that the 140M USDT are deposited into JustLend, a lending / borrowing protocol on the $TRX network

They are earning some yield on that, which is understandable

However, we need to consider now that those $140M are subject to smart contract and exploit risk
3/ They are injecting more capital to keep the collateralization level:

- 1,000 $BTC were added on the 6th of June for around $30M

- Yesterday, they announced they bought another $50M worth of $BTC and $TRX (those haven't been deposited into the Reserve yet)
Read 10 tweets

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