Revenue-based Algorithmic Decentralized Stablecoin — $EUSD

By El Dorado Exchange | El Dorado Exchange | 28 Sep 2022

Stable-coins represents an interesting solution to fiat’s representation within the ever expanding ecosystem of cryptocurrencies and DEFI. Despite Bitcoin being hailed as a ‘storage of wealth’ and a ‘fight against inflation’ by the masses, the volatile nature of crypto currencies tend to leave many investors and traders squeamish after seeing 10%-20% dips in price, occurring within a 24hrs period.

It is easy to get lost in the complexities of a token, or even fall down the rabbit hole of needing to make something more complex than it is. The name says it all, stable-coins are tokens that represent a stable value, typically pegged to $1 USD. Their price is always that of $1 USD, simple as that.

On El Dorado Exchange, we want liquidity providers and governance token holders to be rewarded with a non-volatile asset, giving them confidence that their rewards are not subject to market volatility.

Introducing $EUSD, a revenue-based algorithmic decentralized stable-coin, the way El Dorado Exchange is going to not only differentiate itself from its competitors, but also focus on expanding the ecosystem off of the protocol.

What is EUSD and why is it something we are excited to introduce?

$EUSD is a stable-coin unlike most other algorithmic stable-coins. Let’s look at $USDT as an example of what we are talking about.

$USDT, is a stable-coin we are all aware of. An institution off-chain, Tether, holds a reserve treasury to facilitate backing of the $USDT. For the creation of a $USDT token, institutions approach Tether and provide X amount of fiat for X amount of $USDT. This mechanism facilitates one of two things; collateralization of the on-chain token, with fiat currency, enabling the peg of $1 USD to be maintained, and it facilitates a way to control the supply of issued $USDT tokens on chain.

So, this may seem complex, but it really isn’t. It’s boiled down to this simple principle, for each $USDT that exists, there is underpinning real world collateral backing each token issued on chain.

For $EUSD, we are adopting this approach, but rather adopting the approach of ‘if we aren’t making any money, then there will be no additional tokens that exist.’ So revenue controls the supply and expansion of $EUSD, thus making it a revenue-based algorithmic stable-coin.

We pay liquidity providers $EUSD based on the revenue they would have received if they were paid in $BTC, $ETH, or any other token. These fees are sent to our reserve treasury to enable and facilitate redemption of $EUSD for the collateral that backs the existing supply.

To put it simply, if we generate $30mill of revenue, 30mill $EUSD tokens would be issued, with a reserve treasury of $30million of assets that collateralize $EUSD.

Nothing is perfect,

Many algorithmic stablecoins are under-collateralized, which means part of its supply was backed by collateral, and the rest relies on the algorithmic.

While $EUSD takes advantage of its algorithms to keep its collateral ratio fluctuating around 100% which ensures that for every $EUSD there will be 1 USD collateral at most of the times.

In short, $EUSD is a revenue-based, self-stabilizing, and decentralized algorithmic stablecoin with a basket of collateral backing and algorithmic incentive mechanism in the EDE ecosystem.

Why EDE needs $EUSD?

The relationship between stablecoin and DeFi is one of mutual achievement and empowerment.

EDE is going to develop into an ecology in the future, so it needs a stablecoin that our community can trust to provide a constant flow of liquidity for the whole ecology. We believe that EDE community needs our own decentralized stablecoin to avoid centralized problems such as what has happened to $USDC and dYdX users recently.

At the same time, it is a trend in a DeFi system to have multiple coins running, with different coins taking care of different functions, without conflict diagrams, allowing the system to run well. It is precisely the role of $EUSD to maintain the stability of the system, as well as user rewards. The introduction of $EUSD will provide users with more and more stable rewards, increasing the attractiveness of the platform to users.

$EUSD does not exist to make money for the protocol, it serves the EDE ecosystem as a bridge linking users to DeFi and as a tool to prevent volatility and better guarantee the return on investment for users. It is also an important infrastructure for the entire EDE ecosystem, contributing to the development of the project as a whole.

Features of $EUSD

While maintaining its stability, $EUSD can also generate high rewards to holders.

Below are some main features of $EUSD:

Decentralization
While all blockchain-based stablecoins allow users to trade without intermediaries, a truly decentralized stablecoin run by algorithms is more in line with the spirit of decentralized finance (DeFi).

From day one, $EUSD will be a decentralized algorithmic stablecoin, and it will be governed by all the $gEDE holders which will help to build EDE to be a self-sustaining and long-lasting DeFi system.

Revenue-based
The $EUSD can only be minted by the protocol, and the collaterals come from the protocol revenue, which means that with the increase of the protocol revenue, there will be more $EUSD minted and given out to $ELP(70%) and $gEDE(30%) holders.
Investors can gain more benefits as the platform continues to grow.

Stability
In this DeFi world of volatility, stablecoins are the key to price stability. They act as a secure, easy-to-use way of maintaining consistent value. $EUSD uses Stake and Bond mechanisms to maintain price stability around 1 $EUSD equals 1 USD in value. All of the protocol revenue in EDE is given out in the form of $EUSD which ensures that everyone’s revenue is stable.

Multiple Pools
There are multiple ELP pools to maximize the $EUSD’s accessibility, as well as obtain different revenue. There will not only be stablecoins, like $USDT, but also volatile assets, like $BTC, $ETH, etc. to give users plenty of access to provide their assets and get $EUSD revenue.

Dynamic Full Collateral
As the value of some collaterals can fluctuate, the collateral ratio of $EUSD will fluctuate, too. But under the help of Stake and Bond mechanisms, the collateral ratio will always float around 100%.

Extra Rewards
After the collateral has appreciated in value, the stake function will be available for users to stake their $EUSD for extra rewards.

Composability
$EUSD is a BEP-20 token, which means that it can be used anywhere in the DeFi world.

More Use Cases
In the future EDE will create more usage scenarios around $EUSD, and keep increasing its influence in the DeFi world.

How would $EUSD work?

For the time being, $EUSD can only be minted by the protocol based on the protocol revenue. The newly minted $EUSD will be rewarded to the $ELP and $gEDE holders.

The $EUSD holders could stake or bond their $EUSD to help to maintain the collateral ratio that fluctuates around 100%, while getting the rewards.

No matter how the value of the collateral fluctuates, the collateral ratio for $EUSD will always return to 100% which ensures its value to be 1 USD in the long run.

Mint of $EUSD

The issuance of $EUSD is based on the protocol revenue generated in the EDE ecosystem.

It can’t be minted by users directly, while it is collateralized by the protocol revenue and then minted by the protocol.

40% of the minted $EUSD will be rewarded to the $ELP holders, while the rest 60% will be rewarded to the $gEDE holders.

Stake and Bond

EDE protocol accepts a wide variety of crypto assets, which means that $EUSD will have a wide variety of different types of underlying collaterals.

Because the collateral not only contains stablecoins but also price volatile assets, like $BTC, and $ETH, the collateral ratio will fluctuate as the value of the collateral fluctuates.

To address the problem of volatile collateral values, and ensure that $EUSD’s dynamic collateral ratio fluctuates around 100%, we introduce the Stake and Bond mechanisms, as well as the Dynamic Transaction Fees during Swap to reduce the $EUSD circulating supply.

Stake&Bond $EUSD

When the collateral ratio is greater than 100%, the Stake mechanism will be available, and users could stake $EUSD to get $sEUSD and interest rewards in the form of $sEUSD. In this way, the total amount of $EUSD will increase and push the collateral ratio back to 100%.

When the collateral ratio is lower than 100%, the Bond mechanism will be available, and users could sell their $EUSD to the protocol for the discounted $EDE token. The protocol will then burn the $EUSD received. Bonds are linearly vested over a period of time to reduce sell pressure due to arbitrages.

No matter whether to stake EUSD or buy the bond, users could receive corresponding rewards, which will be the continuous motivation to maintain EUSD’s dynamic collateral ratio fluctuates around 100%.

Dynamic Transaction Fees

The EUSD-Reserve Pool will also provide liquidity for users to swap. There will be a small portion of fees charged in the form of $EUSD during the swap which will be burned.

This will keep reducing the circulating supply of $EUSD and push the collateral ratio to be greater than 100%. Then users will always have opportunities to stake their $EUSD to get rewards and push the collateral ratio back to 100%.

Summary

With the Stake and Bond mechanisms, the collateral ratio of $EUSD will always be around 100%, which means for 1 $EUSD, there will always be 1 USD worth of collateral.

$EUSD will be the main reward in EDE and take advantage of a large amount of EDE users, $EUSD holders will be naturally numerous. While enjoying the benefits of EDE, $EUSD will also provide stability to the whole EDE ecosystem.

Meanwhile, as the use of $EUSD grows in scope, there will be more opportunities for EDE to cooperate with other DeFi protocols to expand its influence.

The $EUSD aims to build a true decentralized algorithmic stablecoin which is dynamic and fully collateralized, rebuild investors’ confidence in algorithmic stablecoins and meet DeFi’s next boom.