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Testing out Gyroscope: A New Decentralised Stablecoin Architecture

By bengy | Idle Musings | 11 Feb 2023

Testing out Gyroscope: A New Stablecoin Architecture.png


Ah stablecoins... this hard-nut that is going to be one of the critical parts of the decentralised puzzle is still yet to be adequately solved.... and time is starting to run a little short as we start to see some interest in Central Bank currencies which would put a bit of a hole in the sails of the attempts to move further away from the centralised models.

So, what do we have at the moment in terms of stablecoins? We have centralised versions (USDT, BUSD, and USDC), we have decentralised asset backed versions (DAI, SUSD,HBD), fully algorithmic stablecoins (ahem... the unfulfilled holy grail...), and finally the really out there non-stable "money-blocks" (AMPL).

So given the weaknesses of the centralised versions (points of control/failure and censorship) and algorithmic stables (crash crash crash...), not to mention the pi-in-the-sky hopes of "money-blocks"... well, the best option that we currently have are decentralised asset-backed stablecoins... essentially, these stablecoins represent a "dollar" claim on the underlying assets backing the issuance.

... and these systems are only as good as the assets backing them. Given that many of these assets in the crypto space tend to crypto assets... well, the volatility of these underlying assets, protocols can quite quickly find themselves under-collateralised with a depeg incoming! Worst of all, many of the failed ones referenced their own related volatile asset... which meant de-peg led quite quickly to death spiral.

... for some reason, crypto-bros seemed to ignore that evergreen maxim. Diversify.


Testing out Gyroscope: A New Stablecoin Architecture.png


So, Gyroscope is a project that I had been following for quite some time, and I had an opportunity to test out the test-contracts that had been rolled out on Polygon. Nice for cheap and fast transactions while retaining access to that larger Ethereum DeFi infrastructure like Balancer and Uniswap.

So, p-GYD (proto-GYD, with GYD being the eventual "real" stablecoin) is the stablecoin that is being tested with the ability to mint being currently capped at 10 p-GYD per address.


Testing out Gyroscope: A New Stablecoin Architecture.png


So... what is the difference between Gyroscope and a million other projects trying to do similiar things. Well, the way that the reserve is structured. You are only able to mint using Liquidity Provider tokens (the LP tokens that you get from depositing into a liquidity pool on Balancer)... which further minimises volatile exposure to the different underlying stablecoins. For instance, we have the 3 way "trusted" pool of BUSD-USDC-USDT, two 2-way versions against DAI and TUSD, and a final volatile WBTC-WETH pool.

... and each of them has a targeted weight and a current weight in the reserve. Anything that is ABOVE the targeted weight can NOT be used to mint the p-GYD stablecoin... thus, shielding the protocol again from any clumping of reserve. Diversify at all times!


Testing out Gyroscope: A New Stablecoin Architecture.png


So... test contracts are currently limited to 10 p-GYD, which is more than enough to toy around and play with the protocol. So far, it has been easy enough to play around with... swapped various stablecoin tokens, deposited into liquidity pools, and then minted and redeemed some p-GYD. All of it seemed to work as intended... but as always, who knows! Currently, the contracts are upgradeable and centralised... well, it is testing after all! So, probably a good idea to stick to an address that is not too exposed otherwise!


Testing out Gyroscope: A New Stablecoin Architecture.png


These are the Polygon Balancer pools that you can use as collateral to mint the p-GYD tokens. Before depositing into the pools, it is probably a good idea to check the weightings of the LP tokens against their targets... to be sure that whatever you are planning to use as collateral for the minting is actually acceptable to the protocol!


Testing out Gyroscope: A New Stablecoin Architecture.png


You might need to leave the website to swap to the appropriate tokens required for the pools. I didn't have any TUSD on this account... and I couldn't remember where I had minted and left it... but fees are low enough on Polygon to just swap some more with some dust WETH that I had lying around.


Testing out Gyroscope: A New Stablecoin Architecture.png


Entering and exiting the loops are easy enough, and you don't need to leave the Gyroscope site for that to happen (can I also mention that it is really nice to have that dark theme!).


Testing out Gyroscope: A New Stablecoin Architecture.png


... and from there, it is a cinch to mint the p-GYD stablecoin. You can try for the balanced mint, but the balancing of the reserve were a little off at the time that I tried, so I had to go with a single asset minting. There were only two of the four collateral types that were acceptable at that time... but that is constantly in flux, so others will have a different experience.

So... I'm hopeful about Gyroscope when it finally deploys onto Ethereum mainnet. The layers of abstraction away from the mostly stable assets backing the the minting, the very necessary diversification, and the balancing AWAY from highly volatile assets mean that the ingredients are there for a pretty nice mix of reserves that combine volatile/stable and centralised/decentralised assets.

... on the other hand, the stablecoin puzzle is tricky... and ideally, in the long-term future we want the crypto-native "money-blocks" to be the winner!


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I am a Musician (Violinist/Violist) specialising in Early Music living in The Netherlands. I have a background in Mathematics and Physics due to an earlier tertiary level study... and so, I'm still quite interested in Science and Technology related stuff!

Idle Musings
Idle Musings

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