USDTZ, an on-chain-Tezos stable coin, with optional revenue and on-chain-lending.

USDTZ, an on-chain-Tezos stable coin, with optional revenue and on-chain-lending.

By Allen Walters | Publish0x posts | 21 Nov 2019


  • USDtez (USDTZ) is an on-chain-Tezos stable coin. 1 USDTZ will always match the value of 1USD. 
  • USDTZ should provide liquidity for the Tezos financial ecosystem. 
  • USDTZ is over-collaterized and backed by both Tezos (XTZ) and fiat.
  • USDTZ can give you returns if fixated for a certain period.
  • USDTZ will make on-chain-lending possible for certain assets.

Why another stable coin?

There are quite a few stable coins available right now, but building one on Tezos has some very interesting advantages. First of all, a stablecoin build straight on the Tezos network is very useful for DeFi applications on Tezos. Second, if you trading XTZ on a DEX, then USDTZ will be what you want to use, since it’s native to the blockchain and therefore it will be the fastest with the lowest possible fees. In this case it will have 0 stability fees. But one of the most interesting parts is the fact that Tezos has the Liquid PoS consensus mechanism. 

Quick side track on Liquid PoS:

The beauty of Tezos' LiquidPoS, is off course the possibility to bake and delegate. The PoS is done by "Bakers". These are the holders of XTZ that actually do the work: they stake their XTZ. Holders of XTZ that are less tech savvy, or just don't want to go through the hustle, can "delegate" their XTZ to these Bakers instead of baking themselves. The bakers receive the baking rewards, and pay them forward to their delegators while keeping a pre-determined percentage as fee. The possibility to delegate, is one of the reasons why crypto exchanges like Kraken, OKEx and Coinbase, can easily provide baking rewards to their customers who hold XTZ on exchanges. For other PoS chains, this is not a slam dunk. For this same reason, Tezos is now the only cryptocurrency that is listed as an Exchange Traded Product (ETP) on the main Swiss stock exchange "SIX", that gives a return just by holding it. This is unique, since there are no other cryptocurrency based ETP's capable of doing this. The ETP is called AXTZ and is fully backed by XTZ one-on-one. 

Returning to USDTZ: Building a stable coin on Tezos, makes it possible to use Liquid PoS to the advantage of users of the stable coin. USDTZ will be backed by Fiat and XTZ. This means that USDtez foundation (which will be superseded one day entirely by the USDtez DAO) will hold a lot of XTZ. Obviously they will be baking them, which will give them a return. Operational costs are covered by baking the XTZ in the USDTZ reserves. So building USDTZ on Tezos means there are no stability fees for USDTZ. On top of that: after operational costs are covered, the remaining XTZ will be added to the XTZ reserves and make it possible to mint more USDTZ. A percentage of the rewards will be converted to fiat, which will be added to the secondary fiat reserve. 

Details on how USDTZ value is backed:

Unlike USDC or TUSD, it will not just be backed by fiat. USDTZ is backed by fiat and by XTZ. Primarily USDTZ is backed by XTZ. "There will always be at least as much XTZ in the reserve for the equivalent amount of USDTZ in circulation."  

If we look at DAI/MakerDAO, we see that DAI is backed by 150% ETH, but still will not be able to maintain it’s 1$ peg in some cases, which means raising stability fees. Also an extreme drop of ETH value will spell trouble for this method. So for USDTZ, a secondary reserve will be held in fiat. This funds will be used for banking activities such as lending. (See On-Chain-Lending). Part of the returns of the banking activities will be used in a similar way as part of the baking rewards. Part will be added to the fiat reserve, and part will be used to buy XTZ to add to the XTZ reserve, which will allow additional USDTZ to be minted. 

USDTZ will be over-collaterized 4:1. For every USDTZ there will be 2 XTZ and 2$. The 1 XTZ and 1$ surplus will be used as a growth layer which is thoroughly explained here.

Fixating USDTZ for a certain period will give you interest.

USDTZ holders will also be able to fixate their USDTZ for optional periods with returns in USDTZ. This can be seen as an USDTZ online saving-account. The annual interest rate will be around 3%. People who feel particularly bearish on XTZ value, could chose this option. (Opting for a 3% return in USDTZ, instead of a ~5.5% return in XTZ by baking, is only chosen by the ones that believe XTZ will get into a long term downward trend. Months or a year +.) Obviously, anyone trading any coin, so not just XTZ, can convert into USDTZ and opt for the option to fixate and receive interest. People will be tempted to choose USTDZ instead of a banking account, because no bank will give them 3% interest rates. 

Once users chose to fixate their USDTZ, this fixated amount of USDTZ will not be needed to be backed for a known period. So this frees fiat funds for financial activities that can bring growth to the reserve. "The USDtez Foundation may also issue bonds or other asset-backed derivatives in the future. The choice to do so would be a tradeoff between simplicity vs. faster growth plus more growth options. Eventually, these decisions will be resolved democratically by a distributed network; they will be proposed and vetted by the presiding participants of the DAO. Details on the DAO and participation will be forthcoming.

On-chain-lending

USDtez expects to be able to provide a new service in about a year of it's existence: on-chain-lending. You need to pay some bills, but you don't want to sell certain STO holdings or possibly digital playing cards from the Coase card game? You can use them as collateral and lend USDTZ. Lending will only be possible if you actually have the collateral, so a credit-check would not be necessary. And because it is on-chain, the lender repayment is guaranteed and fixed through smart-contract. All this obviously while cutting out the bank as middle man.

Q1 2020 launch and listings. 

 


Allen Walters
Allen Walters

Fascinated by blockchain and future proofing cryptocurrency. Discover the tech before it gets relevant.


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