USD Tez (USDtz): The Tezos Ecosystem Stablecoin Design

USD Tez (USDtz): The Tezos Ecosystem Stablecoin Design

By rhyzom | rhyzom | 29 Jan 2020


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USDtz is the stablecoin used in the Tezos ecosystem. It's an interesting and fairly unique stablecoin design and an impressive feat of (decentralized) financial engineering implementing a set of mechanisms in maintaining the peg to the US dollar. USDtz follows the fungible Tezos FA-1.2 token standard which constitutes a contract implementing a ledger (what is commonly called a "mapping" in Ethereum) which maps identities to token balances and implements token transfer operations (as well as approvals for spending tokens from other accounts) - basically what the ERC-20 standard is to Ethereum.

Governance: From A Dedicated Foundation To A Governing On-Chain DAO

Unlike as with MakerDAO's Dai there's no stability fees involved in USD Tez (USDtz). USDtez is to be initially administered and managed by the Swiss-based USD Tez Foundation in the process leading up to the creation of an on-chain USD Tez DAO which is to therefrom assume the governance functions (with decisions taken by means of on-chain consensus of the USD Tez community members). 

Collateral-Backed: A Four-Silo Model of Both USD and XTZ Reserves

The USDtez model is composed of 4 silos of collateral which constitute the USD Tez Reserve. Two of those silos hold fiat and two XTZ, which when altogether full back 4:1 or 400% of all USDtz in circulation (although each individual silo alone is capable of 100% backing the entire supply of USD Tez). Whatever surplus goes on to exceed the 4:1 collateral-to-USDtez ratio is called the Harvest and it gets distributed in three main areas - dividends, re-capitalization (meaning scaling the reserve) and ecosystem projects and is planned and decided upon by the on-chain DAO.

The first pair of silos form the base layer making all USDtz in existence fully redeemable in either denomination (USD or XTZ). The other two silos constitute the growth layer which effectively collateralizes the base layer (e.g., if the price of XTZ goes down, the growth layer fiat silo can purchase XTZ from the base layer's XTZ silo). The base XTZ silo is initially empty and fills from lending activities from the first (USD) silo in addition to baking (the term for proof-of-stake validating in Tezos) activities kicking off as soon as some deposit of XTZ is seeded.

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The fiat growth silo (silo 3) matches base silo 1 and acts as a backup in case silo 2 needs replenishing. And correspondingly the silo 4 (XTZ) reserve matches that of silo 2, acting as a backup for silo 1 (if silo 1 happens to collateralize all USDtz in circulation, silo 4 provides source of coverage for it). This four-silo-reserve model makes for a robust system well insured against extreme market events and conditions. 

TZ-Bills: Bond Tokens Facilitating the Filling of The Reserve Silos

A TZ-bill is a bond token, a digital crypto-asset issued through a Tezos contract conforming to the Tezos security token standard. The concept derives from that of Treasury Bills, commonly referred to as T-bills — a debt instrument issued by the United States Treasury for similar purposes as the Tezos TZ-bills. The USDtz Reserve will basically sell TZ-bills through tezos.bond in efforts to help fulfill the 4:1 over-collateralization target/goal for its USDtz reserve silos. 

Treasury Bonds are issued by governments whenever they need to generate funding with the funds raised going to collateralize the money that governments print into circulation. Treasuries pay back bond purchasers interest upon the bonds maturation (basically amounting to contractual relationship of the government borrowing money from the citizen who purchases the bond, paying him back with interest over time).

TZ-bills are to be issued through a descending auction, beginning at a price for a dollar and going further down from it given there's no takers. This quite likely presenting a nice opportunity to ensure some decent returns in good time as Tezos picks up momentum and network effects kick in (and prospects are definitely very promising, if Ethereum's simple ICO craze and how it pumped in value back in 2017/2018 is anything to compare with to get an idea, given that Tezos instead focuses on security token offerings and issuance and things along such lines). 

Overall, an interesting approach, indicative of Tezos' character and purpose (as geared towards serious financial operations).

Other Stablecoins to Come

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USD Tez is part of the StableTez project which is working on engineering and issuing a number of different stablecoins in respect to their reference points. Next after USDtz is BTC Tez (BTCtz) (as USD and BTC are two of the most critical liquidity instruments in trading digital cryptoassets). Others will be pegged to precious metals (Tezos Gold) and agricultural commodities (Tezos.Coffee, Tezos.Soy) and are to arrive later on in the future. 

A white paper is expected to be released some time in the near future along with a more technical green one.


rhyzom
rhyzom

Verum ipsum factum. Chaotic neutral.


rhyzom
rhyzom

Ad hoc heuristics for approaching complex systems and the "unknown unknowns". Techne & episteme. Verum ipsum factum. In the words of Archimedes: "Give me a lever and a place to rest it... or I shall kill a hostage every hour." Rants, share-worthy pieces and occasional insights and revelations.

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