A thread about the GTON (Collateralized) Dollar (GCD)

Dear community,

as you all know, our upcoming L2 solution will include a stablecoin as a native currency. So it’s almost unncessary to explain, why the design of this stable coin will play a crucial part in the success of our project as a whole. Therefore we should have a thorough discussion and debate about, what this stable coin should ultimately be like.

This thread is exactly made for this. I will use it to post my suggestions in regard to this topic…
Thereby, what follows is not one coherent proposal, but multiple proposals collected in one place.

I invite all of you to use this place too for your suggestions.

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I know, the team already started working on a certain stable coin design.
What I am trying here to present with my first proposal (–> number 1; more are following) is not intended to compete with or replace the official design… It is much more to be understood as another additional possibility to mint our stable coin or in fact any asset that has a certain price feed.

Basically, the design that I propose is thereby based on the AgeUSD protocol. This is a novel crypto-backed algorithmic stablecoin protocol that has been created in joint partnership by the Ergo Foundation, EMURGO, and IOG (–> GitHub - Emurgo/age-usd: The AgeUSD protocol specifications/smart contracts/off-chain code) and it is more or less the theoretical foundation for a practical implementation. The first implementation of this was SigmaUSD on top of the Ergo blockchain, another implementation will be the Djed stable coin on top of the Cardano blockchain. Djed has also been implemented by the IOG team in Solidity. One version uses the native currency of the Ethereum blockchain as a base coin, and another uses any ERC20-compliant token as a base coin. So far, these implementations have been deployed to testnets for Binance Smart Chain’s testnet, Avalanche’s Fuji, Polygon’s Mumbai, Ethereum’s Kovan, Ethereum’s Rinkeby, and RSK’s testnet (–> ).

So basically, you have the following options with the integration of this protocol…

Option #1
One stable coin (GCD), two ways to mint it.
Both ways can peacefully co-exist with each other.
Both ways have their own advantages.

Now let me introduce, how this mechanism could work in the context of our project…
You own GTON.
When you would visit GTON Money (gton.money/), you would find two menus to click on…
*) CDP minting
*) ReserveShare minting

While the first mechanism was already described somewhere else by the team (–)
Risk in the world of stablecoins - YouTube); you can get a sneak peak on a stable coin, minted with the second mechanism, due to the following video…

If you click at ReserveShare minting, there you have four choices…
*) You can mint (= “buy”) GTON Dollar.
*) Or you can redeem (= “sell”) GTON Dollar.

*) You can mint (= “buy”) GTON Share.
*) Or you can redeem (= “sell”) GTON Share.

Let’s go even more into the details…
GTON Dollar is a stablecoin, which means it is pegged to a stable value - namely the US dollar in this case. Let’s assume GTON is currently worth 2 dollars, and GTON Dollar is worth - as it should be - 1 Dollar. So, in order to mint 1 GTON Dollar, a user has to send 0,5 GTON to the dapp. This process can be repeated, users can send more and more GTON to the contract and get more and more GTON Dollar back.

Everytime GTON is used to mint GTON Dollar, that GTON goes straight into a pool.

If a user wants to sell his GTON Dollar, he can send it back to the dapp…
Then, the smart contract will…
a) burn the received amount of GTON Dollar
b) and send from the collected GTON pool the same amount of GTON back, that is equivalent to the burned GTON Dollar value

In conclusion…
*) If GTON has appreciated in price since the GTON Dollar was minted, less GTON is needed to cover the minted GTON Dollar. Thus the additional GTON will stay as reserves.
*) If GTON has depreciated in price since the GTON Dollar was minted, more GTON is needed to cover the minted GTON Dollar. Thus additional GTON from the reserves is needed to cover the minted GTON Dollar.

So…
As there might be a fluctuation in the price of GTON there might not be enough GTON in the contract to give back to the GTON Dollar holders.

That’s where the GTON Share token comes into the picture!

It is the reserve coin, in charge of providing extra reserves for the pool. Unlike the GTON Dollar stable coin, GTON Share is not pegged to a specific asset and its price can fluctuate.

By minting GTON Share, its holders are basically funding the smart contract with enough GTON to cover its fluctuation; so, they ensure the price stability of the GTON Dollar, as well as the collateralization rate.

In order to do so, they won’t be able to redeem GTON Share for GTON for as long the reserve ratio is below the minimum amount defined by the contract. This is because GTON Dollar holders have priority for redeeming their GTON Dollars for GTON.

The smart contract also won’t allow the minting of GTON Share tokens, once the reserve ratio gets to the maximum amount defined, in order to avoid diluting the rewards for GTON Share holders - namely, the fees associated with minting and burning GTON Dollar and GTON Share… They will be collected and send to a GTON pool, and GTON Share holders get a share of this pool as an incentive for their participation in maintaining the stable coin peg ratio. In addition as the pool grows from people transacting, the reserve also grows, which increases the liquidity and the price of the reserve coin.

Also, every transaction can be subject to protocol fees, that will be paid in GTON Dollar and get deducted from the initial deposit; which can get furthermore collected by the GTON Capital treasury.

If that wasn’t clear enough, take a look at this video…

Furthermore, try it by yourself…
*) SigmaUSD
*) https://djed.xyz/

While it is clear, that this is a very attractive stable design… One could ask, what’s the point of offering both options in addition to each other?

Well one answer could be, that you get the best user experience, if you combine both of these worlds…

If GCD is minted due to the CDP protocol, that can offer…
*) an easy way to collateralize your tokens; you can take an additional loan and leverage your position;
*) also it helps with the bridging from the Ethereum blockchain to our L2 solution, if the collected liquidity is used in swap bridge liqudity pools (more on this later)

If GCD is minted through the ReserveShare protocol, that can offer…
*) additional security
Basically, it is an extremly depegging resistant stable coin. You can proof that by yourself - Ergo dropped during a few months from around 19 Dollar ATH to 2 Dollar… And still, no depegging.
And similar to other fields (for example data redundancy), backing a stable coin with different minting mechanisms allows redundancy, which leads to additional security, in the extreme case, where one mechanism fails.

*) no liquidations
While it is nice, that you don’t have to sell your tokens, because you can easily use your tokens to get a loan from a CDP based protocol… That can also be somewhat nasty, when the market has a strong price fluctuation and your collateral gets liquidated. So if liquidations are too risky for someone, here we have a good alternative… Quote:
“Without CDPs, we do not have liquidation events nor the requirement for users to perform transactions to ensure that the liquidations actually work properly (rather than allowing a bad actor to steal funds away from the protocol). These are inherent vulnerable facets of using CDPs for minting stablecoins, and as such expose more risk to the end users.” (–> GitHub - Emurgo/age-usd: The AgeUSD protocol specifications/smart contracts/off-chain code.)

*) synergistic effects
You can say, what you want about the former version of Terra Luna… Ultimately it crashed…
However, what looked always very attractive about this protocol, is its synergistic relationship between two coins - namely Luna and TerraUSD…
Something, what I originally didn’t like about the CDP minting process, is, that basically any token can be used for the collateralization - so there is no special relationship between GTON and GTON Dollar… That means, if GTON Dollar appreciates in demand, that doesn’t also automatically lead to a price apprication for GTON… In the meantime, I better understand, why this multi­collateralization does indeed make sense - it allows a better depegging-resistance… However, I also still like the idea behind a minting process, where the stable coin is depended on the governance token… Because, that would make the governance token also automatically and intrinsically valueable, if there is demand for the stable coin.

However, there is also another option…
Option #2
Using this minting mechanism for the creation of synthetic assets.
This option can be offered in addition or as an alternative to option #1.
It works exactly as in the example described above, but the pegging in based on other, multiple assets… There just needs to be an oracle, which can offer an adequate price feed.

Some examples could be precious metals, stocks, indices, etc. So… Maybe that could even become the main use case for this type of minting mechanism… While GTON Dollar would be minted through a CDP mechanism; all other types of synthetics could be minted through the AgeUSD protcol.
What is thereby also very much needed, is a stable coin that is protecting its users from inflation. A good inspiration for this could be ARTH (–> https://docs.arthcoin.com/).

So, what do you say?
What’s your opinion about that?

If that sparked some curiosity in you, you can take a closer look at these following resources…

AgeUSD

https://ergoplatform.org/en/blog/2021-02-05-building-ergo-how-the-ageusd-stablecoin-works/

https://heraldsheets.com/iohk-emurgo-ergo-announce-ageusd-the-first-stablecoin-that-will-come-to­cardano/

SigmaUSD
https://ergonaut.space/en/dApps/SigmaUSD/Overview

https://ergoplatform.org/en/blog/2021-07-30-ergos-ageusd-protocol-sigrsv-and-sigusd/

https://ergoplatform.org/en/blog/2021_02_26-sigmausd-released/

https://ergoplatform.org/en/blog/2021-05-13-bearwhale-saga/

https://ergoplatform.org/en/blog/2021-09-22-sigusd-and-sigrsv-a-how-to-guide/

noob_tries_to_explain_sigmausdrsv_an_attempt_at/

https://bitcoinethereumnews.com/crypto/the-case-for-sigusd-on-ergo-as-a-sound-algorithmic­stablecoin-to-power-crypto-crypto-news/

Lessons for sigmausd from the DJED paper - Research and Development - Ergo Community Forum Buy SigmaUSD and SigmaRSV - YouTube

DJED

https://iohk.io/en/research/library/papers/djeda-formally-verified-crypto-backed-pegged­
algorithmic-stablecoin/

https://cotireport.com/djed-vs-ust-algorithmic-stablecoin-coti-ceo-shahaf-bar-geffen-explains-why­cardanos-coin-is-best/

https://www.coindailynews.io/2022/05/17/cardanos-djed-compared-to-terras-ust-by-community­details/

https://adainsider.com/notes/what-is-djed-djed-algorithmic-stablecoin-explained/

can_some_explain_how_the_djed_stablecoin_is_going/

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I think it is a great idea. 100% CDP - isn’t capital efficient, but 100% reserve/algo are also very risky (UST - depeg or USDN - insolvency).

Would be great to define a criteria for balancing limits between CDP and RS approaches. For example: more overcollateralization => more RS allocation for stablecoin minting.

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@bjames
Thank you very much for your reply!
Since I posted my first proposal in this thread I reconsidered some aspects of it.
I still like the idea of offering different options, how a user could mint our stable coin…
However, I wouldn’t propose any longer to offer these two different minting mechanisms on one and the same dApp/platform.
That seems to me confusing from the standpoint of a user experience.
So if something like this would be implemented, there should not only be two different minting mechanisms for minting one and the same stable coin, but also two different dApps/platforms, where each of them is representing a specific minting mechanism.
Furthermore I consider this minting idea now more or less as a nice addition but not as an absolute necessity.

BUT there is some aspect of the previous proposal, where I am convinced, that it could be a really big game changer for the success of our project…
And I know, the team also already played with this idea…
One word: SYNTHETICS…!

And that’s what I would like to talk about in my next proposal…

Proposal #2:
Instead of building a platform, for minting only one stable coin (GTON Dollar)…
Build a universal synthetics platform, where different assets are minted (including GTON Dollar).

BUT let’s start from the beginning…
After I created this thread, I did a little deep dive in the world of synthetics…
I was wondering…
what are currently the leading platforms in this area…
and how do they create their synthetics…

Thereby, I recognized two things…

First…
Actually there are not many platforms…
And the main existing ones are pretty flawed…
.) Synthetix (synthetix.io/) → complicated minting mechanism, not multi-collateralized, high collateralization rate
.) UMA (umaproject.org/) → actually not a synthetics platform anymore, spezialized in oracles
.) Mirror Protocol (mirrorprotocol.is) → actually the simplest and most promising platform, but has legal issues, went down due the Terra crash and got hacked
.) Morpher (morpher.com) → seems to be centralized
(–> Crypto Synthetics, What is the Best Synthetic Asset Protocol? | by Martin Froehler | Morpher | Medium)

This is somewhat astounishing to me, because it is actually a field with a pretty clear product market fit and a multi-billion market.
Therefor, the current market condition is offering us a niche, where we could become pretty successful.

Secondly…
All of them are based on a CDP minting mechanism…
So it is anyway the same minting mechanism, as with GTON Dollar.
The only thing a synthetics platform does differently in comparison to a CDP stable coin minting platform, is this…
It offers more assets, that a user is able to mint…
In conclusion, if we can create a platform, where GTON Dollar is created due to CDP minting, we could easily just add more assets (other stable coin currencies, Gold, Oil, etc.)… And et voila, we have a synthetics platform…

So, as you maybe know…
Our GTON Money protocol (assumed name), where GTON Dollar is minted, is based on a fork of the Unit protocol.
The advantage of this protocol is, that the minting mechanism is the same as with DAI - namely based on a CDP - but much simpler executed.
Furthermore it allows us to use a vast selection of collaterals for minting our stable coin…

So TL;DR, in the long run…
I would love it, if the team would take this underlying protocol, add additional assets to it and turn it into a real synthetics protocol…
The end result could thereby pretty much look and feel like the before mentioned Mirror Protocol, which seems to be pretty intuitive…

Here is how they made it…
1.) You can choose between many types of synthetic assets…
They could be grouped under umbrella terms, like Forex, Crypto, Index, etc.

2.) Next, you can choose what type of collateral you want to take and what the collateralization rate should be.
Then you just have to confirm the amount of the synthetic asset you want to borrow.

Because GTON Money is based on the Unit Protocol…
It should be possible, like already said, to choose from a vast selection of collaterals…
With Unit protocol a user can even choose to take LP tokens from various exchanges as collateral.

3.) Finally, there is more!
A user should furthermore be able to use this dApp/platform to trade his synthetic assets directly with each other.
A user should furthermore be able to use this dApp/platform to trade his synthetic assets directly with each other.
For example, synthetic AAPL against synthetic silver, and so on.

Otherwise, this feature can be turned into a seperate dApp/platform, similar to KWENTA (–> kwenta.io/).

I know, the team is now busy building just GTON Dollar…
HOWEVER…
Team, please create in the long run a platform, where all types of assets can be minted.
This could be very powerful!

What do you say?