TL;DR $USN v2.0 shifts to a flexible model that can adapt to any market condition. In Phase I, $USN will be 1:1 backed with $USDT: users can mint and redeem $USN only with $USDT. A native yield will be generated sustainably from $NEAR staking rewards. In Phase II, $USN will also be collateralized by non-stablecoin assets — starting with $NEAR. Phase I will be live for several months.
The Challenges of a “Stable”coin
$USN was designed with one question in mind: we know stablecoins can rapidly expand their supply — can we make them last? The recent market downturn has proven that current decentralized stablecoins are not resilient to downward pressure:
- The death spiral of $UST due to a purely algorithmic mechanism without proper backing in reserves.
- The dramatic decrease in the circulating supply of CDP (collateralized debt position) stablecoins such as $DAI or $MIM. In market downturns, users are more reluctant to lock collateral that can get liquidated.
- Newer solutions such as $FRAX being perceived as potentially too risky under current conditions, when compared to centralized options such as $USDT or $USDC.
- $USDD de-pegging to $0.92 even though it is stated to be overcollateralized since no redemption mechanism or arbitrage opportunity is available to the public and only open to whitelisted institutions.
Decentral Bank’s goal is to create a stablecoin that is the closest to being truly stable; one that can thrive in a bull run and withstand a prolonged bear market. With that in mind, the Decentral Bank team created a system that maintained its peg and collateralization during the May ’21 crash.
Due to recent events, the Decentral Bank team conducted more sophisticated and aggressive simulations to understand the behavior of USN v1.0 under increasingly challenging market conditions. The team concluded that given the uncertainty around how long this bear market will last and the selling pressure induced by tightening macro conditions, the v1.0 could, potentially, pose a risk that $USN becomes undercollateralized from sustained volatility of the $NEAR price. Even taking into account the fact that this risk is more potential, than real, we want to eliminate any risk for our community.
In response, the Decentral Bank team has redesigned $USN to make it as adaptable to the harshest of market conditions as possible, under the team’s calculations.
Introducing USN v2.0
In v1.0, based on Decentral Bank’s simulations and subsequent calculations, $USN was designed to achieve both growth and stability by combining on-chain arbitrage with a self-balancing Reserve Fund, which would keep $USN overcollateralized with $USDT and $NEAR.
USN v2.0 shifts to a flexible model that starts with a 1:1 backing of primarily stable assets with a sustainable, native yield from $NEAR staking rewards; and then reintroduces non-stablecoin assets as collateral in the future.
USN v2.0 is planeed to be executed in two phases, and the transition could be determined via a DAO vote. The core idea moving forward is that the Decentral Bank DAO can have the flexibility to adapt $USN to the demands of the market.
Phase I: Bear Market Scenario — Stable Backing, Stable Yield
Starting today (June 30th), $USN will be 1:1 backed with $USDT. Users can mint and redeem $USN only with $USDT. This means that the on-chain arbitrage mechanism will remain intact, and simply transition from arbitrage between $NEAR and $USN, to $USDT and $USN. These changes will be reflected on the contract level, as well as the Decentral Bank swap page, Ref Finance, and Sender wallet.
At the same time, the $NEAR in the Reserve Fund from v1.0 and other grants may be staked to generate a native $USN yield. To start, 1M $USN per month may be distributed through Ref Finance during July 2022 and August 2022 — an important increase from the previous 500k USN rewards in June.
With time, $USN is supposed to expand beyond $USDT and ensure a backing through a basket of battle-tested stablecoins, such as $USDC and $DAI.
Under this v2.0 model, $USN’s risk of under-collateralization is radically reduced, in the Decentral Bank’s opinion and as per our research.
Phase II: Bull Market Scenario — Reintroducing $NEAR, Greater Yield
As market conditions recover, the Decentral Bank DAO may vote to transition to Phase II, where non-stablecoin assets will be reintroduced to mint and redeem $USN — starting with $NEAR.
Under favorable market conditions, the reintroduction of $NEAR may lead to greater value accrual to $NEAR, as more $NEAR is used to mint $USN and then staked, which can be used to continue generating native $USN yield. In the future, Decentral Bank may introduce other assets such as $ETH and $BTC to the list of collaterals.
The full design of Phase II will be detailed in the upcoming v2.0 of the $USN whitepaper. The main focus of the mechanism for Phase II is to get close to a safe and healthy over-collateralization ratio and a minimum guaranteed collateral ratio in stablecoins such as $USDT, $USDC, and $DAI. Safety measures will be installed to handle those drastic market changes, moduled by the Decentral Bank team, taking into account the historical market data.
With the new design in place, $USN is expected to have a greater capacity to flexibly adjust to changing conditions and ensure true stability that should withstand the test of time. Once the transition is successful, all that remains is growth.
In the near future, the Decentral Bank community may expect:
- Public dashboard
- v2.0 Whitepaper
- $USN integration on all major NEAR and Aurora dapps
- Fiat on/off ramps
- Off-chain loans
- Micro loans, financing, and credit lines
- Payment in real-world commerces including subscription models
- Multichain expansion
- Protocol level integration: option to pay for gas on NEAR with $USN for $USN transactions
With stability, safety, and transparency as the primary objectives, the Decentral Bank team is dedicated to make $USN the backbone of transactions on NEAR and beyond.
$USN is a NEAR-native stablecoin soft-pegged to the US Dollar. The goal of $USN is to create a stablecoin that is truly stable, with a flexible design to adapt to different market conditions. With a secure backing in battle-tested stablecoins and a native yield generated from $NEAR staking, $USN is positioned to be one of the most effective ways to bootstrap liquidity in the NEAR ecosystem; all while adding a new layer to $NEAR’s utility as a token. $USN’s smart contracts and Reserve Fund are managed by the Decentral Bank DAO.
About Decentral Bank
Decentral Bank is the DAO developing and supporting NEAR-native stablecoins, the first of which is $USN. Decentral Bank DAO manages the smart contracts of $USN and its Reserve Fund.
This document presents the current status and future plans for the USN v2.0 project. The sole purpose of this document is to provide information, and is not to provide a precise description on future plans. Unless explicitly stated otherwise, the USN v2.0 project is still under development and hereby no statement of quality assurance or affidavit for the successful development or execution of the USN v2.0 project are provided.
You should not construe any information contained herein or other material contained in this document as legal, tax, investment, financial, or other advice. Nothing contained in this document constitutes a solicitation, recommendation, endorsement, or offer by the developers or any third party service provider to buy or sell any virtual assets or financial instruments, or both, in any jurisdiction.
All information or other material contained in this document is information of a general nature and does not address the circumstances of any particular individual or entity. Nothing in this document constitutes professional or financial advice, nor does any information in this document constitute a comprehensive or complete statement of the matters discussed or the law relating thereto. Each user shall alone assume the sole responsibility of evaluating the merits and risks associated with the access or use, or both, of the USN v2.0 project, before making any decisions based on the information contained in this document.