Current stablecoin solutions typically require backing by a centralised fiat reserve or over-collaterization. With Gambit, we present a design for a partially-backed stablecoin that automatically generates interest.
Here is an overview of how the stablecoin would work:
- USDG can be minted with any whitelisted asset, e.g. BNB
- The amount minted is determined by the price of the asset
- For example, if the price of BNB is 200 USD, then 1 BNB can mint 200 USDG tokens
- Assets in the system can be used by anyone to open a long position
- Longing maintains the collateral backing the system while generating fees that can be paid as interest to USDG holders
An example for further illustration:
- The price of BNB is 200 USD
- Alice sells 1 BNB to the system and receives 200 USDG in return
- With 1 BNB, the system allows anyone to take up a long position against it
- Bob opens a 2X BNB long position by depositing 1 BNB
- The system now has 2 BNB
- If the price of BNB increases to 210 USD, the system would now have 420 USD worth of BNB, it can pay Bob 220 USD worth of BNB and still have 200 USD worth of BNB to back Alice’s 200 USDG tokens
- If the price of BNB decreases to 190 USD, the system would now have 380 USD worth of BNB, it can pay Bob 180 USD worth of BNB and still have 200 USD worth of BNB to back Alice’s 200 USDG tokens
- If the price of BNB decreases to 100 USD, Bob would get liquidated, the system would not owe Bob any BNB, but it would still have 200 USD worth of BNB to back Alice’s 200 USDG tokens
Maintaining the Peg
Since USDG can be minted without being over-collaterized, maintaining the peg when the price of USDG is above 1 USD would be taken care of by arbitrage.
When the price of USDG is below 1 USD, USDG can be burnt for the backing collateral at a rate of:
0.9 * (collateral in system) / (supply of USDG)
For example, if the system has 1 BNB and the supply of USDG is 200, then 1 USDG can be burnt for 0.0045 BNB, if the price of BNB is 200 USD this would be equivalent to 0.90 USD worth of BNB.
Collateral in opened long positions will be taken into account for the redemption calculation. Additionally, since USDG can be minted with multiple whitelisted assets, each asset will track its own redemption price, forming multiple backstops to help maintain the peg. The 0.9 factor in the floor price formula will result in the system increasing its ratio of collateral against USDG debt whenever USDG is redeemed.
It is possible for the redemption price to exceed 1 USD if the price of the underlying collaterals increases by more than 10%, . To avoid this scenario, the redemption price will be capped to a maximum of 0.997 USD.
Some benefits of Gambit:
- Unlike purely algorithmic stablecoins or overcollateralized stablecoins, supply can meet demand at a 1:1 ratio
- The ability to mint USDG with no slippage and no spread using any whitelisted asset gives USDG an in-built utility
- The system can have a very large amount of liquidity and range of assets for anyone to open a long position with no slippage and no spread
- Fees are generated on minting USDG, burning USDG, opening positions, closing positions and funding rates
- A portion of the fees can be distributed to USDG holders, making USDG the first stablecoin with its own interest generating mechanism. Interest can be earned just by holding USDG, without having to lend it out or deposit it into another system
- The majority of fees can be kept within the system to increase its liquidity. Over time, this would grow the size of the assets backing USDG and allow the peg to be maintained even if the price of the underlying assets decrease
An interesting use case would be to use Gambit for Cross-asset Swaps similar to Curve Finance and Synthetix. For example, if both BNB and ETH are whitelisted assets then a swap from BNB to ETH and vice versa could be done through Gambit with zero slippage.
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