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Decentralized finance, or DeFi, is like a rebel in the financial world, challenging the old ways of doing things. Instead of relying on traditional banks, uses smart contracts on the blockchain to recreate and improve various financial services. This includes lending, borrowing, and trading, all without the need for the usual middlemen. DeFi As DeFi picked up speed, it became known for using cryptocurrencies, like Bitcoin and Ethereum, as collateral. With their secure and transparent blockchain technology, these digital currencies formed the basis of decentralized lending. But as time passed, it became clear that depending solely on digital assets had drawbacks, especially regarding stability and real-world relevance. This brings us to the interesting to collateral. It's moving from only using digital assets to including real-world ones, like real estate, stocks, or commodities. These tangible assets connect DeFi to traditional financial markets, marking a big moment in its story. It's broadening its reach from the digital world to the real assets that have always been the foundation of traditional finance. shift in DeFi's approach The importance of connecting traditional and decentralized finance is huge. While DeFi has brought some groundbreaking ideas, it's often seen as a separate financial system. Bridging this gap means combining the strengths of both worlds – the speed, transparency, and accessibility of DeFi, along with the stability, rules, and familiarity of traditional finance. This mix can potentially change how people and institutions use financial services. It tackles the issues of relying only on cryptocurrencies as collateral, offering a more balanced and complete approach to representing value in the decentralized world. As we dig into the pros and cons of bringing real-world assets into DeFi, we discover the complex dynamics shaping the future of finance where the traditional and the decentralized meet. The author acknowledges a vested interest in the organization(s) highlighted in this story. However, the views expressed within are delivered impartially and without bias. Disclosure: Understanding Collateral in DeFi In decentralized finance (DeFi), collateral is a crucial concept that forms the backbone of various financial services on blockchain-based platforms. In simple terms, collateral in DeFi represents assets that users use to secure loans or other financial transactions. Unlike traditional finance, where banks often ask for physical assets or extensive paperwork as collateral, DeFi uses smart contracts and cryptographic methods to make sure collateralized transactions happen and are enforced. It's important to highlight the difference between traditional and crypto collateral to understand what makes DeFi unique. Traditional collateral usually involves tangible assets like real estate or valuable possessions that borrowers offer as security to lenders. This process, deeply ingrained in regular financial systems, often includes complicated legal steps and middlemen to handle and confirm the collateral. On the flip side, in DeFi is a product of the digital age. Using smart contracts, users can lock up digital assets, mainly cryptocurrencies like Bitcoin or Ethereum. The blockchain's built-in security and transparency play a big role, ensuring that collateralized transactions are trustworthy without needing middlemen. This innovation has significantly simplified borrowing and lending, making DeFi more accessible and efficient. crypto collateral Collateral's role in securing loans and making decentralized financial services possible is fundamental to the success and stability of the DeFi ecosystem. When users want loans or get involved in financial activities on DeFi platforms, they have to offer collateral to reduce the risk of default. Smart contracts automatically carry out transactions based on predefined conditions, creating trust and security that matches or exceeds traditional collateral systems. Furthermore, collateral in DeFi makes liquidity pools possible, fueling decentralized exchanges and lending protocols. These pools rely on users putting in collateral, allowing others to borrow and trade assets, creating a lively and interconnected financial environment. This decentralized approach can eliminate the need for middlemen and ensures a more inclusive and globally accessible financial system. Understanding collateral in DeFi means seeing its transformative potential, going beyond the limitations of traditional collateral systems. As we navigate the details of crypto collateral and its crucial role in securing transactions and driving financial innovation, we get a glimpse into the changing landscape of decentralized finance and its power to reshape the future of global finance. Real-World Assets in DeFi When we talk about bringing real-world assets into decentralized finance (DeFi), it means moving away from solely relying on digital assets. In the DeFi world, real-world assets are physical things with inherent value, like real estate, stocks, commodities, or intellectual property. Unlike cryptocurrencies, these assets exist in the real world, adding a touch of tangibility and familiarity to the decentralized financial system. In DeFi, real-world assets used as collateral are diverse, reflecting the wide range of traditional assets now in blockchain-based financial activities. For example, real estate tokens allow users to turn ownership of physical properties into digital assets that can be easily traded and used as collateral on . Similarly, stocks and commodities can be tokenized, letting users use their regular investments in the decentralized space. These innovations bridge the gap between the physical and digital worlds, opening up new possibilities for representing assets in DeFi. DeFi platforms Introducing real-world assets into DeFi comes with several advantages that contribute to the growth and maturity of the decentralized financial system. Firstly, including real-world assets brings stability and reduced volatility compared to the often unpredictable values of cryptocurrencies. This stability is particularly attractive to users who are a bit risk-averse and might have been hesitant to join DeFi because of concerns about the ups and downs of digital assets. Secondly, mixing real-world assets into DeFi helps expand the ecosystem itself. By offering a broader range of collateral options, DeFi platforms can attract a more diverse user base and meet a wider array of financial needs. This diversification not only strengthens the resilience of the DeFi space but also encourages innovation in financial services, potentially leading to the development of more advanced and inclusive decentralized applications. A key advantage of using real-world assets in DeFi is the potential to attract traditional investors. By creating a link between established financial markets and the decentralized space, DeFi becomes more accessible and attractive to individuals and institutions familiar with traditional asset classes. This influx of traditional capital has the potential to bring liquidity into the DeFi ecosystem, fueling its growth and establishing it as a significant player in the broader financial landscape. There are already platforms that are enabling the tokenization of real-world assets. For example, Mintlayer provides a platform for creating tokenized real-world assets, specifically security tokens that adhere to financial regulations through blockchain technology. To address regulatory complexities, Mintlayer incorporates features such as access control lists and multisig, simplifying the technical aspects of token creation. Security tokens offer benefits like direct wallet storage, expedited settlement times, and decentralized exchanges, fostering efficient price discovery. Mintlayer's customization options enable tailoring tokens to meet specific asset requirements, including features like automatic dividend payments and voting rights. Despite existing challenges, Mintlayer addresses security concerns and regulatory compliance, positioning itself as a secure and efficient digital security issuance platform. As regulatory frameworks evolve, security tokens, including those facilitated by Mintlayer, could play a significant role in the future finance landscape. Challenges and Risks Incorporating real-world assets into decentralized finance (DeFi) comes with challenges and risks that need careful navigation to ensure the ongoing growth and stability of the ecosystem. A primary challenge is the intricate web of legal and regulatory obstacles. Traditional assets carry many regulatory requirements and compliance frameworks that differ across jurisdictions. Successfully integrating them into the decentralized space demands collaborative efforts from both DeFi platforms and regulatory bodies. Striking a balance between innovation and regulatory compliance with established legal frameworks is vital to avoid legal issues that could hinder the adoption of . real-world assets in DeFi Valuation and liquidity pose another set of challenges in bringing real-world assets into the mix. Unlike cryptocurrencies, which usually have clear market prices, valuing real-world assets can be subjective and tricky. Accurately determining real estate values, stocks, or other tangible assets requires reliable methodologies, possibly involving external oracles and data sources. Additionally, ensuring enough liquidity for these assets within the decentralized ecosystem is critical for maintaining a robust and functional DeFi market. Addressing these concerns involves creating standardized valuation methods and establishing liquidity mechanisms that suit the unique characteristics of real-world assets. The potential impact of economic downturns on real-world assets adds another layer of risk that DeFi platforms and users must consider. During times of economic instability, the value of traditional assets may fluctuate significantly. Real estate markets, stock prices, and commodity values can be profoundly affected, posing challenges in maintaining the collateralization ratios necessary for the stability of DeFi protocols. Mitigating these risks involves developing risk management strategies, like dynamic collateralization requirements or implementing decentralized insurance mechanisms. DeFi platforms must be resilient to economic uncertainties, and users must know the potential impacts on their collateralized assets. The Future of Collateral in DeFi Anticipating the growth of real-world assets in decentralized finance (DeFi) involves imagining a future where tangible assets become more common in blockchain-based financial systems. As DeFi evolves, using real-world assets as collateral is expected to become increasingly popular. This trend is likely to be driven by a growing recognition of the advantages that real-world assets bring to DeFi, such as stability, reduced volatility, and the ability to attract a more diverse group of investors. Predictions suggest that various asset classes, including real estate, stocks, and commodities, will be tokenized and seamlessly integrated into DeFi protocols, expanding the range of available collateral. The future of collateral in DeFi promises several potential innovations and developments. One such innovation involves refining decentralized identity solutions to enhance the safety, security, and privacy of users engaging with real-world assets. This would entail creating robust, user-friendly identity verification mechanisms that comply with regulatory standards. Additionally, advancements in decentralized governance models are expected, allowing users to have a more direct and participatory role in the decision-making processes of DeFi platforms. These developments contribute to creating a more sophisticated and user-centric decentralized financial ecosystem. Collaboration and partnerships are anticipated to play a pivotal role in shaping the future of collateral in DeFi. As the industry matures, collaborations between decentralized platforms and traditional financial institutions will likely intensify. These partnerships combine traditional finance's expertise and regulatory frameworks with the innovation and agility of DeFi. They may involve joint ventures to tokenize and onboard traditional assets onto blockchain platforms or establish interoperable standards that facilitate seamless asset transfer between traditional and decentralized financial systems. This collaborative approach fosters a more harmonious integration of the two financial worlds, contributing to the overall growth and acceptance of DeFi globally. Furthermore, collaborations within the itself are expected to increase. As various projects specialize in different aspects of decentralized finance, partnerships can create integrated platforms that offer a broader range of financial services. DeFi ecosystem For example, a lending platform may collaborate with a decentralized identity project to enhance user security. Alternatively, a decentralized exchange may partner with an insurance protocol to provide risk mitigation solutions. These collaborations foster a more interconnected and synergistic DeFi ecosystem, benefiting users with a more comprehensive suite of financial tools.

From Crypto to Concrete: Bridging the Gap with Real-World Asset Collateral in DeFi

This article has been written with the assumption that the reader has a basic knowledge of cryptocurrency, DEFI & the digital asset industry. As we know, Credit is highly dependent on reputation & identity. In a young emerging digital world where reputation hasn’t had the chance to be properly built in yet, where everybody is pseudonymous & rarely holds themselves accountable, providing credit becomes a herculean task. centralized nance is the idea of creating a financial ecosystem built on infrastructure that is not owned by / dependent on any single entity. It is predicated on the combination of traditional financial infrastructure (credit/lending / etc.. ), distributed computation (blockchain & other DLTs) & the power of open-source software (tokenization). DE FI At the core of , as with , lies the credit concept. DEFI tradFI I forgot where I heard it, perhaps Mr. Ray Dalio: “Credit is the grease to the gears of the modern financial system.” To build any kind of serious financial system, credit must be a fundamental design component. Credit provides a broad range of sophisticated financial tooling including: - Leverage - Lending / Borrowing - Asset Issuance - Inverse Options - & basically everything else… The creation/implementation of has been explored by humanity for thousands of years & by the brightest of minds. Ultimately, the provision of credit is distilled to Collateralization. credit Collateral is the Holy grail when it comes to DEFI. Value in DEFI is primarily derived from its TVL (total-value-locked). TVL is a direct measure of collateral that users commit to a DEFI protocol. As it stands, the open-source world of cryptocurrency & blockchain has prolifically utilized the 3 variations of models for the provision of On-Chain credit. Collateralized Each variation of collateral has its own unique focus based on assumptions & tradeoffs in risk. Equal ( Collateralization 1-to-1) The most popular model sometimes referred to as “pegging”, equal collateral simply means that 1 token is issued per 1 unit of value. These tokens have the function of tracking the value of their underlying collateral. This system works based on 2 assumptions; Tokens-to-collateral , where it assumed that in the event a token holder would want to leave that system, they could do so by claiming the underlying value tool rather than having to trade. redemption Token-to-collateral , where tokens are always at par with the underlying collateral. price equanimity The best examples of this are stablecoins & Wrapped tokens. , , and are stablecoins that back their circulating token supply with a treasury of that exact amount. USDT USDC BUSD 1USDC=1USD WETH, WBTC, & others are Wrapped tokens that are issued in direct proportion to the amount of ETH/BTC committed, 1WBTC=1BTC USDC is issued by Circle. It is worth $1. If the MarketCap of USDC is $10 Billion; then Circle must have $10,000,000,000 in paper dollars/dollars in the bank WETH is issued by WETH protocol. If Eth = $1,500 then Weth = $1,500 if ETH moves, Weth follows; if Weth moves, Eth should not follow. Supply of Weth depends on ETH input; Collateralization Over As the name might suggest, the over-collateralization model demands that users provide more value than they borrow. Popularized by projects such as Synthetix (SNX) & MakerDAO (MKR), tokens are issued based on collateral surplus. The reasons for an over-collateralization system are risk-based assumptions in its operations: since tokens do not have to be of equal value (& carry a capital cost) where if a user takes a $10,000 loan using $10,000 of ETH as collateral & the price of Ethereum falls by 50%, then the user will not be incentivized to pay back their loan. Price Volatility ** a necessary part of any risk mitigation system, liquidation is an automated protection mechanism against unfavorable price movement. , Liquidation ** Loan-to-value ratio is a live measure of the “health” of any position. , LTV Ratio The leading benefit of the Over collateralization model is heavily rooted in risk aversion. However, this design favors protocols>users & diffuses capital velocity. This model is too complex & sensitive for mass adoption. Large upfront demands of collateral keep out the vast majority of the population from participating. The contact LTV monitoring & position balancing can be overwhelming for non-professionals. The more subtle nuance of over-collateralization relates to large amounts of capital that become stale as a byproduct of it having to sit in reserves. That non-productive capital creates a drag on supply capital flows, constricting the system. Collateralization Under (Fractional) *A quick note, this model has been around for decades, & is still in use around the world in TradFI systems (view fractional reserve banking) The most modernized of collateral models; fractional collateral dampens the severity of risk deterrence in over-collateralized models & frees up the constrained capital. Crypto project is implementing this model for its crypto-native CPI & stablecoin project. Attempting to bridge the chasm of on-chain collateral by providing price guarantees through a sophisticated combination of digital asset reserves & algorithms. FRAX It is still too early to assume whether this model will (or will not) work. Types of Collateral in the Crypto ecosystem When thinking about posting collateral On-Chain in cyberspace the options quickly become very constrained; Stablecoins Cryptocurrencies NFT’s RWA’s Stablecoins Are the accountant's best friends. Stablecoin collateral makes the determination of risk & return much more predictable, which in turn makes it better for commercial activity. This will likely become the most common collateral due to its ability to keep its price target. Cryptocurrencies The most obvious form of collateral to be posted on-chain, cryptos innately possess more highly volatile price profiles than stablecoins. This makes it difficult for non-professionals to know when to post & how to manage their on-chain credit profiles. NFTs Lord have mercy. If you think Crypto is volatile, wait until you own a few NFTs. Theoretically, representative of ANYTHING, Non-fungibles are the latest technological boon in digital value experimentation. Slowly making their way into the credit markets through Fine Art (Fidenza) & Community memberships (BAYC), NFTs are a few short years away from becoming viable assets for posting collateral. This might even be NFTs that represent identity which garners creditworthiness through on-chain activity/signaling. RWA — Real-World Assets The most exciting development in the world on on-chain collateral is the introduction/expansion of Real World Assets. The list of RWA assets, & in turn the real market value of those assets, is incredible. - Real Estate- Government Bonds- Corporate Bonds- Stocks- Derivates- Options- Cash Advance- & more… RWA’s tokenization can happen as either Fungible or Non-fungible (Currencies or NFTs), it is all dependent on the issuing entity & their community's preferences. As we “bear” witness to the next phase of the crypto markets, it is important to understand that new systemic risks will constantly be arising in the presence of ever-evolving on-chain credit markets. There is no going back. Prepare accordingly. I hope to see you all on the other side 🥂 Also published here.

Collateral Tokenization: The Evolution of On-Chain Credit

Crypto shadow banking is our industry’s biggest secret, where billions of dollars are borrowed & lent on an un-collateralized basis, between some of the world’s biggest market makers, proprietary trading firms, hedge funds, and lending platforms. 🚩Crypto shadow banking was the source of the massive, liquidity-driven bull market, as well as ongoing collapse & contagion. One of the most dangerous activities in crypto shadow banking, which brought down the whole ecosystem, is the secretive process of #rehypothecation of collateral. 💡 Rehypothecation generates credit from assets & allows multiple transactions to be collateralized by the same asset. For instance, a trader pledges assets as collateral for a loan with a broker and then the broker re-uses it for its own purposes. While the process might seem straightforward, the unstable chain of transactions supported by the same collateral is not well understood. I will provide two examples that vividly illustrate the complexity of crypto shadow banking. 🏦 Perhaps the most famous example of the catastrophic consequence of rehypothecation was the lucrative Grayscale Bitcoin Trust (GBTC) “premium arbitrage”, which led to the demise of 3AC, Genesis, and Grayscale. Till February 2021, the GTBC traded at a premium to the spot Bitcoin price, so an arbitrageur could borrow Bitcoins, make an “in-kind investment” into GTBC, and sell the GTBC shares after 6 months, pocketing the premium. In practice, it worked as follows; 3AC borrows BTC from Genesis and passes BTC to Genesis to create GTBC shares via Grayscale as an Authorized Participant. 3AC then pledges those shares back to Genesis for a USD loan. If the premium is large enough, the loan is worth more than the BTC borrowed at the beginning. 6 months after creating GTBC, 3AC can try to sell to lock in the profits. 🚨 Top crypto project engages with a market maker through a liquidity Service Level Agreement, requiring a treasury loan of native tokens worth $10 million. Market maker sees that market conditions require only half of the native tokens to provide liquidity and decides to sell the remaining half of $5 million of native tokens for . stablecoins Market maker pledges those stablecoins with a prime broker as collateral for a margin account to trade nominal amounts several times the posted collateral. Prime-broker lends out those stablecoins to a hedge fund, against lower quality #collateral, with lower liquidity & volume. Finally, the hedge fund deploys the stablecoins to do a Bitcoin carry trade, of buying spot BTC & shorting BTC futures, earning the yield from contango. ✅ World’s #regulators are tapping into the dark, trying to understand the causes of the collapse. In the current crisis, crypto industry leaders & experts have an opportunity to provide insights into how the industry really operates & transparently explain crypto #shadow #banking activities.

CRYPTO SHADOW BANKING SECRETS: Rehypothecation of Collateral

In legacy financial systems, collateralized debt obligations (CDOs) are, somewhat, complex structured finance products, usually backed by a pool of loans or other assets. These underlying assets serve as collateral should the loan go into default. Though risky and not for all investors, CDOs are generally regarded as a legitimate tool for shifting risk and freeing up capital by financial participants in the traditional finance system. With the emergence of MakerDAO and other blockchain-based solutions, debt obligations can now be created without financial intermediaries. collateralized Collateralized Debt Positions Collateralized Debt Positions (CDPs) are smart contracts that users can leverage to lock their collateral assets (i.e., Ethereum’s ether) to generate another token - often a stablecoin such as DAI. CDPs can be thought of as vaults for storing collateral. To account for the volatility of a collateralized digital asset, DAI is usually over-collateralized, meaning that the deposit amount required is typically higher than the value of DAI. For example, users must lock $20,000 worth of ether (ETH) in order to receive $10,000 DAI, which is meant to account for the potential decrease in the value of the collateral. As a result, even if ether depreciates by 30%, the $10,000 in DAI are still fully collateralized by $14,000 in ether. In order to recover the pledged ether, the user has to return the DAI plus pay a ‘stability fee’. Currently there are more than forty collateralized debt protocols with a combined locked total value  of over . The lion share comprises the oldest CDP MakerDAO with more than $7.6 billion in assets. However, newer entrants - such as Qi Dao (QI) are starting to gain more traction by making its solutions available across a number of different blockchains and Layer Two solutions such as Fantom, Polygon, Avalanche, Solana, and other chains (see table below). $8.9 billion However, solutions that deploy CDPs across more than one chain have to make use of ‘bridges’, often on a mint and burn system. The user - or the protocol - deposits a token into the bridge and it mints the version of that token on the other side of the bridge. Several bridges in the past were hacked, and user funds were drained. As such, investors into CDPs should be aware of the heightened risk these particular solutions might carry. Blockchain-based collateralized debt positions are a promising tool for the adoption by legacy financial system to provide greater visibility into the underlying assets securing the loan. The opacity of the latter has been identified by many analysts as one of the main reasons for the 2008 financial crises, where many institutions were (or claimed to be) unaware of the risks associated to the collateral. The missing link - as of today - however, are solutions that reliably turn ownership documentation (i.e. land titles) into digital assets, suitable to be committed into a smart-contract which can reliably serve as collateral which accessible to satisfy the outstanding principal. The latter might first emerge in developing nation without existing digital ownership instruments - i.e. countries still relying on paper-based ownership record. As with the adoption of smart phones, these regions may leapfrog financialized markets.

DeFi's Collateralized Debt Protocols

Protocolos de deuda garantizada de DeFi

A war has this peculiar thing about it. It’s a social practice that publicly violates the most universally acknowledged ethical restriction - the commandment against killing - and yet is a common vocation. Albeit one that is unquestionably controversial. From a global perspective, only a minor share of countries do not have a functioning military. As a result, a country's overall competency is generally equated with its capacity to wage war in the 21st century. And whether you like it or not, we are all involved: as taxpayers, we fund the war artillery, and as citizens, we recognize and support the troops who put their lives on the line for us during a war. Why? because it requires them to get their hands dirty for us, so we can continue living our convenient modern lives, in our expensive homes. Also, because no one seems to be genuinely disputing this. Whatever perspective we take, war entails death, which makes it problematic, even if it appears to be appropriate and even necessary at times. However, civilian deaths are not inescapable. The military does usually decide on an acceptable number ahead of any planned attack. The resulting civilian deaths may appear to be unavoidable tragedies, yet they are not. Casualties among civilians are not inevitable. They are an option. The assumption that civilians are entitled to distinct protection in times of war is generally presumed rather than established. When in reality, the population inside a projected explosion radius is generally surveilled and estimated by a national military to estimate how many people would die in its attacks. It also establishes a limit on how many innocent citizens each order is allowed to harm inadvertently. This non-combatant cutoff value (NCV), is likely the most stringent rule of war, and it differs by location for political reasons. But the problem is that the idea of civilian or non-combatant immunity is doubly difficult to apply. On one hand, it's impossible to see the difference between the two groups of individuals - combatant and non-combatant - so the issue of whether one should be protected over the other is faulty from the outset. On the other hand, the prioritization of a feature of action – intention – whose meaning and ramifications are far more problematic than most discussions of war ethics recognise. Despite this, the idea is still at the heart of a lot of debate globally. As a result, we must consider why it is so important and what role it plays in war debates. If war is humanity's curse, the massacre of the vulnerable is its most heinous incarnation. Thousands, if not millions, of young soldiers die, and their losses are grieved yet accepted. Conversely, the killings of a handful women, children, or the elderly at the hands of the military elicits outrage. Such killings have been condemned from the dawn of time as brutal, unethical, and atrocious. Ethical prescriptions and international law have both denounced the evil and attempted to limit it if not eradicate entirely. It is only natural to have more concern for our own countrymen as opposed to foreigners. Your love for your friends and family will not and cannot be equal to your love for a stranger hundreds of miles away in a foreign nation. But does this concern and love give you the permission to kill that stranger in order to attain your objectives? I’ll just leave you with this thought here: Although legally veracious, our utilitarian stance is neither courageous nor ethically ambitious for a superpower committed to the belief that all men are created equal.

Civilian Casualties as Collateral Damage: Are they Justified?

Víctimas civiles como daños colaterales: ¿están justificados?

Les victimes civiles comme dommages collatéraux : sont-elles justifiées ?

संपार्श्विक क्षति के रूप में नागरिक हताहत: क्या वे उचित हैं?

巻き添え被害としての民間人の死傷者は正当化されるか?

Vítimas civis como danos colaterais: são justificadas?

Thương vong dân sự do Thiệt hại Tài sản đảm bảo: Có Chính đáng không?

作为附带损害的平民伤亡：它们是否合理？

Polkadot gets its first multi-collateral stablecoin The Acala Dollar, a decentralized, multi-collateral stablecoin, has been by . Acala’s Decentralized Monetary Reserve and aUSD are at the root of Acala’s DeFi ecosystem and will drive the Polkadot and Kusama ecosystems. The first two acceptable collateral assets for aUSD minting are DOT and LCDOT. Hackernoon had interviewed the co-founder of Acala Network, Bette Chan . released Acala discussing the Polkadot ecosystem and building the DeFi ecosystem The stablecoin (aUSD) protocol acts as the Polkadot ecosystem’s Decentralized Monetary Reserve, enabling stable currency to be issued using a basket of collateral reserve assets, similar to how conventional reserve systems backed national currencies with precious commodities like gold. The Acala Swap decentralized exchange and the ‘Homa’ protocol for DOT liquid staking are the DApps created to support and manage the stablecoin. The Swap enables the liquidations that support the health and functioning of aUSD, in addition to standard DEX use cases. The Homa protocol for DOT liquid staking is also a DApp that helps to support aUSD by freeing millions of dollars in liquidity on staked DOT and establishing a brand new DOT derivative that can be used as collateral mint aUSD. Users may also increase their exposure to DOT while generating staking yield with this product. To establish a stablecoin soft-pegged to the US Dollar, the stablecoin protocol employs a multi-collateral backing method. The stablecoin protocol functions as a Decentralized Monetary Reserve, minting a stable currency from a pool of reserve assets. This allows consumers to use aUSD to transact, trade, and conduct services while preserving control of their reserve assets such as ACA, DOT, DOT derivatives, parachain assets, and assets bridged from other consensus networks such as BTC or ETH. A method known as Collateralized Debt Positions (CDPs) is used to create the USD. The value of an aUSD token is fixed to the value of a US Dollar using the aUSD stablecoin protocol on Acala, which includes a set of incentives, supply and demand balancing, and risk management methods. The aUSD also has an on-chain liquidator, which eliminates centralized third-party risk and oracle quality of service, ensuring that oracle price feeds are included in every block. As a result, the aUSD protocol can manage risk more autonomously and efficiently. Every CDP stores the collateral assets and related aUSD debt position deposited by the user who launched the CDP that produced the aUSD tokens. The CDP’s deposited collateral assets are locked, and the user cannot withdraw them until the corresponding aUSD obligation is paid off. Active CDPs are always over-collateralized, with the value of the collateral surpassing the debt amount. A Stability Fee, or interest, is paid to the protocol and liquidity providers (LPs) of USD stablecoin pairings in Acala Swap when a CDP is opened. Understanding Stablecoins - The Backbone of DeFi A stablecoin is a cryptocurrency linked to a stable asset, such as fiat money or precious metal. Stablecoins were created to alleviate the high levels of volatility that characterize the cryptocurrency industry. Stablecoins are classified as fiat-backed, crypto-backed, or algorithmic. Stablecoins with fiat backing, such as BUSD, are linked to regular fiat currencies. They retain a stablecoin peg by holding fiat reserves that may be traded for it. To account for crypto price volatility, crypto-backed stablecoins (such as DAI) over-collateralize their tokens, whereas algorithmic stablecoins govern supply without the need for reserves. Stablecoins are attracting authorities’ attention because ofo their widespread usage and significant market value. Some countries are even developing their own to preserve control over the money. Volatility isn’t the only factor with cryptocurrencies. Stablecoins, for example, are mainly meant to keep a steady price. There is a massive desire for currencies that combine blockchain advantages with the ability to follow a more stable commodity in an environment where coins and tokens may fall overnight. If you haven’t yet begun trading or investing with stablecoins, it’s worth understanding more about them, as well as the advantages and disadvantages they provide. Stablecoins are digital assets whose value is linked to the value of fiat currencies or other assets. You may buy tokens that are tied to the dollar, euro, yen, gold, and oil, for example. A stablecoin enables the holder to lock in profits and losses and transfer value at a constant price on peer-to-peer blockchain networks. The high volatility of cryptocurrencies makes them difficult to employ for day-to-day transactions. For instance, a shop may accept $5 in BTC for a coffee one day but discover that their BTC is worth 50% less the following day. This makes it challenging to plan and run a company around. Previously, there was no method for crypto investors and traders to lock in a profit or prevent volatility without converting bitcoin to cash. Stablecoins were created as a straightforward answer to these two problems. Stablecoins like BUSD and USDC make it simple to get in and out of crypto volatility today. A fiat-backed stablecoin holds a fiat currency in reserves, such as the US dollar or the British pound. Each BUSD, for example, is backed by a genuine US dollar kept as collateral. Users may then exchange money for stablecoins and vice versa at a fixed rate. Arbitrageurs will swiftly bring the token price back to the set rate if it deviates from the underlying fiat. Stablecoins backed by crypto are comparable to stablecoins backed by currency. However,  cryptocurrencies are used as collateral in dollars or another currency as reserves. Due to the significant volatility of the cryptocurrency market, crypto-backed stablecoins over-cover-collateralize their deposits as a hedge against price changes. Smart contracts are used to control the minting and burning of crypto-backed stablecoins. Users may independently audit the contracts, making the process more credible. Some crypto-backed stablecoins, on the other hand, are managed through Decentralized Autonomous Organizations (DAOs), which let the community vote on project improvements. You’ll either have to become engaged or trust the DAO to make the right judgments in this scenario. Consider the following scenario. To create a DAI tied to the US dollar, you’ll need $150 in coin with a 1.5x leverage. Yutilizutilizee your DAI, whichever you choose after you obtain it. You have the option of transferring it, investing it, or just keeping it. You must repay the 100 DAI if you want your collateral back. On the other hand, your collateral  will be liquidated if it falls below a certain collateral ratio or the loan’s value. When the stablecoin falls below $1, holders are given incentives to surrender their stablecoin in exchange for the collateral. This reduces the coin’s supply, forcing the price to climb back to $1. Users are motivated to generate the token over $1, increasing its supply and decreasing the price to incentivize price stability. All crypto-backed stablecoins use a combination of game theory and on-chain algorithms. Because of their unusual combination of fiat and crypto, stablecoins have piqued the curiosity of authorities all over the globe. They are valuable for purposes other than speculating since they maintain a constant price. They may also be easily and inexpensively transported worldwide. As a result, some suggest that stablecoins might compete with fiat, even though a country’s central bank does not directly regulate them. As a result, several nations are experimenting with producing their stablecoins. Since a stablecoin is a cryptocurrency, it will most likely be governed by the same laws that apply to cryptocurrencies in your jurisdiction. It’s possible that issuing stablecoins with fiat reserves may need government authorization. Catch all the breaking news, and Don’t forget to like the story!

Acala Network Launches aUSD Polkadot's Native Multi-Collateral Stablecoin 

Bringing Crypto Lending Back to the People with Under-Collateralized Loans As new lending protocols continue to attract money and NFT-backed loans become more popular, the DeFi lending and borrowing industry has risen dramatically in volume. The much waited under-collateralized and non-custodial loans are coming to DeFi. Hashstack Finance is testing Open Protocol, a first-ever DeFi lending protocol to offer non-custodial, secure under-collateralized loans. The open protocol is based on the Harmony blockchain, allowing borrowers to take out loans with a 1:3 collateral-to-loan ratio. This implies that an individual can obtain up to $300 with only $100 in collateral. Users can extract 70% of the collateral, or $70 in this scenario while trading with $230 in-platform capital. According to Hashstack, DeFi lending is often over-collateralized, with borrowers providing a minimum of 42 percent extra collateral against the loan they want to take out. Hashstack Finance founder, Vinay said: Today, if you want to borrow $100 on Compound, or Aave, or even MakerDAO, you are required to provide a collateral of at least $142. This breaks the primary intent behind loan procurement, and has restrictive use-cases for the borrower. The protocol uses a three-pronged strategy to minimize risks related to crypto lending by: Clear compartmentalization of APY and APR of deposits/loans with that of their minimum commitment period (MCP) Effective asset utilization through diversification of available assets via lending and providing trading capital Under-collateralized loans Borrowers can use different techniques to exchange borrowed tokens for other primary or secondary coins without switching DApps. The open protocol likewise bridged assets from other chains, such as Ethereum and Avalanche C-Chain. What is DeFi Lending and how does it work? DeFi lending services, like traditional peer–to–peer lending platforms, enable users to lend their assets to others. They receive interest payments in return. Since these platforms primarily engage in cryptocurrencies, they receive cryptocurrency interest payments exclusively. Because DeFi platforms work without intermediaries, the monetary benefits are paid directly to the users. Decentralized lending is as straightforward as lending money to others by placing your hand in your pocket. However, the smart contract and decentralized programme represent your mediators and negotiators. For instance: to give out a $10000 loan using DApp, all you would need to do is hit a few buttons, and you’re through. Because you must choose any DApp application that gives a smart contract and borrowers, the overall process is very quick and uncomplicated. Users must choose the loan’s interest rate, enter it into the app, and approve the loan. The smart contract will streamline the whole lending and borrowing arrangement once you’ve found the borrower. What is under-collateralized lending? Collateralized loans are familiar to everyone who has obtained a loan through a regular route or DeFi platforms. Any asset of value that the lender accepts as a security from the borrower is referred to as collateral. A collateralized loan is a loan approved with the security of fully supporting collateral. To put it another way, the collateral exceeds the loan’s principle. On the other hand, an undercollateralized loan is not wholly collateralized. If the loan were defaulted on, the collateral would not sustain the principal. Even though the concept of undercollateralized loans may create doubts and worries, it is designed to safeguard the borrower and the lender’s interests. Since 2017, undercollateralized lending has been the difficult-to-achieve holy grail in DeFi. DeFi in its existing overcollateralized form, as manifested by platforms like Maker, Compound, and Aave, fulfils circular use cases. The only parties ready to post 1.5–3X leverage are cryptocurrency traders. Undercollateralized lending might make decentralized credit markets more affordable to a broader range of use cases, bringing DeFi into the masses. Uncollateralized lending is a significant change for the lending industry, primarily relying on only one of the conventional “five Cs” of credit, namely collateral. Uncollateralized lending is progressively leveraging dynamic remedies to the loan approval dilemma. In contrast, flash loans - that is, ultra-short-term uncollateralized loans, frequently out for only seconds or minutes at a time - have undoubtedly grabbed the crypto-limelight. Although industry analysts were initially optimistic but apprehensive about how on-chain lending could retain quality without collateral, the continued growth of uncollateralized protocols in 2022 has persuaded sceptics. Catch all the breaking news, and Don’t forget to like the story!

Hashstack is Bringing Under Collateralized Loans to Crypto Lending

With the DeFi revolution ramping up, the cryptocurrency community has witnessed the rise of . Commonly used and discussed stablecoins include , , and perhaps the best-known of all, . stablecoins USD Coin (USDC) Paxos Standard (PAX) Tether (USDT) Hypothetically, stablecoins should offer stability and peace of mind since they are pegged to fiat currencies and backed by reserves. With new financial technologies piloting use-cases for the entire cryptocurrency industry, it is apparent that existing stablecoins suffer issues with not only liquidity, fragmentation, and growth, but also with . Tether itself has been investigated and fined by the and continues to fight for its trustworthiness in all financial markets. social trust CFTC An online organization known as has taken initiative in building a decentralized, community-owned, stablecoin which debuts as  SperaxUSD ( ). Sperax’s stable currency has the power to resolve these problems, providing a trusted, high-yield alternative to Tether and other “promising stablecoins”. Sperax USDs Crypto Users Are Losing Confidence in Tether Not familiar with the scandal erupting around Tether? Tether Holdings Limited claimed that its USDT token reserves were held as exclusively US dollars. While having close ties to Bitfinex, the once the most trusted crypto-asset exchange is now on the c-list of celebrity exchanges with a low trust rating in numerous financial markets. Upon investigations by not only the cryptocurrency communities of Reddit, Twitter, and popular forums, the Federal government or more specifically the CFTC discovered that “Tether relied upon unregulated entities and certain third-parties to hold funds comprising the reserves; commingled reserve funds with Bitfinex’s operational and customer funds; and held reserves in non-fiat financial products.” As a result, the government is . Now there may be reasonable excuses for why Tether would switch around the wording on asset reserves details within the company-owned sites, they continue to play an important role in providing users with a stable currency pair. fining Tether and Bitfinex $42.5 million What if you could stop worrying about the market action, buying high and selling low, and stick your money into a stablecoin that continues to earn interest while being risk-free similar to a bank savings account, yet better? Well, I hate to break it to you but you may have missed an earlier statement where I mentioned Sperax. The cryptocurrency community has called for a trusted organization that provides an easy-to-use interface with automatic interest on stablecoin pairs. SperaxUSD is able to provide users with high-interest returns on holdings similar to staking. Sperax allows for liquidity mining and better yet, their stablecoin isn’t the only thing that is gaining attention. Sperax’s DAO token, , can be bought, sold, and traded on numerous online exchanges. SPA provides a great governance mechanism with their decentralized autonomous organization (DAO) and is integral to the algorithmic strategy, as users can always mint and burn USDs for $1 of SPA. $SPA How Sperax Solves Tether’s Problems Tether is a case study of what goes wrong when a cryptocurrency is controlled by a single entity. When that entity is suspected to attack, it can jeopardize the funds of all investors. USDs is a crypto-collateralized algorithmic stablecoin that takes a different approach. As a true DeFi asset, it is not subject to exploitation by any centralized entity. In fact, Sperax is working toward fully decentralizing every aspect of its protocol. For example, it is presently keeping community funds in a multi-sig wallet that uses more than one admin key to protect against malicious actors. Other protocols use only a single key. But in the future, . Instead, the community will have complete control. there will be no admin keys at all Key Benefits of SperaxUSDs Below, we discuss additional advantages of SperaxUSDs over traditional stablecoins and why you should consider looking into Sperax. Transparent Since USDs is overseen by a DAO, all transactions are recorded on the blockchain. That means that any member of the public can view the record. Contrast that with Tether, which not only keeps its records in a black box but has actively interfered with public access. Cheaper Transfer Fees While the problems we discussed with Tether involve its centralized nature, DeFi itself faces challenges of its own. One of those is steep costs. Ethereum transaction fees, known as “Ethereum gas,” have reached record highs this year and last, . To say that the cost of gas has become prohibitive to many users would be an understatement. rising to over $500 This is another area where Sperax is turning to innovative solutions. Thanks to the use of the scaling platform, transferring USDs is much more cost-effective than transferring many other decentralized cryptos. Arbitrum L2 The reason Arbitrum is so affordable has to do with the efficient way it runs its computations. Other platforms require that all nodes on a public network run full computations; Arbitrum does not. Calculations take place off the chain, but the results are publicly available on the chain. So, it is the best of both worlds. The reduction in fees is dramatic. In fact, there are virtually no costs for gas. Sperax’s LM Strategy Benefits All One of the most exciting opportunities that Sperax presents is the chance to earn passive income by participating in (LM). Sperax liquidity mining Indeed, the Sperax Team posted an on this strategy at the end of September with the APY schedule. As a liquidity provider, a participant can lock collateral in a liquidity pool. The longer the lockup period, the higher the APY. update This LM strategy helps maintain the liquidity that other novel stablecoins lack. It also minimizes slippage, ensuring that the prices buyers and sellers see are close to those they receive. This can make for more predictable and profitable trading. In its October , the Sperax team said, “We will launch Liquidity Mining as soon as we submit $USDs contracts for a final audit. Right now we target a mid-November launch on Arbitrum for our SPA/ ETH pair.” update Tighter Peg Due to Lower Fees Arbitrum While Arbitrum keeps transfer costs for USDs affordable, cost savings are not the only advantage. These lower fees also allow for a tighter peg for USDs. The more closely and consistently a stablecoin is pegged to its corresponding fiat currency, the more stable and reliable it is. Earn Continuous Interest Without Needing to Stake New to staking? When you stake crypto, you lock funds as collateral in a crypto network. With most cryptos, users need to manually lend their collateral out. This can be a complicated, expensive,  and daunting process for novices. But with Sperax, the protocol takes care of collateral lending automatically. That way, the process is accessible for investors of all skill levels. In fact, all you need to do to earn passive income from USDs is to hold it. Not only that but yields are paid out whether the market is trending up or down. The reason this is possible is that USDs yields are delivered through a combination of DeFi aggregators and other strategies instead of leverage. What is Next for Sperax? This is an exciting time to follow along with Sperax. As discussed before, the team hopes to launch SPA/ETH on Arbitrum in mid-November, and once the final audit takes place on USDs contracts, liquidity mining will begin. Sperax also offers a mobile app called Sperax Play. On this community hub, you can enjoy the convenience of a DeFi wallet, create hubs for your friends, mine cryptos, and more. This platform is growing by leaps and bounds, with 26,000 new users joining just in October. Soon, a Marketplace will be opening on the app that allows you to enter raffles and bid on non-fungible tokens (NFTs). You can do both using XP, which you can earn by inviting users to the platform. Users who want to submit feedback on USDs can do so once it is available on the testnet. Sperax is Ushering in a More Liquid, Transparent, and Stable Experience While stablecoins have played a vital role in the crypto economy, there is no denying that existing coins have largely fallen short of their promises. Cryptocurrency is very much in its early stages—and the broader world of decentralized finance is in its infancy. What happened with Tether has shown us that many of the weaknesses we still see in crypto stem in part from centralization itself. Thankfully, new solutions are evolving fast. With its decentralized structure, its efficient consensus protocols, its exciting liquidity mining strategy, and its dedicated community, Sperax is here to show us the shape of things to come. Share your knowledge, open-source your projects, participate in a community (any community!), and maybe just maybe publish a blog post about it. Knowledge is Power! Written by can be reached on Instagram s, on , and Twitter for updates on new articles. Nicholas Resendez @nirhola LinkedIn @nickresendez

SperaxUSD: A Crypto-Collateralized Stablecoin Challenging Tether

Decentralized finance plays an increasingly important role in the Ethereum ecosystem with the adoption of classic financial operations such as borrowing, lending, and various derivative issuance, as well as instruments with stable value creation. DeFi is in the early stages of existence, and the overall efficiency and variety of decentralized services are low compared to the fiat financial world. However, the programmable and decentralized nature of such services provides the potential for massive growth in the coming years. DeFi services have different purposes and functionality, but their token economic models are mostly weak, such as simple governance token economic models, and do not allow long-term value capture. The majority of their token value is based on speculation without sustainable organic drivers. While a lot projects weathered the storm of cascading liquidations, Unit Protocol proved the legitimacy of its business model with its USDP stablecoin. What is $USDP? $USDP is a dollar pegged stablecoin similar to other stablecoin offerings like $DAI. However, one of the concerns increasingly associated with $DAI is it's growing reliance on centralized assets (e.g. USDC, USDT, WBTC, etc.) as collateral. One of the main differentiators for $USDP is the diverse set of cryptocurrencies that are allowed for collateral giving it a healthier mix of decentralized collateral. USDP token address: 0x1456688345527be1f37e9e627da0837d6f08c925 How is the peg maintained? $USDP is pegged against the US dollar in a free-floating peg. Meaning that the value of $USDP although pegged against the US Dollar, it will still experience low level fluctuation in value. $USDP maintains its stability through a combination of external (market), internal forces, and incentivization tools utilized by $DUCK token holders & Protocol Team. Every issued $USDP is overcollateralized, meaning that at any given point of time, the value of provided collateral is higher then the value of circulating $USDP. Unit protocol takes into account that the market can be self-regulated and ensures that the price of stablecoin reaches its peg. Unit protocol lets users issue the $USDP stablecoin for a provided collateral. Instead of focusing on the stablecoin price, it focuses on the value of $USDP to ensure that it reaches the peg over time. This mechanism allows Unit Protocol to scale in the long run. What if collateral value drops? Liquidations In Unit protocol, every USDP is fully backed by provided collateral. If the debt/collateral ratio exceeds a Liquidation Ratio (LR) for a CDP, it will be subject to liquidation. Anyone can trigger liquidation by sending a trigger transaction. There are liquidation bots that consistently monitor CDPs and trigger liquidations if the stated condition is met. After a CDP is triggered for liquidation, a Dutch auction starts for underlying collateral with a linear decrease in price. (the price decremental step can be different for various assets, but for the most amount of assets it is ~0.09% decrease per block). Every participant can buyout the part of the collateral for the current price by paying the USDP debt for a liquidated CDP. USDP debt is equal to borrowed USDP amount plus the liquidation fee in % from this amount. After collateral realization, the remaining part is returned to the borrower's address, their USDP debt is burned, and the liquidation fee is sent to the governance pool address for fee distribution. To stay current with our updates, follow our Twitter and join our Telegram & Discord communities! Discord: https://discord.gg/t6rWn85fu7 Telegram: https://t.me/unit_en Twitter: https://twitter.com/unitprotocol Images by: Cryptoduckzilla Cover image: https://chubk.com/unit-protocol-duck-performance-model-analysis Docs: https://docs.unit.xyz/

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