Unit Protocol is a decentralized borrowing platform that utilizes the Collateralized Debt Position (CDP) model. This model allows Unit Protocol's users to mint its native stablecoin USDP from a wide variety of crypto assets.
Many crypto holders own a diversified portfolio of assets, including a variety of capitalized and under-capitalized tokens. Popular crypto assets are easily sold and borrowed, allowing for instant access to liquidity.
However, less liquid assets are difficult to sell quickly, yet they represent a significant measure of value in the crypto asset world. Until now there has been no way to borrow liquidity for such assets, limiting their utility in DeFi applications, funding, and usability.
Unit Protocol offers multiple use cases, of which some key use cases are:
Access to Capital: Centralized financial services require extensive KYC, admin, credit check processes in order to provide financial services. These practices in addition to other political and social boundaries create underserved communities that have little or no access to financial services. Unit Protocol provides access to financial services to anyone anywhere, regardless of their socioeconomic status.
Capital Efficiency: The Crypto market is constantly fluctuating. This fluctuation presents opportunities for traders to utilize trends for profit generation. Unit Protocol allows traders to lock in the value of their excess collateral to generate stablecoin (USDP) and invest in other crypto assets. Therefore protecting the desired price for collateral and maximizing returns in the Crypto market. Leveraged yield farming is possible thanks to the robust USDP model as well.
Opportunities through Stability: Amidst the volatility of the crypto market, Unit Protocol provides the possibility of minting the USDP stablecoin. The USDP is pegged against the US Dollar stabilizing its value at ~$1 regardless of the market movements. USDP is widely used across different DeFi protocols to generate stable USD-denominated yield.
Transparency Above and Beyond Traditional Financial System: given the built-in checks and balances provided by the blockchain, all transactions are shared on a public ledger for anyone to view. Moreover, you can view and go through Unit Protocol's smart contracts (link) to see the technical details behind the process.
There is no fee for opening a new collateralized debt position (CDP). Fixed fees for issuing loans are un-necessary, reduce usability, and may significantly limit short-term loan demand. Unit Protocol provides a zero issuance debt fee, as well as a zero close debt fee.
There are however two fees that are tied to loan transactions you complete. Those are stability fee and liquidity fee.
This acts as a risk parameter, it indicates the inherent risk in creating $USDP using different collaterals. During the last update, the stability fee was set to 1.9% for all collateral. This fee represents the cost of $USDP debt per year. It capitalizes during every action, which reduces debt/collateral ratio like withdrawing collateral and borrowing more $USDP.
The Stability Fee is continuously compounding interest and totals the given percentage at the end of the year. For example, if a user borrow $100 worth of $USDP at 2% stability fee, they will have to pay back only 102 dollars at the end of the year.
This is a fee that will be calculated as a percentage from the loan and is paid by the borrower if liquidation occurs. This fee is added to the vaults total outstanding generated $USDP, which will be deducted from collateral if liquidation ever occurs. The proceeds from the liquidation fee is sent to the governance pool address for fee distribution.
The penalty is necessary to prevent Auction Grinding Attacks, which includes exploiting the process by purposefully creating high risk collateralized debt position and intentionally allow the position to go unsafe, causing the collateral to go to the liquidation auction. $DUCK Burns While the governance is under development, all the collected fees will be used to buyout DUCK from the open market and burn it.
Upon launch of the $COL governance token 70% of the initial supply was reserved for staking, of which 70% has been burned. This has resulted in a reduction of almost 50% of the total supply. Upon migration to $DUCK a 100:1 split occurred, leaving approximately 4.1% of initial supply left for staking.
20% of the token allocation was reserved for the team, subsequent token burn however increased this share to 37.9%. Other 10% of supply were distributed via the Lockdrop Offering. It is important to note, that currently there is no inflation of $DUCK token.
Team (5 year linear lock*)
*Team tokens are released gradually, block by block with during 5 years.
The $DUCK token is the governance token and core token of the Unit Protocol economy.
Unit Protocol will undergo a smooth transition towards DAO, where decentralized governance will play a significant role in Unit Protocol decision-making system and add stability to the system, so it is essential to incentivize $DUCK stakers and help them be involved in the voting process.
$DUCK token holders will be able to stake their tokens to participate in governance and collect protocol fees. We are working on the governance, and while it is under development, all the collected fees will be used to buyout DUCK from the open market and burn it.
DUCK token address: 0x92e187a03b6cd19cb6af293ba17f2745fd2357d5 USDP token address: 0x1456688345527be1f37e9e627da0837d6f08c925 Fees treasury: 0x9CF0389322fedD2a3DCEACac0C3108c8151615A3
Since the inception, our goal always was to allow $DUCK holders to capture value from Unit Protocol operations.
Previously it was done via a burning mechanism, and over the course of 6 months, we have burnt 391,408,535 $DUCK tokens, with an estimated value at the time of writing of almost $38 million.
So, what is qDUCK, and how does it work?
Unit Protocol collects two types of fees - Stability Fee & Liquidation Fee. These fees are collected inside the protocol treasury. You can see statistics of fees collected on the community-run quackprofits.xyz website. So far Unit Protocol generated a total of 4,947,985 USDP in profits.
qDUCK smart contract uses the protocol treasury to buy $DUCK tokens from the open market every set interval of time and adds them to the qDUCK pool, distributing profits to $DUCK stakers.
How to get qDUCK?
Prior to Summer of 2020, Unit Protocol was known as ThePay.cash and utilized the $COL token for governance, staking, and collateral for minting of $USDP. After some time it became apparent to the team that this brand did not adequately capture the core concept of the project, and the Unit Protocol was born.
As part of this transition a governance vote took place which resulted in the migration from the $COL token to the new $DUCK token for governance over Unit Protocol. Along with this migration came a decision to do a split, resulting in a 100:1 ratio from $COL to $DUCK.
A special migration DApp was developed to facilitate the swapping of $COL to $DUCK tokens. https://migration.unit.xyz/
$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 utility stretches well beyond investment and income generation use-cases, but mainly USDP drastically improves capital efficiency, and here we mention key features you can use today:
You can triple ROI of your farms using high-TVL borrowing.
Why simply hold a token when you can earn additional cashflow even if the base asset is unproductive or offers a low yield. Use this token as a collateral and stake borrowed USDP.
It is a nightmare to miss a great investment opportunity due to capital constraints. But what if you can't or unwilling to exit existing positions?
With Unit Protocol, you can use your existing portfolio to borrow $USDP and invest in other instruments or increase your current position.
Similar to other dollar-pegged stablecoins on the market there are a number of opportunities to earn yield on your $USDP or swap for other tokens. Below is a selection of some popular options:
$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.
If we don't take into account price recovery, there are only there possible outcomes:
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.
The main principle to keep in mind here is the collaterailized debt position (CDP). This is calculated by dividing the amount you are borrowing or debt over the collateral you are using.Your debt is how much $USDP you received in return, while your collateral is the token you have deposited to secure the USDP loan.
The initial CDP is called Initial Collateral Ratio (ICR). This tells you how much collateral you need to add given the current prices at the time of the transaction.We will walk through an example below where $ETH is deposited to borrow $USDP.
In our example, the ICR is 77%, which means that a user can borrow a value of $770 for every $1000 value in $ETH in deposit. The risk to the user is captured in two main points, one is the liquidation ratio as seen here, and second is Ether’s real time fluctuation in price. Once the initial transaction goes through and the user has borrowed $770 worth of $USDP, the lower the price of $ETH gets, the higher the risk of reaching the liquidation rate of 78%.
Crypto prices fluctuate, quite dramatically at times, meaning that the ICR that the users start with will fluctuate up and down. In this example the price of $ETH is currently $1,861.60, but in a few hours decrease by $100. We can apply some simple math and see that the lower the denominator on debt / collateral gets the higher the percentage representing the CDP be. The result of an increasing CDP depends is that it increases your risk of liquidation depending on how close your are to the liquidation rate.
Let us use $ETH as an example again to explain CDP risk, a user deposits $1000 worth of $ETH and borrows $770 worth of $USDP making their CDP ($770/ $1000) at 77% then they will be just 1% away from the liquidation rate of 78%. If $ETH's value were to decline by 5%, which is not uncommon, it would reduce the value of the collateral $950, raising the CDP to 78.1%, and triggering the liquidation process. A more realistic approach is to not borrow the fully allowed amount of 77% but to give yourself some reasonable buffer for regular price fluctuations.
A safer CDP might be 50% CDP and borrow $500 $USDP over my $1000 $ETH collateral ($500/$1000 = 50%). So if a similar scenario of a 5% drop in $ETH value occurs, then my CDP will be safe at 52%. This would mean their CDP would be protected from a lot of the regular $ETH price fluctuations leaving them to only intervene in the more extreme situations.
Applying the principles above to our initial borrowing process the user wants to deposit 1 $ETH as collateral and borrow $USDP against it. Unit Protocol offers a simple slider to choose the desired level of risk associated with the $USDP borrowed. To ensure that the desposited capital is unlikely to get liquidated it is to stay reasonably far away from the CDP ratio, in this example 50% is sufficient. This allows the users to retain their $ETH, take out a $USDP loan to invest or use while relatively assured that their deposit is safe from risk of liquidation.
After $USDP has been borrowed, the user can either repay it entirely or pay some of it to reduce its overall CDP risk.
As discussed above it is important to consider the liquidation rate of the asset you are collateralizing when executing the CDP transaction.
To reiterate, when the asset was desposited $ETHs liquidation rate is 78% and as a result the user should consider collateralizing well below this percentage. This will safeguard your deposit from liquidation during price fluctuations. If a situation arises where your initially conservative collateralization rate becomes more risky due to extreme price fluctuation and your deposit is at risk of liquidation you can take action to prevent this from happening.
Consider a scenario where the users has collateralized $ETH at 65% ($650 debt/$1000 collateral) to borrow some USDP. Then, a sudden $ETH price drop of 15% reduces their collateral to $850 and therefore the CDP to 76%. This is now just 2% away from the liquidation rate. To reduce this risk the user can simply pay back some of the debt to reduce my CDP rate by:
If the user wanted to repay the entire amount instead, they could scroll down to the "Repay USDP & Withdraw collateral" section and select the full $USDP amount that they borrowed initially and click “Execute” to pay it back.
Alternatively, the user could also choose to take on more risk by borrowing more $USDP against the existing collateral if they are not at the maximum CDP allowed. The basic idea is that users have complete freedom in borrowing, de-risking, or paying debt back. It's up to the user to decide on the best course of action given risk profile, market fluctuations, and your investment preferences.
At Unit Protocol users can deposit any one of a number of accepted forms of collateral and take out a loan against that collateral in $USDP. Every $USDP is fully backed by by the Collateralized Debt Position (CDP) set by the user.
If a users debt/collateral ratio exceeds a Liquidation Ratio (LR) for a CDP, it will be subject to liquidation. This is why it is essential that users set their collateralization ratio appropriately and monitor their positions to ensure they're not at risk for liquidation.
When a liquidation is triggered the collateral deposited will be sold to cover the users debt and liquidation fee will be incurred.
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. His USDP debt is burned, and the liquidation fee is sent to the governance pool address for fee distribution.
Liquidation is necessary to ensure that $USDP can maintain its price peg with the US Dollar. Key to achieveing this is ensuring that $USDP is backed by enough collateral value to maintain this peg. Liquidation ensures that vaults that are under collateralized are closed out
Leveraged yield farming is a concept allowing farmers to lever up their yield farming position, meaning to borrow external liquidity and add to their liquidity to yield farm.
In simple terms - you can earn income on your asset and use your LP position to borrow extra liquidity and reinvest these extra funds. Given that your asset APY is higher than your loan APR, you can get a 100-200% boost on your profits. Let's see an example.
At the time of writing, the Stability Fee (APR) of your loan using yvcrvUSDN LP position is 2.9%. But you can earn more than 14% APY on your USDP stablecoin using the same farm (crvUSDN). So you can invest USDP in crvUSDN and earn the difference, but then you can take a USDP loan again and repeat the process. The caveat is - you can't borrow 100% of your LP position; hence every next loan is smaller in size.
Finally, if you repeat the process 10 times, your expected yearly return will be 45%, is three times higher than the base APY of crvUSDN farm (14%).
Initial attempts to use Keep3r as the primary oracle to receive our collateral price in ETH and Chainlink oracle to receive ETH price proved to be unreliable and it was determined that a new solution was needed.
In April 2021 Unit Protocol undertook an major oracle upgrade to address this issue. During that time all $USDP borrowing limits were temporarily set to zero for all collateral except ETH, which used Chainlink. Upon completion all oracles had been successfully migrated to Chainlink. This solution will allow for adding even more collateral in the future and reduce the overall expense associated with retreiving data from it. By inheriting the security underpinning Chainlink oracles Unit Protocol is using the most accurate pricing data possible.
As a backup to the Chainlink price oracles Unit Protocol maintains a Keydonix-based oracle solution which can relies on a time weighted average price (TWAP) from Uniswap v2.
Various stats on Unit Protocol:
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