UXD Protocol

From DefiLlama
Jump to navigation Jump to search

UXD Protocol is an algorithmic stablecoin, which is fully backed by a delta-neutral position. It’s built on top of derivative DEX’s (i.e. Mango Markets) on Solana, to be able to collateralize the stablecoin. Users can deposit assets into the protocol and receive the equivalent dollar amount of the deposit in UXD. As of April 2022, the protocol has $34.1 million in total value locked (TVL).

The UXD Stablecoin

How it works

The UXD stablecoin is backed by a delta-neutral position. When a user deposits an asset into the protocol, the protocol enters into a short Perpetual Future price. UXD equivalent to the dollar amount of the deposit is issued to the user.[1] The perpetual futures position, which was opened once you deposited assets to redeem UXD, generates yield (depending on market conditions) due to the funding rate of perpetual futures.[2]

Example

For example, if a user deposits $100 worth of SOL, the protocol enters into a corresponding short Perpetual Future position on a derivative exchange. If the price of SOL increases by $1, the users long position (the SOL that the user holds which was deposited into the protocol) increases by $1 as well. At the same time, the worth of the short position (the short Perpetual Future opened by UXD Protocol once the user deposited) will decrease by $1. Therefore, the total change to the users position is 0, making it delta-neutral.[3]

Since theoretically the value of the users position is stable (barring depegging and undercollateralization) and their UXD is fully collateralized, users can redeem their UXD at any time for their deposited crypto assets. Following the example from above, at any time the user can deposit 100 UXD to redeem $100 of SOL.[4]

Staking

Those who stake UXD, the stablecoin, receive yield from the funding rate of the perpetual future position. When the funding rate is positive, yield will be distributed to the stakers and to the insurance fund. When the funding rate is negative, the insurance fund will be used to pay out the negative funding rate to UXD stakers, so that they do not have to pay out interest.[5]

Collateral Assets

Currently SOL, BTC and ETH are accepted as deposits.[6]

Insurance Fund

The insurance fund exists so UXD holders do not have to pay negative funding rates. It is funded by part of the yield generated through positive funding rates. If the fund is depleted an auction of UXP tokens will be held to replenish it. The fund will be managed by the forthcoming UXP DAO.[7]

Risks

As a decentralized stablecoin, UXD holds the risk of depegging.[8] Below are some reasons why a depegging may occur:

Smart Contract Risk

If there exists a critical bug in the smart contract written by UXD protocol or the underlying derivative exchange, user funds may be lost and UXD may be undercollateralized.[9]

Negative Funding Rates

If funding rates are negative for a prolonged period, this could lead to a depletion of the insurance fund and subsequent undercollateralization of UXD.[10]

Insurance Fund Asset Management Risk

The insurance fund will be used into asset management strategies. If funds are lost during these strategies this could lead to undercollateralization.[11]

Insufficient Liquidity to Exit UXD Positions

If the underlying derivatives exchanges experience illiquidity, and at the same time UXD holders attempt to redeem their crypto assets, there may be insufficient liquidity to redeem said assets.[12]

Supply Demand Imbalances

There may be cases in which UXD trades off its peg on secondary markets, due to front-end application bugs or market conditions caused by an imbalance of supply/demand.[13]

The UXP Governance Token

The governance token UXP is required for the governance of UXD Protocol and will control decisions to be made through the UXP DAO. UXP token holders will be able to vote on proposals that contribute to the growth of UXD Protocol.[14]

UXP Token Schedule

Total Supply

10,000,000,000 UXP[15]

Unlocks

Investors: 15% Pre-Seed Investors, 5%: 25% vested and released on 11/14/2022, remaining vested and released monthly over 3 years linearly. [16]

Seed Investors: 10% : 50% vested and released on 11/14/2022, remaining vested and released monthly over 1 year linearly.[17]

Websites and Socials

Website: https://uxd.fi/

Twitter: https://twitter.com/UXDProtocol

Medium: https://uxdprotocol.medium.com/

Github: https://github.com/uxdprotocol

Docs: https://docs.uxd.fi/uxdprotocol/

Sources