Why back 22 stable tokens instead of just focusing on strengthening USDU?
Diversified Stability: Supporting 22 stable tokens instead of just strengthening USDU serves an important purpose.
This approach provides an easy way for 22 major economies to join the network, helping local businesses accept stable tokens and deal with volatility.
For example, people wanting to convert value into their local currency can get the equivalent amount in the local-pegged stable token from someone in the network.
What keeps Unit Network stable tokens balanced?
Stability Mechanism: Unit Network's stable tokens use an off-chain oracle to import fiat currency prices, pegging the stable token to that value.
Purchase Process: Level 1 tokens like BTCU, ETHU, DOTU are used for purchasing, but UNIT cannot mint stable tokens like USDU or EURU.
Overcollateralization: Stable tokens remain overcollateralized with collateral that tends to appreciate in fiat value over time.
Preventing Exceeding Value: Users can mint more tokens to prevent exceeding the pegged market value, acting as a significant sell wall.
What criteria are used to choose digital assets for wrapping into Unit Network as reserve assets, used for purchasing and backing stable tokens?
Selection Criteria:
Native tokens from permissionless, public blockchains widely recognized as stores of value.
Technical Integration: Some blockchains are easier to integrate technically.
Community Preference: The Unit core team trusts the community to decide which assets and blockchains to use.
What if one of the reserve assets in the stable token bank reaches zero value?
Unit Network uses 15 digital stores of value for backing, like BTCU, ETHU, DOTU, etc.
If one or more reserve assets decline, the impact is reduced because of the strength of the whole basket of digital assets.
What happens if a stable token becomes under-collateralized, despite diversification?
Under-Collateralization Scenario:
If the collateral backing a stable token drops below a 1:1 ratio with the token's oracle, it creates an arbitrage opportunity on exchanges.
Individuals can:
Purchase the under-collateralized stable token directly from the sale page with digital assets at the oracle value of the associated fiat currency.
Acquire it from TOKEN-USDU exchange pools to get the current circulating supply.
Both options aim to raise the stable token price to its oracle value by:
Infusing the bank with new reserves at the oracle price.
Bidding up the existing circulating supply of the stable token.
What happens if a stable token becomes greatly over-collateralized?
Increased Value of Collateral:
As the value of digital assets backing stable tokens goes up, the collateral ratio also increases to provide full backing.
Overcollateralization Scenario:
When a stable token becomes 10 times overcollateralized:
Holders can exchange one stable token for one fiat currency unit worth of reserve assets from the stable token bank.
This further collateralizes the stable token, as the remaining reserve assets back a smaller circulating supply.
Example:
If BTC is trading at 20,000 euros/BTC:
Purchasing 20,000 EURU from the EURU bank with 1 BTCU results in a rise in BTC value to 200,000 euros/BTC.
Redeeming 20,000 EURU for 20,000 euros of BTCU from the EURU bank leads to an infinitely collateralized EURU supply.
What happens if the per-token treasury value of a stable token exceeds the fiat currency oracle?
Unlike many other tokens on Unit Network, stable tokens do not have a treasury. All assets used to purchase stable tokens are directed to the stable token’s bank.
How does someone redeem from the bank when the stable token is overcollateralized, ensuring that the funds stay secure?
Redemption Mechanism:
Stable token banks have a feature where if a user sends a stable token to the bank, the bank sends back an equivalent value of crypto assets.
This is possible when the bank is 10 times overcollateralized.
Bank Operations:
Stable token banks are automated, non-human accounts with specific predefined actions.
Contrast with Other Token Banks:
Unlike other token banks, operators can't transfer or manage digital assets within stable token banks.
Future Development:
Users will be able to build upon tokens/user accounts to program additional functions and behaviors beyond the initially programmed ones.
Why haven't others used this approach before, considering it seems like a simple and logical solution?
Purpose-built Blockchain:
Choosing a purpose-built blockchain over a generic chain allows precise customization to meet specific needs.
Unit Network's Unique Features:
Non-custodial bank and treasury.
Decentralized wrapping of various open blockchain tokens.
Decentralized custody of underlying unwrapped assets managed by vaults.
Leading Technology:
These features position Unit Network's technology far ahead in the crypto space.
Do stable tokens on Unit Network produce a yield?
Stable tokens on Unit Network don't yield directly.
Staking USDU in a liquidity pool with another token lets users earn trading fees.
See the "Liquidity Pools" section for more, including impermanent loss risk.
Why do people lock up digital assets to create stable tokens, even though holding these stable tokens doesn't offer a direct yield?
Participating in the Token Economy motivates individuals to lock up digital assets and mint stable tokens.
How can USDU become less dependent on token economy users and attract more users from different groups?
De-correlation and Expansion:
USDU aims to become a stable and reliable digital currency.
Integration into various operations by individuals, businesses, and financial systems can extend its value beyond the token economy.
Greater recognition, trust, and usage in traditional sectors lead to broader acceptance.
This paves the way for a larger user base and applications in diverse economic activities.
Can USDU be used outside of Unit Network, like USDC?
Integrated into Polkadot, USDU will gain the capability to seamlessly transfer and function within the broader global blockchain ecosystem.
How is USDU different from MakerDAO's DAI or other asset-backed stable tokens?
Collateral Acquisition:
USDU can be bought with decentralized digital assets, maintaining them as collateral.
DAI and similar stable coins involve lending, borrowing, leverage ratios, and complex management.
Decentralized and Diversified Backing:
USDU relies solely on decentralized and diversified digital assets for backing.
DAI is backed largely by custodied assets like WBTC and USDC, which brings centralization risks.
Unit stable tokens are unique in being backed 100% by decentralized diversified digital assets.
How does USDU differ from UST, and is USDU an algorithmic stablecoin?
USDU doesn't rely only on code for stability; it's backed by tangible digital assets.
This makes USDU more sustainable and creates a stronger and more fundamentally sound model compared to algorithmic stable tokens.
How does USDU bring decentralization to the Unit Network ecosystem?
Infrastructure on Unit Network: USDU achieves decentralization through its infrastructure on the Unit Network, a purpose-built blockchain.
Decentralized Governance: Unit Network operates with decentralized governance mechanisms, involving the community in decision-making.
Non-Custodial Framework: USDU is bought with decentralized digital assets, removing the need for a centralized custodian.
Distributed Infrastructure: Unit Network's blockchain runs on a distributed network of nodes, reducing the risk of a single point of failure.
Community Participation: Community involvement in staking, liquidity provision, and governance contributes to USDU's decentralization.
Overall, USDU aims to embody decentralization principles, offering users a stable token backed by a decentralized and resilient infrastructure.