Cryptocurrencies Decentralized global transparency programmability Functions of money MediumofExchange StoreofValue UnitofAccount Price volatility BTC USD Stablecoins Price is pegged to another stable asset ID: 930754
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Slide1
Lecture 22:
Stablecoins and Synthetic Assets
Slide2Cryptocurrencies
Decentralized, global transparency, programmability
Functions of moneyMedium-of-Exchange, Store-of-Value, Unit-of-AccountPrice volatility
BTC / USD
Slide3Stablecoins
Price is pegged to another stable asset
Fiat currencies – relatively “stable”Inflation
Tether / USD
Slide4Price Stabilization Mechanisms
CBDC: centralized fiat-equivalent digital currencies
Collateralized stablecoin: use fiat, commodity, crypto as collaterals
Non-collateralized stablecoin: algorithmic peg
Slide5Price Stabilization Mechanisms
Collateralized
Non-collateralized
Stablecoins
CBDC
Fiat-backed
Crypto-backed
E-CNY
Tether
DAI
Algorithmic
Basis
Digital currencies
Decentralized
Diem
E-Krona
AMPL
Slide6C
entral
Bank Digital Currencies
Price pegged to the value of that country's fiat currency
I
ssued and regulated by a nation's monetary authority
May
not need
blockchains
Slide7Fiat-collateralized
Stablecoin
Uses fiat money as collateralExample: TetherSimple, 1-to-1 USD-Tether exchangeA centralized custodian to manage collateral and issue new
stablecoins
Slide8Crypto-collateralized
Stablecoin
Uses different assets as collateralExample: MakerDAO
Deposit ETH to open collateralized dept positions (CDPs)Mint DAI tokensReturn DAI tokens to unlock ETHOver-collateralized problem
Slide9Non-collateralized Stablecoins
Algorithmic
supply adjustment
When price > $1, increase supplyWhen price < $1, decrease supply
Slide10Non-collateralized Stablecoins
Protocol layer
Variable mining rewards: When price > $1, increase mining rate (by increasing mining rewards)Lock-in mining: control mining rate when price < $1
Example: UST (Terra USD). Third most popular stable coin after USDC and USDT Application layerSeigniorage Share: adjust supply through shares
Slide11Synthetic Assets
D
igital representations of derivativesCryptocurrency: WBTC, WETHStock: Apple, TSLA
Commodity: gas, goldIndex: ETF
Slide12Synthetic Assets
Price is pegged to another asset
WBTC / USD
WBTC / BTC
Slide13Example: Mirror Protocol
DeFi
protocol on the Terra network RolesMinter: generate synthetic assets (called
mAssets) as CDPs (collateralized debt positions)Trader: buy and sell mAssets Liquidity provider: provide mAssets
and
TerraUSD
to
TerraSwap
Staker: stake liquidity tokens or MIR tokens
Slide14Example: Mirror Protocol
Mint: deposit
TerraUSD or mAssets to mint new mAssets
Open collateralized debt positions (CDPs) for mintingMaintain minimum collateral ratio (MCR)Minting price is pegged to OracleBurn: burn mAssets to get collateral returned
Trade: similar to Uniswap
Trading price is determined by reserve ratio
Slide15Liquidation
As the price of an asset rises, minted
mAssets may fall below the MCR and trigger a liquidation eventWhen that happens, the Mirror protocol will automatically sell collateral to buy
mAssets until the collateral ratio reaches the MCR againThis buying pressure created for mAssets will drive prices higher and will help the price of mAssets
converge with the price on the global markets
Slide16Liquidation
When the minted asset’s price rises and the collateral ratio falls below the minimum collateral ratio, the protocol will sell collateral to buy back shares of the minted asset to burn.
Slide17Example:
Synthetix
Use governance tokens SNX as collateralMint: deposit SNX to mint sUSDTrade:
usd sUSD to buy synthetic assets (called synths)Burn: repay synths to get SNX back
Slide18Synthetix
: Infinite Liquidity
Pools are not needed for exchangesConvert from
one synth to another
according
to
price oracles
U
p to the total amount of collateral
Zero
slippage
Slide19Other
ProtocolsUniversal Market Access (UMA)
Lock collaterals to mint
long
/
short tokens
Sell
long
/
short
tokens to take long / short
positionsdYdX: perpetual
contract marketsPerpetual allows for exposure to arbitrary liquid assetsPartially
decentralized