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"In contrast to collateralized stablecoins based on the CDP mechanism, stablecoin systems that use a collateral redemption policy generate stablecoins when users deposit collateral into the collateral pool. However, unlike CDP-based stablecoins, users can retrieve their collateral at any time without paying stability fees or penalties.
Users in a collateral redemption stablecoin system can deposit $500 worth of ETH and $500 worth of BTC to receive $1,000 worth of stablecoins. They can then retrieve only $3 worth of ETH and $2 worth of BTC from the collateral pool of the smart contract after depositing 5 stablecoins to maintain the collateral debt ratio.
Unlike self-collateralized stablecoins like Bitshares, collateral redemption stablecoins allow users to deposit various tokens or, in cases with interoperable smart contracts, tokens from different blockchains.
Collateral redemption stablecoins also differ from both CDP-based stablecoins and self-collateralized stablecoins. In the event of undercollateralization in the collateral pool, collateral redemption stablecoins provide an incentive for borrowers to deposit collateral rather than penalizing borrowers through liquidation.
Example: Reserve Protocol
Collateral Ratio: 100%
Collateral: A basket of digital assets
Pegged Currency: USD
Reserve Protocol is the first stablecoin to implement a collateral redemption policy. Like most stablecoin designs, the protocol is based on the Ethereum blockchain and follows a dual-token structure:
- Reserve: The stablecoin
- Reserve Shares: Governance tokens
In Reserve Protocol, the collateral-to-debt ratio is set at 100%, meaning the circulating supply of Reserve always equals the quantity of collateral stored in the collateral pool smart contract, known as the vault.
Price Stability Mechanism:
1. Situation 1: Deviation of Stablecoin Price from Target Price
When the stablecoin's value falls, e.g., to $0.95, speculators redeem collateral for stablecoins until their price returns to $1, at which point they can no longer profit from the price difference between stablecoins and collateral. If the stablecoin price rises above its $1 peg, e.g., to $1.05, the Reserve Protocol issues new stablecoins to maintain the collateral-to-debt ratio at 100%.
2. Situation 2: Decline in Collateral Value in the Vault
If the collateral value in the vault drops, such as falling to 95% of the nominal value of the outstanding stablecoin, and the stablecoin price falls below $1, Reserve Protocol will use newly minted Reserve Shares as collateral. For example, if the stablecoin falls to $0.95 and the value of all collateral assets, including Reserve Shares, decreases, the protocol creates a price range of $0.05 in which each $1 of stablecoin will redeem $0.95 worth of collateral, and each stablecoin will be backed by $1.05 worth of collateral.
Reserve stablecoins will also have variable transfer fees, initially set at 0 (subject to change by governance). Stablecoin transfers with fees may serve as an income source for Reserve Shares holders.
Collateral Maintenance Mechanism:
To prevent short-term price volatility, Reserve Protocol will issue excess collateral by selling newly issued Reserve Shares. When the creators believe the stablecoin is sufficiently stable, excess collateral will be returned to Reserve Shares holders to maintain a 1:1 collateral ratio in the vault.
The Reserve team plans to include at least three unrelated crypto assets as collateral when launching the protocol to reduce the risk of collateral shortfall at any time.
Weaknesses:
1. At the protocol's initial launch, Reserve Shares will be minted, creating an overall inflationary effect and reducing Reserve Shares' price in the short term.
2. When the vault is overcollateralized, Reserve Protocol will repurchase Reserve Shares with excess collateral instead of using stablecoins to purchase and burn protocol tokens, as in MakerDAO. As a result, stablecoin holders can only profit once collateral is returned. Reserve Shares holders will rely on the appreciation of collateral assets as their sole income source. In contrast, in the MakerDAO design, Maker holders can reasonably expect the value of Maker tokens to rise as CDP demand increases.
3. Reserve Shares will never be burned, meaning speculators have no economic incentive to purchase Reserve Shares unless the demand for stablecoins continually increases. If the price of Reserve stablecoins falls significantly below the peg, speculators may lose confidence in their ability to maintain the peg, rendering the Reserve Shares worthless.
4. Reserve stablecoins lack a savings rate like MakerDAO's DSR, reducing their attractiveness as a store of value.
5. The transfer fees for Reserve stablecoins are similar to Ethereum's variable gas fees. This means users will need to pay fees twice when using stablecoins, once for Ethereum gas and once for Reserve's transfer fee, potentially hindering widespread user adoption. However, Reserve's transfer fee is not mandatory and will be subject to a governance vote." |
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Post time 4-10-2023 13:21:08
