Overview
xUSD from 10,000 feet
The importance of stable-coins
Stable-coins are an essential asset for defi infrastructure. They offer defi users important market options. For example, swapping to a stable as asset prices decrease protects the user from losses, while putting them in a position to quickly jump back in if the market turns around.
Additionally stables are necessary for on chain payments. There are strong incentives for users to hold crypto rather than actually perform purchases with it. Because crypto assets tend to be volatile, users don't want to spend something that may be more valuable in the future (no one wants to be the person who spends 10,000 BTC on a pizza). Similarly businesses may not want to receive payments in an asset that could quickly plummet in value. Stables are an ideal asset to transact in, as you are able to rely on it maintaining value rather than wildly fluctuating, creating uncertainty.
What is xUSD?
xUSD is a permission-less, over-collateralized, Algorand standardized asset (ASA) that's soft pegged to $1.00. Users place crypto collateral into vaults, allowing them to borrow xUSD by creating a collateralized debt position (CDP). Therefore all xUSD in circulation represents a debt obligation to the vaults that a user is borrowing from.
The cost to borrow xUSD changes based on market conditions. When the $1.00 peg is well maintained, the interest rate will fall to 3%, which is the stable, baseline interest rate. As the value of xUSD decreases on the market, the borrow rate will increase as will be discussed in detail onVariable Interest Rate page. Interest is harvested from each vault and placed in the CompX treasury wallet (CompX.algo).
The xUSD token is not an algorithmic stable-coin and so doesn't share the risks inherent to that asset class. Rather than from complex algorithmic feedback, xUSD derives its value from it's crypto backing, and users ability to use xUSD to liquidate insolvent vaults by purchasing $1.00 worth of collateral per xUSD token.
Why choose xUSD over other Algorand stables?
For users choosing to borrow xUSD:
Being liquid by minting and using xUSD provides opportunities of market access, without the opportunity cost of selling your crypto.
The debt produced by borrowing xUSD is denominated in xUSD which means the debt is stable. Borrowing in other crypto types like BTC risk steep rises debt burden if BTC appreciates in value.
The interest rate for xUSD debt depends only on how well xUSD is maintaining it's peg. Other debt products tie the interest rate to available crypto provided by other users, making a hard limit to the amount of liquidity available. This makes xUSD the most scalable stable on Algorand as the theoretical limit to circulating supply is simply the max supply of minted tokens, which sits around $18 trillion.
Borrowed xUSD can be paired with numerous assets to take advantage of the xUSD liquidity ecosystem and create sustainable gains in swap fees on Algorand dexes. During periods of falling asset prices, liquidations can result in large boost in fees for liquidity providers that other stables don't have access too.
For users choosing to hold and use xUSD:
xUSD is permission-less. there are no centralized authorities that can freeze or claw back xUSD tokens. Since all minting of tokens happens on chain, there is no need for trusted interactions with centralized exchanges.
Transacting in xUSD can provide lucrative arbitrage opportunities in the case of de-peg events, due to oversupply of the token.
Use of xUSD supports a native Algorand ecosystem.
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