⚙️USDO Functional Overview

Overview

USDO operates under the assumption that its underlying asset is an extremely volatile token; and as such, rather than increasing adoption/ease-of-access with an additional funding token (as seen in LUNA/UST), it instead relies on hyper-collateralization of a single asset.

This practice removes a heavy amount of abstraction and complexity from existing algorithmic stablecoin approaches, while also providing both a transparent window into the total network collateralization, while mitigating the risk of deliberate/malicious actors holding the ability to directly attack the health of the protocol.

This hyper-collateralization approach depends on this simplicity remaining intact, particularly in ensuring that it is deployed with the intent of serving only one chain per deployment - and in ensuring that said collateralization asset is natively available on said chain, readily available for both deposits and withdrawals without any third party bridging components or otherwise.

The core tenet in hyper-collateralization is in heavily increasing the amount of collateralization required as the underlying asset increases in value, thus requiring a constantly growing collateral pool in order to offset the risks posed by sudden retracement. This collateral is held under a “verify, don’t trust” approach, where direct collateral redemptions are blocked if the collateral falls below a given threshold as the value of the underlying asset experiences volatile price fluctuations.

Across this model, one centralization risk still remains in place; our heartbeat service, and pricing oracles for the underlying asset. While this can be heavily mitigated and fully decentralized on a per-chain basis (pending availability and affordability of pricing oracles), these options would likely not be as readily available on smaller/developing chains.

In incentivizing this approach, USDO proposes that 90% of all fees generated via mint/burn functionality is returned to active collateral stakers, ensuring real yield returns on their underlying asset. The remaining 10% of all fees would be allocated to the heartbeat service maintainer, described later in this document. This is an ideal mechanism for growing the amount of the underlying asset, while not guaranteeing the value of the underlying asset itself - and as such, a suitably liquid asset would be required in order to offset the risks posed by any staking periods.

For this approach, Dogecoin (current market capitalization: $11.3bn as per CoinMarketCap, November 19th 2023) has been chosen to demonstrate the viability of this hyper-collateralization model. We are proposing that we launch the USDO protocol on Dogechain, an developing chain which houses a large community, and utilizes wrapped Dogecoin as its native gas token.

Dogechain has been without a stablecoin since Multichain’s bridge exploit; which has resulted in a loss of protocol value, coupled with the inability of some services to operate as intended without a pegged stablecoin to derive pair valuations from. Our proposed hyper-collateralization stablecoin is intended to both provide a real yield staking service on DogeChain, while encouraging an overall growth in protocol TVL and activity.

Functional Components

USDO can be seen as comprised of three core functions, detailed below:

USDO Smart Contract The smart contract implements the functionality of the USDO token, allowing for minting, burning, and staking capabilities.

Heartbeat Service Provides oracle services for USDO, monitoring and providing regular live price feeds to help maintain the $1 USD peg.

Hyper-collateralization Backs the USD stablecoin with a volatile asset, dynamically scaling the collateral requirements as needed base on live asset price.