CashTokens stablecoin mUSD: Exploring Decentralized Stable Asset Protocols.

The emerging landscape of decentralized finance (DeFi) introduces innovative protocols aiming to redefine stable asset tokens and interest-free loans. This article delves into a detailed comparison between Liquity, specifically Liquity V1, and a promising newcomer called mUSD. Both projects share a common goal of providing a stable asset token with an incentivized floating peg and facilitating interest-free loans through decentralized borrowing mechanisms.

The reasons why we shouldn't adopt a stablecoin for the CashToken ecosystem are beyond this article topic and we will still need to see the final product to conclude whether the Bitcoin Cash community should adopt the final product or not.

The stablecoin from CauldronSwap is inspired by Liquity V1 so the key points to observe are the following:

1. Collateral and Loans:

   • Users in both Liquity and mUSD lock up collateral (BCH in the case of mUSD) to generate collateralized tokens.

   • Liquidation can occur if the collateral value falls below a certain threshold (110% in the case of mUSD), with others having the opportunity to liquidate the contract and earn a premium.

2. Instantaneous Liquidation:

   • Liquity-like systems, including Liquity V1, implement "instantaneous liquidation" without relying on on-chain auctions, considered more capital-efficient than systems like MakerDAO.

3. Stability Mechanisms:

   • Liquity incorporates additional stabilization mechanisms, such as the stability pool, which is not explicitly mentioned in the mUSD discussion.

4. Borrowing and Redemption Fees:

   • Both Liquity and mUSD impose one-time borrowing and redemption fees, algorithmically adjusting based on factors like the last redemption time in Liquity.

5. Under-Collateralization Risk:

   • An unaddressed issue for mUSD is the risk of under-collateralization in the event of a more than 10% price crash between Oracle messages.

6. Weight and UpdateSequence:

   • mUSD considers implementing a weight mechanism in the commitment of the loan contract, adjusting based on redemptions and "updateSequence" calls.

7. NFT and Loan Ownership:

   • Discussion surrounds the possibility of making the NFT representing the loan transferrable, potentially enabling traceability in specialized contracts.

8. Market-based vs Algorithmic Corrections:

   • Consideration of whether corrections for supply/demand should be fully market-based or algorithmic.

9. Global Controlling Variables:

   • Discussion about whether controlling variables in the UTXO model should be simply single-threaded or require joint execution. Also, considerations regarding tracking an asset as closely as possible to reflect natural demand in the community.

10. Minimum Viable Product vs Innovation:

    • Reflection on the strategic choice between creating a minimum viable product, closely emulating an existing model or striving to pioneer the best possible solution.

Conclusion:

While mUSD draws inspiration from Liquity, this comparison highlights nuanced differences in their proposed implementations. As the projects evolve, further insights may emerge, shaping the trajectory of decentralized stable asset protocols. For specific inquiries or deeper exploration, feel free to inquire about this project and I would even add to follow the developers for future updates.

https://bitcoincashresearch.org/t/stable-asset-token-incentivized-floating-peg/1206

https://gitlab.com/dagurval/bch-pawnshop-contract