Dollar Collateralization
To prevent project failure and further stabilize the token, Ubiquity will be implementing a collateral system, where the total uAD circulation will be capped as a function of dollar pegged stables which the project holds in its treasury.
Under the early days of the project, this ratio will be set to 1:20. In other words, 20 uAD can be circulating for each 1 3CRV which the reserve holds. This ratio will be adjustable via governance.
The above essentially means that new uAD will not be minted unless the reserve ratio allows for this.
Reserve Replenishment
To fund the reserves, Ubiquity offers a Proxy Yield Aggregator (Beta) to its users, where they will be able to deposit stablecoins in the protocol for yield farming. Those stablecoins will then be re-deployed in other low-risk protocols (such as AAVE, Compound, and Curve) or low-risk yield aggregators (Rari Capital, Yearn).
The fractional reserve fund collects up to a 10% fee on any deposit as well as all yield in stablecoins generated by the deployment of the funds. We are currently experimenting with staking opportunities to decrease farming fees. In our Proxy Yield Aggregator beta, every 1 UBQ staked will yield a 0.1% discount on the deposit fee.
10000 UBQ staked will void the deposit fee.
To offset this, the protocol compensates the users with non-expiring debt (uCR) to an amount greater than the collected yield and upfront fee.
The team is still experimenting with the economic parameters but to begin we are targeting a 2x yield in uCR, for example:
- Rari offers 20% APY on stablecoins, so we pass the user’s funds to this aggregator
- User farms for one year
- User withdraws and receives 40% yield paid in debt tokens
- User redeems debt tokens when TWAP is above 1.00 (or trades them on secondary markets)
The key takeaways being:
- We can sustainably offer double the yield compared to the next stablecoin yield aggregator
- The Ubiquity Dollar protocol builds reserves to protect against downswings
- When the protocol needs to print more dollars, these users will be first in line (before seigniorage rewards for farmers) to redeem for their full value