What are stablecoins?
Stable coins are tokens that are pegged to a specific currency. The most common and utilized are USDT, USDC and BUSD which are tied to the US Dollar. Developed in response to the price fluctuations of cryptocurrencies such as Bitcoin, Ethereum, and Solana. Stablecoins offer stability when it comes to market volatility.
The underlying assets backing the stablecoin serves as collateral. Meaning for every stablecoin issued there is a reserve asset behind it. These reserves come in different forms including fiat, algorithms, precious metals and crypto as well as a mixture of each.
Examples include:
Fiat-backed stablecoins - BUSD Reserves are stored in traditional currencies such as the US dollar.
Algorithmic stablecoins - UST No asset backing. Peg is maintained by smart contracts that adjust the supply based on market conditions.
Precious Metals-backed stablecoins - PAX Gold is backed by physical precious metals stored in vaults around the world.
Crypto-backed stablecoins - DAI Typically overcollateralized due to the fluctuations in crypto currencies. DAI is backed by ether.
With a multitude of stablecoins to choose from, how do you decide which to use and why? Simply put, adoption and circulating supply are key metrics. A well established and widely accepted stablecoin with deep liquidity gives you the ability to participate in broader markets.
USN
Introducing USN a native stablecoin of the NEAR Protocol. Developed by the Decentral Bank DAO USN combines the best practices of several stablecoins already in circulation. USN has been designed as a semi-algorithmic stablecoin that is resilient in turbulent markets.
USN is minted by depositing NEAR tokens into a reserve fund and receiving an equal amount in USN. USN can alternatively be redeemed for an equal value of NEAR tokens.
Key factors that make USN different
- USN is overcollateralized Initially USN is collateralized with NEAR and USDT with potential to diversify collateral assets in the future.
- USN is 100% backed by USDT with NEAR as double collateral. If the price of NEAR crashed USN would still be backed
- Holds and stakes NEAR instead of burning it. Rather than burn NEAR tokens to mint USN, NEAR tokens are held in a reserve.
- Ease of access. USN can be directly minted through the web wallets using $NEAR.
- Holders of USN will receive a base yield of 11% APY. In addition lending protocols like Burrow, Bastion and Aurigami will offer incentive rewards based on borrow demand.
- Yield distribution to more than one source. Multiple protocols which integrate USN receive staking yields from the NEAR reserve. In comparison, 80% of UST is simply being farmed on Anchor. For USN, spreading yield increases demand as well as motivates participation.
How is the peg maintained?
With the latest events in the crypto world you might be wondering how USN maintains its peg. NEAR has implemented multiple mechanisms to maintain peg stability.
Onchain arbitrage - Swap USN for NEAR and vice versa. Due to minor price fluctuations and differences in the market, users can take advantage of this arbitrage opportunity causing minting and burning of USN when the price rises or falls below 1$
USN Reserve - The Reserve fund is initially double collateralized with 100% of issued USN in NEAR Tokens as well as 100% in other stablecoins. Everytime USN is minted NEAR is added to the reserve fund.
Currency Board - This entity's purpose is to maintain a fixed exchange rate between USN and NEAR. Stabilizing rates using NEAR and the stablecoin reserve as liquidity during certain market conditions.
Stableswap - A liquidity pool of stablecoins optimized for swapping between stablecoins. With the USN-USDT pair USN is minted and burned by the system automatically depending on the demand. USDT is added to the pool whenever USN is minted to maintain the balance of the pool at a 1:1 ratio.
Roadmap
Looking forward, the team at Decentral Bank DAO has laid out a phased approach to the roll out of USN.
Phase 0 - Bootstrap initial liquidity through grants and enable USN - NEAR swapping on the web wallet as well as USN - USDT pair on Ref Finance. Phase 1 - USN integration on multiple NEAR ecosystem protocols Phase 2 - USN integration on central exchanges Phase 3 - Expand to multiple chains Phase 4 - Core level integration as a native asset on the NEAR protocol with the ability to be used as gas and storage fees.
In Conclusion
USN might be the new kid on the block when it comes to stablescoins but the idea and capital behind it are not. With a well thought out system USN aims not only to attract capital from other markets but to give the NEAR ecosystems 10,000,000 accounts a new layer of utility for the NEAR token. Only time will tell how USN will hold up in these wild west stablecoin times but you can be sure that USN is set up to withstand the volatility.
To dive deeper into the potential of USN and its second order effects here are a couple of articles definitely worth reading.
bastionprotocol.medium.com/behold-the-usn-w..
medium.com/nearprotocol/usn-alpha-of-near-e..
medium.com/nearprotocol/decentral-bank-laun..
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*I am not affiliated with the NEAR Protocol in any way nor is this financial advice. I found the project to be interesting and want to share my thoughts.