Emurgo has announced the stablecoin “AgeUSD”, which is based on the Ergo blockchain and will also be available on Cardano with Plutus.
AgeUSD is an algorithmic stablecoin that is designed to eliminate the problems of CDP-based protocols.
During the “Ergo Summit 2021” held on Saturday, Emurgo announced “AgeUSD.” The stablecoins follows a novel algorithmic design developed on the Ergo blockchain in a joint partnership between the Ergo Foundation, Emurgo, and Charles Hoskinson’s Input Output Global (IOG), the parent company of IOHK.
Romain Pellerin, CTO at Input Output Hong Kong tweeted that AgeUSD will be available on the Cardano blockchain once smart contract functionalities are enabled on the mainnet with Plutus.
Unlike Ethereum-based crypto-backed stablecoins, such as DAI, Emurgo introduces a Staticoin protocol-inspired design that does not rely on CDPs (Collateralized Debt Positions). The reason for this is the vulnerability of CDP-based protocols in terms of high volatility and blockchain congestion.
As Emurgo states, “Black Thursday,” when MakerDAO CDPs were triggered for liquidation due to volatility and then sold for $0 due to blockchain congestion that prevented others from bidding, demonstrated that a new design is needed. For AgeUSD, this scenario is not possible.
Without CDPs, we do not have liquidation events nor the requirement for users to perform transactions to ensure that the liquidations actually work properly (rather than allowing a bad actor to steal funds away from the protocol). These are inherient vulnerable facets of using CDPs for minting stablecoins, and as such expose more risk to the end users.
Emurgo’s goal is to automate as much as possible within the mathematics of the protocol itself, “rather than relying on dynamic transaction postings that can break down in the event of a blockchain overload.” While this doesn’t mean the AgeUSD protocol “solves all stablecoin problems, it is an attempt to create a higher-security alternative to current trends in the crypto sphere.”
According to the GitHub repository, there are two types of parties interacting with the protocol: reserve providers and AgeUSD users. The first pay ERGs, Ergo’s native currency, into the dApp’s reserves, thereby minting “reserve coins” that represent ERG reserves.
Users of the protocol also pay ERGs into the dApp reserves, but create AgeUSD instead. This is allowed by the protocol only if there are enough reserves above the reserve ratio in the dApp. Users can redeem AgeUSD for ERGs from the reserve at any time.
Reserve providers can only do so if “the price of ERGs increases or a significant amount of protocol fees is collected, covering the value of all existing minted AgeUSD plus an additional margin.”
As such Reserve Providers allow AgeUSD users to enjoy stability of value. On their end, the Reserve Providers absorb the potential upside (if the value of the reserves goes up via the price of Ergs increasing compared to USD) but also absorb the potential downside (if the underlying cryptocurrency in the reserve goes down in price).
The default AgeUSD protocol fee settings are a 1% protocol fee and a 0.25% front-end implementer fee.