dUSD: A fully decentralized stablecoin based on an open CDP

[GENERAL] Name and surname of main applicant

[GENERAL] Are you delivering this project as an individual or as an entity (whether formally incorporated or not)

[GENERAL] Requested funds in ada

[GENERAL] Please specify how many months you expect your project to last (from 2-12 months)

[GENERAL] Please indicate if your proposal has been auto-translated into English from another language

[GENERAL] Summarize your solution to the problem (200-character limit including spaces)

dUSD will be based on the concept of an Open CDP where users can create CDPs that anyone can mint/burn stablecoins at as long as they pay the fee and the reserve ratio allows it

[GENERAL] Does your project have any dependencies on other organizations, technical or otherwise?

[GENERAL] If YES, please describe what the dependency is and why you believe it is essential for your project’s delivery. If NO, please write “No dependencies.”

This project does not depend on any specific organization, but it does require the use of at least one oracle to get the ada/usd exchange rate.

[GENERAL] Will your project’s output/s be fully open source?

[GENERAL] Please provide here more information on the open source status of your project outputs

The project will use the MIT license and be open source throughout its lifecycle

[SOLUTION] Please describe your proposed solution

This proposal is to provide open source smart contracts for this stablecoin protocol is inspired by Djed but tailored more toward the unique properties of Cardano. With Djed collateral providers pool capital and receive Shen, users can then mint or burn stablecoins for a fee assuming the reserve ratio (collateral:liabilities) allows it. dUSD avoids pooling collateral, instead every collateral provider essentially operates like an independent pool that users can mint/burn stablecoins at for a fee, as long as the reserve ratio allows it.

Avoiding pooling collateral together has several upsides.

1. The staking rights of ada provided as collateral remains in control of the provider of collateral, in fact the collateral provider will have leveraged staking rights since they will also have staking rights of the ada used to mint stablecoins at their pool. This is in contrast to the Djed deployment on Cardano where redistributing staking rewards to Shen holders is a manual process.
2. Distributing collateral among many pools offers parallelization benefits over consolidating collateral into a single pool, this allows the scalability to grow with the number of collateral providers.
3. Collateral providers are not locked in by the overall reserve ratio of the protocol as Shen holders are when the reserve ratio drops below 400%. Users can close their pools at any time providing they pay back any outstanding stablecoins minted at their pool.

dUSD provides a more flexible way to leverage an ada position than Djed, similar to opening a CDP like on Indigo except you don't pay a fee to do so. The potential downside is users partially liquidating your position by burning stablecoins at your pool, while paying you a fee to do so.

dUSD will have tokenless governance, collateral providers will have voting power correlated with the size of their collateral positions. Governance will provide the ability to change various system parameters as well as a path to upgrade the underlying smart contracts.

[IMPACT] Please define the positive impact your project will have on the wider Cardano community

dUSD aims to be fully decentralized and completely in the hands of the community. There will be no fees paid to some custodian entity or dao, all fees go to the collateral providers who also control the parameters of the protocol such as the optimal reserve ratio, fee amounts, etc. This will make it one of the cheapest ways to leverage an ada position, for the trade off that opening the position makes you a market maker of last resort since users can mint/burn stablecoins against your collateral.

[CAPABILITY & FEASIBILITY] What is your capability to deliver your project with high levels of trust and accountability? How do you intend to validate if your approach is feasible?

I've been a fan of Djed, which this protocol draws heavily from, since the paper was released. I believe dUSD takes the goods parts of Djed and attempts to embrace the unique design properties of Cardano.

I plan to write the smart contracts using Aiken, which I have some familiarity with from translating Cardano Loans (by fallen-icarus / zhekson) from plutus tx to Aiken https://github.com/ken-underscore/cardano_loans_aiken.

[PROJECT MILESTONES] What are the key milestones you need to achieve in order to complete your project successfully?

Milestone outputs: Smart contracts support opening/closing collateral pools

Acceptance Criteria: Collateral providers can open/close pools

Evidence: Github code, working in Preprod network

Milestone outputs: Smart contracts support minting/burning stablecoins

Acceptance Criteria: Users can mint/burn stablecoins at collateral pools

Evidence: Github code, working in Preprod network

Milestone outputs: Tokenless Governance

Acceptance Criteria: Collateral providers can vote to change parameters or upgrade the protocol

Evidence: Github code, working in Preprod network

[RESOURCES] Who is in the project team and what are their roles?

I will be the sole contributor for the project

[BUDGET & COSTS] Please provide a cost breakdown of the proposed work and resources

Dev cost per hour $40

Milestone 1 Collateral Pools: 15 hours

Milestone 2 mint/burn: 40 hours

Milestone 3 tokenless governance: 110 hours

Total hours: 165

Total cost: $6600, around 15k ada

[VALUE FOR MONEY] How does the cost of the project represent value for money for the Cardano ecosystem?

The value for the ecosystem is a novel stablecoin protocol in addition to tokenless governance which may have other applications outside of this protocol.