Exploring RWA-backed Stablecoin Implementation on Cardano for more Liquidity and DeFi usecases

[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] 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)

We will create a POC for RWA-backed stablecoins on Cardano to demonstrate feasibility and prepare potential partners and market participants for a launch. 

[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.”

No dependencies.

[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

All project outputs, including developed software and documentation, will be fully open source under the Apache 2.0 or MIT License.

[SOLUTION] Please describe your proposed solution

Opportunity:

Real-world asset (RWA)-backed stablecoins represent a significant advance from traditional finance to decentralised finance (DeFi). They provide a stable and secure medium of exchange or store of value by backing digital tokens with tangible assets such as real estate, commodities or financial instruments such as bonds. However, there is currently none of this kind on Cardano.

Here are some reasons why this is a great opportunity for Cardano:

• Stability and trust: Unlike crypto-backed stablecoins, which can be volatile and dependent on the fluctuations of the crypto market, RWA-backed stablecoins offer a more stable alternative as they are tied to real-world assets. 
• Market expansion: By providing a stablecoin backed by real-world assets, Cardano can tap into new markets and user groups, including those in traditional finance who are looking for blockchain solutions but shy away from the typical volatility of cryptocurrencies.
• Increased liquidity: RWA-backed stablecoins can provide significant liquidity to the Cardano network, enabling larger and more frequent transactions. This liquidity is critical to the growth of the DeFi ecosystem and enables more complex financial activities such as lending, borrowing and derivatives markets.
• Regulatory friendliness: These stablecoins could potentially meet regulatory standards more easily than their digital-only counterparts, which is attractive to institutional investors and facilitates wider adoptio

Challenges and unresolved issues:

Despite the promising opportunities, the development of RWA-backed stablecoins faces several challenges that are not yet fully resolved in the current DeFi landscape:

• Technical implementation: Tokenising real-world assets on a blockchain in a secure, efficient and scalable manner requires sophisticated technical solutions. This includes the development of reliable price oracles, robust asset tokenisation platforms and secure collateral management systems.
• Asset valuation and liquidation: Accurately valuing real-world assets and ensuring their liquidity is critical but challenging.
• Acceptance and trust: To gain the trust of users, especially those with traditional financial backgrounds, the stability of RWA-backed stablecoins must be demonstrated. 

Our proposed solution:

This proposal is dedicated to exploring the practicality and benefits of launching RWA-backed stablecoins on Cardano. Our objectives are:

1. Feasibility Study

Objective: We aim to undertake a feasibility study that zeroes in on the technical and market dimensions of introducing RWA-backed stablecoins into the Cardano ecosystem.

Activities: 

• Conduct a market analysis to pinpoint potential real-world assets that are ideal candidates for tokenization.
• Assess the current capabilities of Cardano's infrastructure to support the integration and functionality of RWA-backed stablecoins.

.2 Technical Proof of Concept (POC)

Objective: Our goal is to create a streamlined prototype that showcases the primary processes of issuing stablecoins backed by RWAs on Cardano.

Activities: 

• Develop elementary smart contracts for the tokenization of assets and the issuance of stablecoins, utilizing Aiken to bolster security and ensure robust functionality.
• Implement these contracts on Cardano’s testnet to evaluate basic functions and pinpoint any potential technical hurdles.

3. Community Engagement

Objective: We plan to actively engage with the Cardano community to solicit feedback, assess interest, and explore potential partnerships for the subsequent phases of this initiative.

Activities: 

• Organize virtual workshops to introduce the proof of concept and explore the implications and benefits of RWA-backed stablecoins.
• Establish discussion forums aimed at fostering community dialogue and collecting valuable insights.

4. Legal Framework Outline

Objective: We intend to draft a preliminary legal compliance framework tailored for the management and operationalization of RWA-backed stablecoins.

Activities: 

• Work in collaboration with legal experts to pinpoint key regulatory requirements and draft a roadmap for compliance.
• Create a comprehensive compliance checklist that covers the essential legal aspects pertinent to RWA-backed stablecoins.

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

Implementing RWA-backed stablecoins on the Cardano ecosystem could have a significant impact in two key areas:

• Enhanced Market Stability: By introducing stablecoins backed by real-world assets, the Cardano ecosystem could see improved stability in its financial transaction
• Increased Liquidity: RWA-backed stablecoins have the potential to significantly increase liquidity within the Cardano ecosyste

Specifically in terms of market stability and liquidity, two sets of indicators could be monitored:

1. Market Stability:

• Price Volatility: Monitor the variance in the stablecoin’s price relative to its peg to measure stability.
• Spread Analysis: Assess the bid-ask spreads to evaluate market depth and stability.
• Market Sentiment: Conduct community surveys to understand investor confidence and perception of the stablecoin’s stability.

2. Liquidity:

• Trading Volume: Track the total volume of the stablecoin traded across platforms to measure liquidity.
• Transaction Count: Count the number of stablecoin transactions on the Cardano blockchain to assess usage.
• Ease of Conversion: Evaluate how easily the stablecoin can be converted to other assets, which impacts liquidity.

[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?

Team Capabilities and Track Record. 

Our team members have been actively engaged since Fund 3 in Project Catalyst. We have been involved in multiple funded projects. All proposals are either successfully delivered or on track.

Collaborations:

We are currently involved in various topics in Cardano, from open source code creating, to reputation and voting topics and have Active collaborations with the following teams in Cardano:

- SidanLab and MeshJS (Smart Contract Development: https://projectcatalyst.io/funds/11/cardano-open-developers/aiken-open-source-smart-contract-library-by-meshjs-and-trustlevel)

- Lidonation (Reputation-Scores for Catalyst Reviewers: https://projectcatalyst.io/funds/11/cardano-use-cases-concept/reputation-scores-for-catalyst-proposers-and-reviewers-by-lidonation-and-trustlevel)

- Photrek (Development of a community tool for voting calculations and community engagement in SingularityNet: https://proposals.deepfunding.ai/graduated/accepted/ed600af3-885c-45bc-a874-56d2dde371ce)

Feasibility:

• Pilot Testing: We will conduct a series of pilot tests to refine the system, using real-world data and scenarios to ensure that the system performs as intended.
• Feedback Loops: Implement feedback mechanisms to gather insights from the community, which will be used continuously to improve the system.

Fund Management:

We will use Dework to manage and track the progress of our proposal. This will also include a transparent overview of the received payments from the treasury and the payment to our team. 

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

Conduct Feasibility Study

Objective: Perform an in-depth feasibility study to assess the technical, economic, and operational viability of implementing RWA-backed stablecoins on the Cardano blockchain.

Tasks:

• Research Analysis: Conduct thorough research on the technical requirements and infrastructure needed for RWA-backed stablecoins.
• Market Analysis: Evaluate market demand, potential use cases, and economic impact of integrating real-world assets into Cardano's DeFi ecosystem.
• Technology Assessment: Assess the current technology stack of Cardano and determine necessary upgrades or integrations.

Deliverables and Acceptance Criteria:

• Feasibility report is approved by the project steering committee.
• Identified technical and market requirements are validated and endorsed by Cardano development experts.

Evidence of milestone completion:

• Published documents, specification and code on Github repository.

Timeline: Month 1-2

Development of Technical Proof of Concept (POC)

Objective: Develop and test a prototype demonstrating the core functionality of asset tokenization and stablecoin issuance.

Activities:

• Smart Contract Development: Design and program basic smart contracts for asset tokenization and stablecoin issuance, utilizing Aiken.
• POC Testing on Testnet: Deploy and test these smart contracts on Cardano’s testnet, identifying and resolving any technical issues encountered.

Deliverables:

• Smart Contract Code: Developed and documented code for asset tokenization and stablecoin issuance.
• Testnet Deployment Report: Including test results, issues identified, and resolutions implemented.

Evidence of milestone completion:

• Published documents, specification and code on Github repository.

Timeline: Month 3

Legal Framework Development

Objective: Develop a comprehensive legal compliance framework for handling RWA-backed stablecoins.

Activities:

• Collaboration with Legal Advisors: Work with legal experts to identify major regulatory considerations and outline necessary compliance steps.
• Development of Compliance Protocols: Create detailed compliance protocols and necessary legal documents to ensure the stablecoin meets global regulatory standards.

Deliverables and Acceptance Criteria:

• Legal Compliance Framework: A detailed document outlining the legal steps, compliance checklist, and regulatory considerations for RWA-backed stablecoins.

Evidence of milestone completion:

• Published documents, specification and code on Github repository.

Timeline: Month 4

Community Engagement and Project Closeout

Objective: Engage with the Cardano community to solicit feedback, gauge interest, identify potential partners for future phases of the project, and prepare the final project closeout report.

Activities:

• Partner Identification: Actively seek and identify potential partners who can contribute to future development phases.
• Drafting of Closeout Report: Compile findings, feedback, and recommendations into a comprehensive closeout report.

Deliverables and Acceptance Criteria:

• Community Engagement Report: Documenting the feedback and insights gathered from the community.
• Potential Partners List: A list of identified and engaged potential partners for future collaboration.
• Final Project Closeout Report: Summarizing the project's entire scope, activities, findings, and recommendations for next steps.

Evidence of milestone completion:

• Published documents, specification and code on Github repository.

Timeline: Month 5

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

TrustLevel was founded by Dominik Tilman with the vision to develop methods and protocols to make the reliability of data and information measurable. Since then, we have received various grants (Cardano, SingularityNet, Arbitrum) and projects that have continuously improved our knowledge and developed tools and enabled us to provide better reviewing and voting processes and systems in decentralised communities. All our outputs are open-source. 

TrustLevel Core Team: 

• Dominik Tilman: Project Lead
• Dominik has been actively engaged since Fund 3 in Project Catalyst and involved in multiple funded projects. All proposals are either successfully delivered or on track. He is founder of TrustLevel.io & Conu21.com and has 15+ years experience in innovation management and company building.
• Links: https://www.linkedin.com/in/dominikstumpp/; www.trustlevel.io; www.conu21.com 
• Roman Preuss: Full-Stack Developer
• https://de.linkedin.com/in/roman-preuss-0b145558
• Josch Rossa: Full-stack developer and LLMs
• https://github.com/josros
• Alex Ramalho: Full Stack AI Developer
• https://alexramalho.dev
• Sergey K.: ML + Blockchain Developer
• https://www.linkedin.com/i

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

Total Budget: 100,000 ADA

Milestone 1: Initiation and Feasibility Analysis

• Total Allocation for M1: 30,000 ADA
• Project Management and Coordination: 5,000 ADA
• Covers project setup, team coordination, and initial planning.
• Market Analysis: 10,000 ADA
• Involves hiring market analysts or consultants to identify suitable RWAs and assess market demand.
• Technical Assessment: 15,000 ADA
• Evaluation of Cardano’s infrastructure capabilities, including payments to software engineers or blockchain specialists.

Milestone 2: Development of Technical Proof of Concept (POC)

• Total Allocation for M2: 30,000 ADA
• Smart Contract Development: 20,000 ADA
• Design and programming of smart contracts, including developer wages and potential auditing costs.
• Testnet Deployment and Testing: 10,000 ADA
• Resources for deploying and testing on Cardano's testnet, including technical support and troubleshooting.

Milestone 3: Legal Framework Development

• Total Allocation for M3: 30,000 ADA
• Legal Consulting and Collaboration: 20,000 ADA
• Payments to legal advisors for regulatory analysis and compliance strategy development.
• Development of Compliance Protocols: 10,000 ADA
• Creation of detailed legal documents and compliance checklists.

Milestone 4: Community Engagement and Project Closeout

• Total Allocation for M4: 10,000 ADA
• Community Engagement Activities: 5,000 ADA
• Costs associated with hosting webinars, workshops, and managing online discussion platforms.
• Project Closeout and Reporting: 5,000 ADA
• Finalizing and distributing the project closeout report, including data compilation and document preparation.

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

Strategic Investment: Allocating funds to this project can provide significant value to the Cardano-Defi ecosystem. By introducing RWA-backed stablecoins, our investment opportunities within Cardano can be enhanced. By introducing these stablecoins, we expect to improve liquidity and market stability, which will have a direct impact on the efficiency and effectiveness of financial transactions and resource allocation within the Cardano community. 

Expertise and Complexity: Costs reflect fair compensation for specialized skills in data analysis and software development. The budget allocations align with prevailing rates in the industry, determined by the experience and skill set of professionals.

Risk mitigation: As a team, we willingly accept the currency risk of being paid in ADA, demonstrating our commitment and adaptability in a dynamic cryptocurrency environment. A decrease in the ADA price is a risk we bear, while any increase allows us to expand the scope.