Last updated 9 months ago
Users can experience a high degree of slippage when swapping stablecoins for ada and vice versa when making large swaps
Hyper USD will optimize its liquidity for minting/burning by directing protocol revenue to liquidity providers as an incentive to lower fees, creating smart liquidity that can backstop dex aggregators
This is the total amount allocated to Hyper USD: A slippage resistant stablecoin hyperstructure.
Please provide your proposal title
Hyper USD: A slippage resistant stablecoin hyperstructure
Enter the amount of funding you are requesting in ADA
69900
Please specify how many months you expect your project to last
7
Please indicate if your proposal has been auto-translated
No
Original Language
en
What is the problem you want to solve?
Users can experience a high degree of slippage when swapping stablecoins for ada and vice versa when making large swaps
Supporting links
Does your project have any dependencies on other organizations, technical or otherwise?
Yes
Describe any dependencies or write 'No dependencies'
It will use multiple oracle providers to reduce risk. Charli3, Orcfax, and potentially more if available
Will your project's outputs be fully open source?
Yes
License and Additional Information
The project will be fully open source under MIT License
Please choose the most relevant theme and tag related to the outcomes of your proposal.
Stablecoin
Describe what makes your idea innovative compared to what has been previously funded (whether by you or others).
Hyper USD will lean into the strengths of a crypto backed stablecoin by leveraging its on-chain collateral to fight against slippage which is often a problem when swapping between ada and stablecoins for non-trivial amounts. It will do this by directing protocol revenue from collateral providers willing to pay for leverage to collateral providers who are willing to lower their mint/burn fees in return for that protocol revenue. Hyper will also focus on composability, so these lowered fees can be used directly by dex's and aggregators to put a ceiling on slippage when swapping ada and Hyper usd
Describe what your prototype or MVP will demonstrate, and where it can be accessed.
The MVP will be a fully functional stablecoin deployed on the testnet featuring the following:
A Fee Market where users can bid to buy leverage protection or to win a portion of protocol revenue by lowering their mint/burn fees
Tokenless governance, where control of the protocol is completely in the hands of collateral providers, for everything from fees, to oracles, to upgradability
A Open CDP system, where any user can mint/burn against an existing CDP as long as they pay the associated fee and the CDP collateralization ratio remains healthy
Composable with DeFi to fight against slippage
Describe realistic measures of success, ideally with on-chain metrics.
Slippage when swapping between ada and stablecoins is one of the most common complaints, one of the major goals of this project is to almost entirely eliminate this issue by using smart liquidity. ada/usd pools on AMM dex's aren't making efficient use of liquidity because they are trying to recreate the ada/usd market when it already exists off-chain in a higher liquidity environment. Oracles allow us to make use of this off-chain market and make swaps that are closer to the actual value of the assets, and composability allows dex's and aggregators to then integrate with this smart liquidity
Please describe your proposed solution and how it addresses the problem
There are key differences between fiat backed and crypto backed stablecoins and the ecosystem benefits from having strong contenders in both categories. It also heavily benefits from each of these types of stablecoins leaning into their strengths, this allows users to choose the best tool for the job. The strength of fiat backed stablecoins is their integrations into the traditional financial world, they will be able to better facilitate on/off boarding as well as payments directly to traditional businesses. The strength of crypto backed stablecoins is their on-chain collateral, this allows them to build an extremely agile pegging mechanism that can fight back against slippage without requiring huge sums of money in AMM dex's and also gives them the potential to be fully decentralized. Currently Cardano needs a crypto backed stablecoin that fully leans into its strengths, Hyper USD aims to bring that and if successful will have a large positive impact on the ecosystem.
There are two major goals for Hyper USD which it will try to achieve by leaning in heavily to the strengths of a crypto backed stablecoin:
Hyper USD is a fully redeemable, CDP style stablecoin heavily inspired by Djed with some additional inspiration from Liquity V2. Fully redeemable means that none of the collateral is ever locked, someone could burn the entire outstanding Hyper USD supply all at once if they wanted and only pay a small fee to do so, the ability to do this is part of fighting the battle against slippage. Fully redeemable also means that collateral providers don't have complete control over their CDPs, Hyper USD has an open CDP system where any user can mint/burn against any CDP as long as they pay the associated fee and the CDP maintains a healthy collateralization - much like a CDP version of Djed.
Open CDPs, the Fee Market, and the Battle Against Slippage
An open CDP system means that collateral providers can't fully control their leverage, since leverage is one of the attractions of a CDP style stablecoin we'll need to address that. We can see from looking at Liqwid that users are willing to pay for leverage, current borrowing rates for stablecoins are 20-30%. If we allow collateral providers to pay to raise their minting/burning fees, it will be less likely that users will burn stablecoins at their CDP, meaning it's more likely they'll get to keep their leverage. We can make this even better by taking the money they pay and offering it as a reward to collateral providers who are willing to lower their minting/burning fees, creating an even larger buffer for the CDP's paying for leverage. Let's see how this might look with an example:
Alice, Bob, Charlie, Dan, and Eve are all opening Hyper USD CDPs, each putting in 100,000 ada as collateral and minting 50,000 Hyper USD against it (assume current ada price of $1.00). Alice and Bob are looking to maintain their leverage and willing to pay for it, Alice is willing to pay 10% APR on her 50,000 USD debt to raise her fee to 1.1% and Bob is willing to pay 5% APR to raise his fee to 1.05%. Charlie and Dan are both interested in profiting off both the money that Alice and Bob are paying as well asfee volume from people minting/burning Hyper USD, so they decide to lower their fees. Assuming a base mint/burn fee of 1%, Charlie decides to lower his fee to 0.9% and Dan decides to lower his fee to 0.8%. Eve is not interested in raising or lowering her fees for the moment so she doesn't do anything.
First we'll total the amount Alice and Bob are paying, which is the amount Charlie and Dan are entitled to for lowering their fees. The payment will be for a period of time or epoch, which we'll call 5 days for this example. 10% APR over 5 days is about 0.13%, 0.13% of 50,000 is 65 Hyper USD. For simplicity we'll say Bob's payment is half of that, 32.5 USD, for a total pool of 97.5 USD up for grabs. Charlie lowered his fees by 10%, from 1% to 0.9% and Dan lowered his fees by 20% from 1% to 0.8%. While the exact methodology may change, we'll say in this case that Dan is entitled to twice as much of the pool as Charlie because he lowered his fees twice as much and they are both providing the same amount of collateral, which means Dan would get 65 USD and Charlie would get 32.5 USD in exchange for lowering their fees for this epoch.
We now have 5 CDPs with mint/burn fees of 1.1% (Alice), 1.05% (Bob), 1% (Eve), 0.9% (Charlie), and 0.8% (Dan). Charlie and Dan are being paid by Alice and Bob to lower their fees, and this creates a larger buffer for Alice and Bob to maintain their leverage when users come around looking to redeem stablecoins. Most of the minting/burning traffic will be driven through Charlie and Dan where possible due to their lower fees, which benefits users who get lower fees. For the record, the minting/burning fees are paid directly to the CDP itself, so the owners of the CDP are paid when users mint/burn there.
This is a basic example of how Hyper USD will create a fee market that allows collateral providers to pay to maintain leverage while at the same time driving down fees for much of the minting/burning traffic of the protocol. Users who mint/burn get to make use of smart liquidity, this liquidity uses off-chain data from an ada/usd oracle in order to let a user swap ada and usd at close to the true market price. This is contrast to when users swap ada and usd on an AMM dex, which attempts to recreate the ada/usd market on chain in a lower liquidity environment. This market often deviates from the true market price and can also swing quite far away when large orders are placed (slippage). Fighting against slippage means taking the smart liquidity that Hyper USD provides and making it composable (available for integration) with dex's and dex aggregators so that if the price would ever slip too far on a dex the traffic could instead be routed through the cheapest available CDP, preventing large slippage. This is one of the major benefits of being a crypto backed stablecoin, the collateral backing the stablecoin is all on-chain and ready to be used at any time, and Hyper USD makes full use of it.
Full Decentralization and Tokenless Governance
One of the other major benefits of being a crypto backed stablecoin is the potential to be fully decentralized. Even so, most crypto backed stablecoins don't take full advantage of this, leaving points of centralization that ultimately don't differentiate them enough from their fiat counterparts. Hyper USD will have no custodians, everything will be fully controlled via governance, from fees, to oracles, to allowing additional collateral assets such as BTC, to upgradability. Tokenless governance means it won't be controlled by a token that people can buy, instead voting power will be tied to a combination of the amount of collateral in your CDP as well as a commitment to a length of time you intend to keep that collateral in your CDP, giving more power to collateral providers who are in it for the long haul.
Governance is quite complex and opting to instead forgo it and eliminate the ability to change the system is attractive for its simplicity. However it seems unlikely that any decentralized system can survive the long haul without the ability to adapt to changing circumstances. The basic example of oracle providers you depend on ceasing to function means if your system is unable to add and remove oracles it would stop working. Without governance you need a custodian to manage the oracles and in that case your protocol is only as decentralized as the custodian.
Please define the positive impact your project will have on the wider Cardano community
A low slippage stablecoin could be a large boon to the Cardano community as it is currently a big problem for many users. It would give community members more confidence about both moving and holding larger amounts of stablecoins and could lead to a significant increase in volume of stablecoin traffic.
The ability to add new collateral options via governance could be very attractive to BTC holders looking to Cardano for yield when trustless/trust minimized bridges of BTC to Cardano are completed. This would provide a method for leveraging BTC as well as a low slippage way to swap between BTC and USD to BTC holders.
Tokenless governance provides a look at a slightly different way to govern, where control is placed directly in the hands of people making the protocol work by providing collateral rather than in the hands of people who hold the most governance tokens.
Hyper USD would be the first fully decentralized stablecoin on Cardano, offering Cardano community members a way to further diversify their stablecoin risk profiles.
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 software engineersince 2014 and involved in the Cardano Ecosystem since 2018, you can follow some of my discussions from the perspective of a former stake pool operator and aspiring Cardano developer on my twitter account https://x.com/PrometheusPool. I taught myself Aiken and Cardano smart contract developement by transcribing one of the P2P concept protocols that I greatly admire from Plutus-tx (haskell) to Aiken https://github.com/ken-underscore/cardano_loans_aiken.
I intend to validate the feasibility by building it. I have a high level understanding of the technical design and have no reason to believe it wouldn't work, but part of the Concept category seems like it's digging in and getting your hands dirty.
Milestone Title
Open CDP functionality with composability
Milestone Outputs
The ability to create and manipulate an Open CDP where anyone can mint or burn against the collateral the owner of the CDP has added. The mint and burn actions are composable with other DeFi in order to make the protocol's smart liquidity available
Acceptance Criteria
User can open a CDP
CDP owner can add collateral to a CDP
CDP owner can remove collateral from a CDP
CDP owner can close a CDP
Users can mint from a CDP and the action is composable with other DeFi
Users can burn from a CDP and the action is composable with other DeFi
Evidence of Completion
The functionality will be deployed to the testnet where anyone can interact with it and confirm the acceptance criteria
Delivery Month
2
Cost
19800
Progress
30 %
Milestone Title
Fee Market
Milestone Outputs
CDP owners looking to maintain their leverage positions are able to pay to raise the mint/burn fees for their CDP. The money these CDP owners pay is available as a reward for other CDP owners in exchange for lowering their mint/burn fees.
Acceptance Criteria
CDP owners are able to choose an APR they are willing to pay for an epoch in order to raise their mint/burn fees for the duration of the epoch
CDP owners are able to choose to lower their mint/burn fees for an epoch in order to receive a portion of the reward pool generated by CDP owners who are paying to raise their mint/burn fees
Evidence of Completion
The Fee Market will be deployed to the testnet where anyone can interact with it and confirm the acceptance criteria
Delivery Month
4
Cost
18900
Progress
60 %
Milestone Title
Tokenless Governance
Milestone Outputs
Governance actions can be initiated and voted on where voting power is determined by a combination of the amount of collateral in your CDP combined with the length of time your collateral is committed to your CDP
Acceptance Criteria
A CDP owner can initiate a governance action
A CDP owner can vote on a governance action
A CDP owner's voting power is determined by a combination of their CDP's collateral and a collateral committment time
Evidence of Completion
Governance will be deployed on the testnet where anyone can interact with it and confirm the acceptance criteria. It may also be beneficial to spin up a yaci devnet chain with custom block/epoch times for testing governance
Delivery Month
6
Cost
21000
Progress
90 %
Milestone Title
Final Milestone
Milestone Outputs
Open source github repo with all project code
Project fully deployed on testnet
All other milestones completed and approved by Milestone Reviewers and Catalyst Team
Project Close Out Report completed and approved by Milestone Reviewers and Catalyst Team
Project Close Out Vido completed and approved by Milstone Reviewers and Catalyst Team
Acceptance Criteria
Anyone can read or fork project code
Anyone can interact with the project on the testnet
All other milestones completed and approved by Milestone Reviewers and Catalyst Team
Project Close Out Report completed and approved by Milestone Reviewers and Catalyst Team
Project Close Out Vido completed and approved by Milstone Reviewers and Catalyst Team
Evidence of Completion
Open source github repo
Testnet deployment
All other milestones completed and approved by Milestone Reviewers and Catalyst Team
Project Close Out Report completed and approved by Milestone Reviewers and Catalyst Team
Project Close Out Vido completed and approved by Milstone Reviewers and Catalyst Team
Delivery Month
6
Cost
10200
Progress
100 %
Please provide a cost breakdown of the proposed work and resources
The cost breakdown is solely the cost of my labor which I will bill at a rate of $60 USD per hour and assume an ada price of $1.
Open CDP functionality with composability, about 330 hours of dev work for 19,800 ADA
Fee Market, about 315 hours of dev work for 18,900 ADA
Tokenless Governance, 350 hours of dev work for 21,000 ADA
Project close out report and close out video, about 170 hours of labor for 10,200 ADA
Total labor about 1,165 hours over 7 months for 69,900 ADA
How does the cost of the project represent value for the Cardano ecosystem?
The project attempts to address a major problem in the Cardano ecosystem, slippage when swapping between ada and stablecoins, which has the potential to drive large value for the ecosystem via stablecoin volume and giving confidence to users holding/moving stablecoins.
This project pioneers interesting concepts on Cardano like tokenless governance, a fee market for minting/burning fees on open CDPs, and attempting to create the first fully decentralized stablecoin on Cardano. As a fully open source project, everyone can learn from these attempts to create something new and interesting.
Terms and Conditions:
Yes
I (prometheus_pool, https://x.com/PrometheusPool ) am the sole contributor of this project and my role is a software engineer and protocol designer.