A Primer on Unit Stable Tokens
First, what are stable tokens?
Stable tokens are a type of crypto token whose price is always pegged to another asset, such as a fiat currency or commodity. This type of crypto unites the transparency and security of blockchain networks with the stability of off-chain assets. As a result, they are often seen as an alternative for blockchain users who want to protect themselves from volatility.
Unit Network takes an innovative approach to stable tokens. Below you can find everything you need to know about them.
Unit Stable Tokens — FAQ:
1. How do stable tokens on Unit Network work?
Stable tokens are purchased from the stable token’s bank with level 1 crypto assets, which are sent to the stable token’s bank in exchange for the stable token. The reserve assets provide backing for the stable token’s value.
Given the store-of-value properties of the different level 1 crypto assets Unit supports, it is expected that over time stable tokens will be both over-collateralized and a means to support trading stability within the platform.
2. How many stable tokens are available on Unit Network? Is there a primary one?
Unit Network offers 22 crypto-backed stable tokens to increase platform utility. The 22 stable tokens are the biggest reserve assets currently globally.
We have adopted USDU as the primary exchange pairing token for all token DEXs within the network.
3. Why support 22 stable tokens and not just make USDU strong?
Being able to support all these stable tokens allows an easy on-ramp for these 22 large economies. Making it easy for businesses locally to accept stable tokens solves the issue of volatility. For example, if someone wants to on-ramp an amount of value in their local currency, they can receive the same amount of that local-pegged stable token from someone on the network.
4. How do Unit Network stable tokens stay stable?
Each stable token uses an oracle off-chain to port in the respective fiat currency price, and the stable token is pegged to that price. What is used to buy USDU, EURU, etc. are level 1 tokens BTCU, ETHU, DOTU, etc.. UNIT cannot be used to mint USDU or other stable tokens.
The collateral backing the stable token will tend to rise in fiat currency value over time, so the stable token will be overcollateralized. The stable token will not go higher than its pegged market value because users can mint more of the token if it does — effectively a huge sell wall.
5. How do you decide which digital assets are allowed to be wrapped to Unit Network as reserve assets and used to buy/back stable tokens?
The chosen assets are the native tokens of permissionless, public blockchains and are already recognized by the market as stores of value.
There is some judgment made by the core team as to which assets to use, and there are some blockchains that are technically easier to integrate, but the Unit core team trusts the community to decide which assets/blockchains to use and favor.
6. What if one of the reserve assets in the stable token bank goes to zero?
Unit Network uses diversified digital stores of value for backing (15 of them — BTCU, ETHU, DOTU, etc.), so if one or more of the reserve assets falls, its effect overall is mitigated by the general strength of the basket of digital assets.
7. What if a stable token becomes undercollateralized despite diversification?
If the collateral backing a stable token falls to less than 1:1 in value with the token’s oracle, then people will see this as an arbitrage opportunity on exchange.
People acquiring the stable token while it is undercollateralized decide to either buy it from
1. The stable token sale page, with digital assets, at the oracle value of the associated fiat currency, by exchanging to the stable bank for newly issued supply, or
2. From TOKEN-USDU exchange pools, to purchase currently circulating supply.
Either option tends to bring the stable token price up to its oracle price, by (1) filling the bank with new reserves at the oracle price, or (2) bidding up the current stable token circulating supply.
8. What if a stable token becomes vastly overcollateralized?
As digital assets backing stable tokens rise in value, so does the collateral ratio to fully back them. Once the stable token is 10x overcollateralized, the stable token holder can redeem one stable token for one fiat currency unit worth of reserve assets from the stable token bank, further collateralizing the stable token because the remaining reserve assets are backing a smaller circulating supply of it.
As an example, assume BTC is trading at 20,000 euros/BTC. You buy 20,000 EURU from the EURU bank, with 1 BTCU. The value of BTC rises to 200,000 euros/BTC. You redeem 20,000 EURU for 20,000 euros of BTCU from the EURU bank. In the unlikely case that you were the only person that added assets to or removed assets from the EURU bank, there are now 180k euros of BTCU backing zero EURU in circulation, making the EURU supply infinitely collateralized.
9. What happens if a stable token’s per-token treasury value goes higher than the fiat currency oracle?
Stable tokens do not have a treasury, unlike many other types of tokens on Unit Network. All assets used to purchase stable tokens go to the stable token’s bank.
10. How can one redeem from the bank once the stable token is overcollateralized, and assure that the funds are not moved out of the bank?
Stable token banks have a function whereby if a user sends it a stable token, then the bank will send the user an equivalent value of crypto assets, given that the bank is 10x overcollateralized. The stable token bank is an automated “non-human” account, so it will only do very specific actions like this one.
This is unlike other token banks, where the operator of the token can transfer and otherwise manage digital assets in that token’s bank.
Down the road, people will be able to build on top of tokens/user accounts to program specific functions and behaviors beyond those originally programmed.
11. How has nobody else done this? Seems so obvious.
One of the benefits of building a tailored special purpose blockchain rather than an application on an all-purpose chain is the capacity to fit exact needs and specifications. On Unit Network, the feature set — non-custodial bank and treasury, decentralized wrapping of multiple open blockchain tokens, and decentralized custody of underlying unwrapped assets held and put to work across the network by vaults — puts its technology light years ahead.
12. Do stable tokens on Unit Network earn a yield?
There is no direct yield on Unit stable tokens, though staking USDU as a pair with any other token in that token’s TOKEN-USDU liquidity pool allows for earning trading fees from that pool. Note that staking in liquidity pools carries the risk of impermanent loss. See the “Liquidity Pools” article from Unit.News to learn more.
13. Why would someone lock up digital assets to mint stable tokens, with no yield?
They want to participate in the Token Economy.
14. How does USDU ever decorrelate from and expand beyond token economy users?
We believe the token economy will become the global economy, so no decorrelation will be needed.
15. Will USDU ever be useful, like USDC, outside of Unit Network?
Plugged into Polkadot, USDU will be able to be transferred and used across the global blockchain ecosystem.
16. What is the major difference between USDU and MakerDAO’s DAI or other asset-backed stable tokens?
Two major differences:
1. Stable tokens like USDU on Unit Network are freely purchased with decentralized digital assets that are stored in their original form as collateral. DAI and similar stable coins require lending and borrowing, leverage ratios, and other metrics to be carefully chosen and managed in order to succeed.
2. USDU uses exclusively decentralized and diversified digital assets for backing, while DAI is backed to a significant degree with custodied assets like WBTC and USDC that carry risks inherent to centralization. As far as we know, Unit stable tokens are the only stable tokens backed 100% by decentralized diversified digital assets.
17. How is UST different from USDU? Is USDU an algorithmic stable coin?
USDU is not an algorithmic stable token. It’s not simply backed by code but also by digital assets. We believe this model is far more sustainable and fundamentally sound.
18. How is USDU going to be decentralized?
When Unit Network is a parachain on Polkadot, USDU will be decentralized like the rest of the chain.
19. When is the parachain coming? Will there be any more USDU rebase after that?
Q3/Q4 2022. There will be no more rebasing once the network is decentralized.
Any other questions you want to be answered — Ask them on Unit’s Telegram Channel.
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