The role of $fUSD in the $FTM ecosystem
Stable coins is a hot topic right now. And since I’m invested in the $FTM ecosystem, I was keen to learn more about Fantom’s native stable coin $fUSD.
Disclaimer: Nothing in this post is a financial advice. These are just my notes I took when researching $fUSD. I don’t pretend to be an expert on stable coins.
Overview of stable coins
Before I dive into $fUSD specifically it’s important to look at the “stable coin market” in general.
Coincidentally just when I was doing my research @phtevenstrong (The Calculator Guy) released a video on different kinds of stable coins.
I recommend watching his full video.
However, the key points I noted down (combined with some research of my own) are the following:
Types of stable coins:
Collateralized stable coins - $USDC, $USDT
Overcollateralized stable coins - $DAI, $MIM
Partially backed, partially algo - FRAX
Full algo - $UST, $USN
USDC
BlackRock manages their $51bn reserves. It’s a centralized stable coin with very little transparency. It’s hard to know what exactly is in their reserves. The only assurance we get is their attestation report regarding the reserve balances. This report basically says “Trust us and our auditors that it’s all there” as there is no detailed information.
USDT
It’s the largest stable coin by market cap. It’s more detailed than $USDC, however, there is still only high level information available about their reserves. See the reserves breakdown in the image below.
The same as with $USDC they have an auditor that confirms the balance of their reserves with no details. So it’s not possible for us to assess the risks of their reserves.
Recently there were rumors spreading (not sure if confirmed or not) about the exposure to Chinese real estate market.
Now you see why it might be important for the $USDT holders to have a bit more detail on their reserves.
Trust in the auditors is a key component when you are holding USDC and USDT.
DAI
This is the top decentralized stable coin. If you want to have more visibility on what a coin is holding in the reserves you might just want to go for a decentralized sable coin.
How it works. You provide a collateral and then you mint a stable coin against that collateral.
We can look at the analytics and see what $DAI has in reserves.
Dai Collateralization (pie chart on the left) means the collateral that has been added to @MakerDAO. ETH and USDC are the two largest positions. If you are a non-believer in collateralized stable coins like $USDC then it might be a bit weird holding $DAI as approx. 20% of it is backed by $USDC.
For the pie chart on the right I suggest you watch the video by The Calculator Guy. But essentially what it means is that USDC is the largest because it’s a stable asset and you have to provide less collateral. While ETH is an unstable asset and you have to provide more in collateral.
But why it’s called overcollateralized? Look at the collateralization ratio. It says that there is 68% more collateral than there is $DAI.
MIM
Another overcollateralized stable coin. So the mechanics would be similar/the same as for $DAI. The analytics for this coin is not up to date, however.
FRAX
A partially collateralized stable coin. They call themselves Fractional-Algorithmic. Parts of its supply are backed by collateral and parts of the supply are algorithmic. When looking at their analytics we can see that currently 89% are backed by assets and the rest is the algorithmic part.
UST
I think there is no point in me writing anything about $UST. Today all the crypto twitter is an expert on this coin. You can see a compilation of some useful tweets about this coin below.
From this list of tweets you can learn the mechanics of an algo coin.
It’s also probably useful to watch a community hangout call with @lafachief where he explains $LUNA $UST.
TOR
I’m going to skip $USN but I’ll put down another algo coin instead - $TOR.
I was following @HectorDAO_HEC for a while and this team keeps on delivering. According to @PrometheusHEC they have sufficient Runway to keep working. And I’m interested in seeing how their stable coin will perform with the recent craze of $UST.
It’s Released in early 2022 by Hector Finance. According to their discord - minting/redeeming mechanism is the only similarity to $UST. $TOR can’t be minted if there aren’t enough stables to balance the pool. $TOR is ultimately backed by HEC’s treasury.
To conclude the overview I recommend reading this article by Arthur Hayes (@CryptoHayes). It’s a deep dive on stable coins.
https://entrepreneurshandbook.co/luna-brothers-inc-712ec5abe199
But what about $fUSD?
A bit of history
There aren’t a whole lot of information available on $fUSD. From what I understand it was initially developed by the @FantomFDN. Allegedly due to limited amount of resources they would like to trust the development of this stable coin to another team.
@FantomFDN reached out to @lafachief from @DeusDao. Given that the $FTM community is doing their best for $FTM to succeed, many top $FTM projects were interested in helping out. This led to the creation of @eulogyDAO which is lead by @DeusDao and it’s main goal currently is to restore the peg of $fUSD.
@EulogyDao consists of @SpookySwap, @multichainxyz, @0xDAO_fi, @beethoven_x, @Spirit_Swap, @LiquidDriver, @DeusDao.
These are all blue chip $FTM projects that want $fUSD to succeed.
I hope I got the history correctly.
How $fUSD works
It’s not an algorithmic stable coin. It’s an overcollateralized stable coin.
There is a single type of collateral $sFTM (staked $FTM).
$FTM —> staked $FTM —> Mint $fUSD against the $sFTM collateral.
If the collateral goes below a certain level, a loan will be automatically re-payed which ensures a value of a token.
It will be using FRAX v2 AMO. AMO = automated monetary policy and enforcer. Dynamic interest rates. To push people to borrow or to push people to repay loans.
Currently the $fUSD is not pegged and the reason is because there are no liquidations.
Why $fUSD
To understand why $fUSD is needed I highly recommend watching @FTMAlerts live stream with @EulogyDao.
The validators are not active. They are not voting.
Their $FTM is locked and it generates revenue. They have no need to think about it = less validator participation. No incentive to be active. $fUSD gives staked $FTM liquidity.
With liquid staking it gives validators a reason to be active as they can use it.
It’s a a vehicle to have more validator participation to drive people to stake more $FTM.
Liquid staking achieves less circulating supply of $FTM and unlocks a huge amount of capital that is locked in the nodes. $fUSD will enable them to unlock this capital, this capital will then move to markets. More capital will be staked, less circulating supply, upward pressure to the price of $FTM.
I won’t try to explain the value in $fUSD as @_unified_theory has already done it better than I ever could. Especially pay attention to part 2.
Source links and Discord screenshots
https://daistats.com/#/
https://app.frax.finance/
https://docs.frax.finance/
https://medium.com/nearprotocol/decentral-bank-launches-usn-a-near-native-stablecoin-cafe1ec0c5af
https://medium.com/@HectorDAO/everything-about-tor-hectors-farming-pools-b8b7289f7b9d
https://medium.com/@HectorDAO/why-hec-tor-and-luna-ust-are-not-alike-8f5e7d8c75ef
https://app.hector.finance/#/mint
https://deus.finance/
https://entrepreneurshandbook.co/luna-brothers-inc-712ec5abe199