Evolution of current stablecoins models

Transcript

[Music] Hello. Um, hi everyone. [Applause] Uh, thanks for being here. Um, so I think we're the least famous project to speak here today. My name is Pablo. I'm a co-founder of Angular Protocol. We are a decentralized uh stable coin protocol behind uh AG Euro. Uh so it's a Euro stable coin. We took a super targeted go to market strategy. We're live on many different chains. Um we have a TVL of approximately 30 million. Uh and we are

the biggest decentralized euro stable coin to date. Um, so today I'll be giving a quite a I'll be introducing a new design uh for a stable coin that applies to angle and aguro but that can apply to potentially any stable coin protocol out there. So I'm glad to get this opportunity to speak today because uh the year of 2023 was rather tough uh for us as a stable coin protocol. Uh angle we unfortunately got involved into the oiler hack which led our stable coin a zero to the peg. Uh and right before the oiler hack we faced a big event which was a big learning event for anger but also for all the stable coin out there uh which was the USD peg. Um so

for those who remember in the month of March uh 2023 uh the price of USDC crashed over a weekend to uh well 97 uh 90 96 cents according to Coin Gekko but uh if you looked into data it was more 90 cents. Um and so this event where like USDC was a stable coin which was backing a lot of stable coin protocols showed that there was no stable coin protocol that was sufficiently well prepared to handle black swan events. Um so it was a big learning occasion. So what happened for instance in the case of maker? So for those who don't know maker they have what we call a price stability module where they have USDC but also GUSD which people can use to

mint dye or people can burn dye for the assets in the price stability module. So when USDC was worth 9 cent uh point.9 cents $9, uh people like minted uh with the USDC die and the protocol assumed that like stable coins could be exchanged at the 11 one rate and so people redeem uh GUSD was $1. So basically maker got armed. um the GUSD reserves of the protocol got fully uh depleted and maker ended up only exposed to a weak asset at the time which was USDC. Um the thing is during all this period no one had an idea of the fair value of maker because um the maker had

governance had to intervene to change some parameters of the price stability module. there was not a full transparency um for existing stakeholders. I mean the governance processes were transparent but not anyone could anticipate what uh would happen to maker and in fact what happened to maker is a natural tendency for many automated systems. So here I've plotted the uh evolution of the composition of the 3CRV pool on curve. The fact is when you have an automated system in DeFi um like the 3C 3CRV pool it's often left holding the weakest assets in face of distress. So if you look into unis swap pools if you have a token that is depreciating well the the

majority of the pool will be composed of this weak assets. So here what I'm going to try to do and to explain is to show how we can build an automated system that can um improve uh that can resist this kind of natural tendency of all the reserves being fully exposed and made off the weak asset. And the reason why we want to do this is you know like maker um held like billions of USDC and if we really want to revolutionize the world's financial infrastructure using finance and blockchains well we need systems that can autonomously withstand any form of black swan events because there will be other black swan events.

Um so this brings the question of what should an ideal stable coin look like. Well, first it should be scalable like it should work with 1 billion TVL just like uh with 1 million TVL. It should be autonomous. You you shouldn't need any form of governance or manual intervention in the face of a black swan event. It should be resilient uh in the sense that it is able to come back even better from like situations like the USDC peg. It should be fair like there shouldn't be any privilege advantage to some addresses. there shouldn't be any sequentiality in place creating bankrun mechanisms where it like first arrive first served. Um here maker uh their reserves were diversified between USDC and GUSD. So a good stable coin system

should have diversified reserves and also it should be generalizable to any type of asset like here angle we're pushing for the euro maker for the dollar a is doing the go euro the go the go dollar but like we need to bring onchain uh primitives back to almost anything so the system should work for us a euro a cf stable coin or any type of asset so how do we manage to build this um and I'm going to explain here the vision And the mechanism that we call the transmitter we have developed with angle. So transmitter it's kind of simple. It works as a basket of different assets uh which are isolated in the reserves. Transmitter needs to

detect when something goes wrong with one of the assets that is held in the reserved. So we need to take for to follow for each asset a target price and a current price. And that's why we introduce the deviation metric. We also need a way to control how the reserves uh what the reserves are made up of. So we need to control our exposure to each of the assets in the reserve. So for instance we want to track that oh we have 40% of uh the stable coin are backed by USDC 30% by go and 30% by uh die. And this exposure metric is something that uh the transmitter system tries to always maintain and control uh during its operations. So with this

mechanism um there are three main operations that I'll be explaining. You can mint a stable coin, you can burn it and you can redeem it. And I I'll explain the distinction between burn and redemptions here. So the goal of the system is to make sure that when something goes wrong, the uh the assets are not the reserves are not only made up of the weak assets. So it's to kind of freeze the exposures of the system in case of a black swan like the USDC peg. How do we do this? At the mint level, it is possible to mint the stable coin at a price which is equal to the minimum or the maximum uh of the invert of the target price and the current price. So

if you have a stable coin in the reserve, well, you assume that the target price of this stable coin is like 1. But if this stable coin is worth 95 cents, well, you will need to bring one dividing point. 0.95 to mint the stable coin. And it's actually it actually makes it expensive to mint the stable coin like a zero with a depet. So in this sense here with the mint we are preventing we would have prevented people to mint die with USDC during the USDC dip. In the burn case we saw that with the maker example people were burning that die for uh GUSD. Um and the thing is the with the transmitter the price at which the burn happens it's the smallest price of all the stable coins

in the reserves. So if for instance you have USDC and GUSD in the reserves you will be able to burn die 4G USD but at a price which is equal to the USDC uh to the USDC price. And this guarantees that if something goes wrong well people are not all going to rush towards the like uh the the safe assets and to exist to exit with the safe assets. So here with just this mint and burn functionalities we have a mechanism that without needing any governance intervention provided that we have solid oracles um we can freeze the exposures of the system we can freeze the reserves and make sure that not everything goes into something that is weak. Um so here I gave an example of you know when you mint with

one stable coin you are increasing the the exposure to this stable coin and when you burn for another stable coin you are decreasing these exposures. So we have this mechanism to like freeze the reserves the exposures but how do we make the exposures to each asset like converge towards a desired ratio? How do we guarantee that oh when I set my parameters I will end up with 50% USDC and 50% GUSD for instance. Um the way uh we do this and the way the transmitter natively supports this is by having dynamic fees which depend on the desired exposures to this asset. So for instance, if you are overexposed to an asset, it's going to be cheap to burn for this asset. Uh and it's going to be expensive to mint with this asset. And

this way uh and through simulations, you can naturally and provided that the system is well integrated by aggregators like 1 in ODOS uh and this kind of um of systems, you get a way to make your exposures converge towards a desired ratio. But what if like things go wrong and people no longer want to burn because the fees have been set to like 100%. Um what if people can no longer exit because fees um are too high for them. And this is really the the changing feature of um like transmitter is that there is a redemption feature and it's kind of of natural when you think about it. you know in bankruptcy remote system um when you own a stable coin or when you own an asset from a

company if this company goes bankrupt or even in normal cases you should be eligible to own a portion of the reserves of this uh company. So the redemption of the transmitter enables you to exchange a portion of the stable coin issued by the system against a portion of the reserves. So like you come with one aguro there are two one euro a one euro b in reserve you get.5 of each stable coin it comes with um a subtlety in the sense that when you redeem you may pay a penalty factor and this is a feature which is inspired by gyroscope which is another stable coin protocol out there um meaning that if the stable coin starts to be a bit under collateralized because I don't know USDC

peg you are paying a small fee when redeeming uh which disincentivize bankrants uh and kind of recolateraliz recolateralizes the system. So in case of a small stress like the USDC peg you may leave if you want to you may redeem a portion of the reserves but you will do this in a way that makes everyone better off and this trans this redemption system which doesn't involve like any price computation is what makes the system truly fair. you know, you redeem a portion of the reserves, you're not affecting the exposures and you are making sure that everyone is treated the same way. This feature also it exists at all times. You don't need any governance intervention to to activate it. Uh and it makes the system truly predictable to all stakeholders. Like if Maker had had

this redemption feature, well, no one would have needed to anticipate the outcome of the governance votes, you know, uh people would have been able to see, look, I can redeem my die for the portion of the reserves and this is what the fair value of D is since I can always redeem it. Um so depending on the scenario you may prefer to burn or redeem and there are different situations where you may be better off redeeming in terms of monetary value you're getting or of burning. So back to the transmitter with these three systems. Is it a system that is scalable? Yes, because all the parameters are relative like it's not absolute figures. Uh and you can have the same set of parameters with 1

million TVL or 1 billion. It's autonomous. You don't need any governance intervention to activate the features protecting it in case of black swan. It's resilient because you may want to leave at any time in case of black swan but you are leaving the system better off in this case. It's fair because of the redemption. There is no like there will be no me type of of stuff with people rushing to redeem the stable coin because any everyone is treated the same. Reserves can be diversified and it works for a euro. It's going it can work for any stable coin. We've we've got some additional properties like implementation is gas efficient. We have some pass independent. So if you look into the white paper, we derive some mathematical elements to show um how we can implement this efficiently.

So on applications against I mentioned angle and a zero. Uh in fact you could imagine as well uh an ETH stable coin that is backed by LSTs liquid staking tokens uh and that serves like as a basket of different liquid staking tokens and that passes the average yield uh to the stable coin holders and in fact the way we see the transmitter system is like as a basket stable coin as a basket of stable coin that aims to be more resilient than any of the assets in the backing. So if you make this like east stable coin the goal would be to have the east stable coin safer than any LST taken individually like ST fra and so on. The big question though like here I've introduced a system um well it's

not live yet uh but simulation shows that it works but is it really a stable coin that uh is used and you know your job when you're contributing to a stable coin project is one to make sure that the stable coin holds and will keep its spec at all times but two uh and it's probably the most important thing and many people tend to forget about it is to create demand. So how can you create demand um with a system like this? The I'm going to take a kind of an opinionated opinionated answer and kind of answer the way we count on doing this with angle and how this system can naturally help us build demand for angle stable coins. Uh the first thing is the system can be compatible with any collateral assets like you can have real

world assets for instance that are earning a yield and the advantage of having these assets is that it makes the protocol kind of efficient in terms of revenue. you know you have assets in your reserves that are earning a yield and contrarily to other like banking systems where you know like the Silicon Valley bank uh they have deposits they are investing these deposits into uh like bonds but whenever someone comes to redeem uh to withdraw their money from the Silicon Valley bank they need to sell their bonds they need to set their their portfolio and acknowledge their loss here with the transmitter you don't need to um like sell when people are going to redeem because people can redeem the underlying people can redeem

the real world assets from scratch um when when they are like burning for instance their ag. So all to say that this system can be an iteration could be an iteration for maker for their real world assets. Uh and for angle we are going to use it provided that governance approves it um to power a native savings contract that is going to pay to every a holder the risk-free yield of the market because our intent is to have like forms of super risk uh like with a super small risk like government bonds and corporate bonds of super short maturity that leaves the protocol with no big um like uh exposure to interest rate risk. It's another another question. uh the how you

choose your your exposures. But in the end, you know, this system, the transmitter system, but more generally most decentralized stable coin systems are super similar to what you get in other trady solutions um like CDP infrastructures uh that enable you to take loan like to borrow die. Well, they are similar to like what banks can offer when you put like shares of a company or your house to take to take a loan. um the transmitter system and any form of price stability module. It's a way to you know people deposit and then there is some form of mechanism that enables to invest the reserves so that I can pay to people who deposit in the bank the the yield I'm making on my reserves but

you know like what I'm personally interested in in defy it's not replicating it's trying to improve over how like financial applications how the financial ecosystem works and here we are just replicating And how can we actually put this at scale when it's already the equivalent of an industry that has existed uh for like hundreds of years. And I believe that the way we are going to grow DeFi and the way we are going to grow any stable coin is by leveraging the core of the technological stack we are built on. It works for stable coin but it works for any type of asset. It's by leveraging the transparency, the composibility of the systems that we are actually going to provide and to build tools that give

incentives for people to use them at scale. You know, here with transmitter, but it's going to be the same with any stable coin. anyone will be able to see the state of the reserves to see that oh angel may be facing a liquidity risk to see that angle has this exposure to USDC rather than having to wait for a circle announcement on oh we had some funds in the Silicon Valley bank and growing a stable coin as I said it's not only going to be about inventing smart systems it will need and it's not going to be funny it will need iterations around transparency around auditability around risk management because here we can accept any asset in the backing but what assets do we need to accept? It's going to be about Dowo processes to make the management um and the choice of parameters kind of efficient. It's going

to be about iterations on smart contract security because why would I put funds in a protocol if the the expected probability that this protocol gets hacked uh is higher than the money I can make with this protocol. And it's by iterating on this that with strong systems like transmitter, we'll eventually get to a place where stable coins and decentralized stable coins potent uh most likely will gain momentum. Thank you. [Applause] So if you have I'm running out of time.

If you have any questions, I'll be uh outside uh to answer. Uh thank you.