A native-currency-backed algorithmic stablecoin protocol managed by a reserve ratio. Developed by Ergo Foundation, EMURGO, and IOG. First implemented on ERGO.
The AgeUSD stablecoin protocol is “an attempt at creating a higher assurance alternative to the current trends in the crypto-sphere”. Most decentralized stablecoins in the crypto ecosystem operate on model based around collateralize debt positions, CDP. AgeUSD is an algorithmic stablecoin, that is designed to be much sturdier than the aforementioned protocols. Follow this link to find out what famously happened to a CDP stablecoin in 2020.
The AgeUSD stablecoin protocol is built on top of ERGO, another eUTxO blockchain like Cardano, and, thus, it will be able to be used to deploy stablecoins on Cardano.
How Does AgeUSD Work?
There are two users in the AgeUSD protocol:
- Reserve Providers
- AgeUSD Users
Reserve Providers provide the reserve assets that keep the issued stablecoin's value stable. The Reserve Providers add ADA to the protocols and receive ReserveCoins that represents their portion of reserve ownership.
AgeUSD Users add ADA to the protocol and withdraw AgeUSD at the current ADA/USD rate. When they return their AgeUSD to the protocol they receive ADA based on the ADA/USD rate at that moment.
Minimum Reserve Ratio
A minimum reserve ratio is the controlling factor of the protocol. It ensures that there is enough ADA in reserve to cover the value of the issued quantity of AgeUSD should there be a major downward movement in the price of ADA.
When the ADA price moves up and the value of ADA in reserve exceeds the minimum reserve ratio then Reserve Providers can return their ReserveCoins to the protocol to withdraw ADA, and they will receive more ADA in return than they deposited.
The platform also collects transaction fees and these are added to the reserves in the platform and, as a result, Reserve Providers also earn a proportion of the fees paid to the platform. That proportion is equal to the quantity of ReserveCoins they own.
If the value of the ADA stored in the protocol, when compared to the issued value of AgeUSD, is below the minimum reserve ratio then Reserve Providers are unable to return their ReserveCoins and withdraw the reserves they provided.
Here is an excellent, and simplified story that explains how the protocol works.
A headless dApp is available to developers so they can use, access, and monitor the protocol in a command line interface. Developers can then develop their own user interface to allows users to easily access and use the protocol, collecting fees for doing so.
Default fees for the protocol are:
1% Protocol Fee Charged on all minting and redeeming transactions. That is the deposit and withdrawal of tokens, for both AgeUSD and ReserveCoins, by both the types of users of the protocol. These get put into the protocol’s reserves.
0.25% Fronted Implementor Fee This fee is paid out automatically to the person who created a user interface for users to use to interact with the dApp. To receive these fees the developer simply needs to fill in their address in the required field in the code.
These fees, along with the minimum reserve ratio, can be changed by the person who implements the protocol.