Following up on our coverage of ETHGlobal’s HackMoney Virtual DeFi Hackathon submissions comes an exciting new project called DeFiDollar – an index of stablecoins set to mitigate peg slippage through a suite on innovative DeFi products.
An index of stable coins that uses Defi primitives to stay near the dollar mark and subsidize the collateralization ratio. Let us know your thoughts!https://t.co/az028GfJgd
— Arpit Agarwal (@atvanguard) May 24, 2020
Built by the team at Matic, DeFiDollar aims to solve one of stablecoin’s biggest issues – maintaining the peg without overbearing collateralization ratios. While many have come to recognize Dai as the DeFi-leading stablecoin, many have voiced concerns with Dai’s ability to maintain it’s peg, largely due to the volatility of its underlying collateral. Here’s the DeFiDollar demo from HackMoney:
What’s To Know?
As an index asset, DeFiDollar leverages industry-leading stablecoins like DAI and TUSD to collateralize the creation of new DUSD. When stablecoins are deposited to the platform, they are automatically routed through Aave and turned into interest-earning aTokens. The aTokens are then sent to a Balancer pool, with the interest being earned on that collateral being redirected to an earnings pool.
By separating the interest from the underlying stablecoins, DeFiDollar can leverage Automated Market Makers like Uniswap and Curve for whenever people want to withdraw collateral or trade within the primary pool. With interest set aside, DUSD can effectively top different assets (triggered by Chainlink oracles) whenever they fall below the peg by sending capital back into the main collateral pool. Here’s a neat chart on how this all works.
DeFiDollar is currently live on testnet and can be accessed here. The product is still in its early day and currently only supports Dai, TUSD and MKR (not sure why MKR is supported). While there is still a long way to go before going live on mainnet, the design of the DUSD is certainly one which caught our attention.
In the past few weeks, we’ve seen a number of stablecoin projects look to take a crack at Dai. Citing Reflex Labs and RAI as an example, it seems like more and more projects are starting to take Dai’s design and peg slippage seriously. What’s interesting to note that this is a problem especially relevant to DeFi, mainly as other stablecoins like USDC have a much easier time maintaining their peg due to it’s trusted, fiat-backed nature.
With this in mind, the industry continues to search for a way to offer a trustless, permissionless stablecoin in a way that can mitigate volatility in the toughest conditions. While the design approaches we’ve seen differ, it’s tough to image a new stablecoin knocking off Dai as the DeFi standard in the immediate short term.
Especially now that we’ve seen WBTC give Maker another leg up, Dai is currently on track to break it’s ATH in supply in a matter of weeks. If nothing else, we applaud the DeFiDollar team for their design and are hopeful that they’ll push forward and keep iterating on the project in the coming months.
To learn more about the submission, check out the code here!
Cooper is the Editor of DeFi Rate and an active contributor to leading DeFi media outlets like The Defiant, DeFi Pulse, and Bankless. He works with early-stage teams through Fire Eyes DAO to incubate governance models and grassroots community development. He is an ambassador to Set Protocol and an author of a weekly publication called Token Tuesdays. To stay up with Cooper, follow him on Twitter.