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Behind the Product #3 — Visioning Self-Sovereignty in Protocol
Decentralization has not been just a feature that blockchain could enable, but indeed a vision, an ideal value, that deeply embedded, and embraced, within this industry — to become sovereignty-less, and bring power to people.
However, are we really that decentralized, yet?
Sovereignty in Protocols
For most of the protocols (as of 2021), being decentralized is somehow still an over-statement. No matter how decentralized the protocol claim to be, there’s always a portion of its mechanism is owned by the protocol. A typical example would be a custodian model that letting the contract to house the assets as a kind of reserve controlled by the protocol. Rather than being a treasury module, which used to be risen from revenue for funding protocol activities, such kind of reserve just locking up the assets owned by users and sometime even use them to “stabilize” the protocol economy during “an emergency situation”, may or may not be upon a “council’s decision”.
In such design, the on-chain contract has been utilized as the absolute entity here. The contract is the sovereignty, just because they are designed to control something you own, with your permission.
Sovereign is he who decides on the exception. — Carl Schmitt
But don’t get me wrong, this is not necessarily a bad thing. Say, some stablecoin protocols stake members’ collaterals for yields and hence waiving the stability fees (of course with a trade-off that making the collaterals exposing in some level of credit risk), which is definitely an edge to their product. Still, it’s just bugged Standard team for a while — how far we should go when designing Standard Protocol, our stablecoin ecosystem, when what we really want to achieve is indeed something truly decentralized and completely trustless?
Recalling our origin, being a project under Web3.0 foundation, this was what Gavin Wood has said for his Web3.0 vision years ago:
Web 3.0 is an inclusive set of protocols to provide building blocks for application makers.… These technologies give the user strong and verifiable guarantees about the information they are receiving, what information they are giving away, what they are paying and what they are receiving in return. ….. Consider Web 3.0 to be an executable Magna Carta — the foundation of the freedom of the individual against the arbitrary authority of the despot. — Gavin Wood
We believe the future of the Web3.0 is indeed our answer.
There’re protocols that built with sovereignty, authorities, laws, rules, or just controls, in mind; there should be one builds without being the sovereignty, or at least committed to avoid being one, and in its best to put the power and ownership back to the people. There should be an option in the market.
Sovereignty should be a choice.
Hereby, Standard team is proud to announce our redesigned stablecoin, MeterUSD, which will be the first self-sovereign non-reserve stablecoin, which will be launching in early Feb, 2022.
We are going to be the choice.
The Stablecoin Protocol Owned by Individuals
We’re no long just talking about being a DAO with voting rights (for record, we still are), we are talking about how we keep our philosophy in enabling self-sovereignty on individual level through our technology and architecture. In layman terms, we build the protocol such that you own it, not owned by it.
Let me elaborate the enhanced design.
Rethink CDP — You Own Your Debt
As a stablecoin protocol, one of the sovereign area that contradict to our philosophy is how should we store the collateralized assets? For beginners, here a short walkthrough on how most over-collateralized stablecoin works.
- Contract define the collateralization ratio between $Asset to $Stable based on market price.
- User borrows $Stable by collateralizing $Asset and locking them on the contract.
- $Stable are minted according to the terms underlying by the contract.
- a Collateral Debt Position (CDP) transaction is recorded on the contract, which including information on the amount of $Asset and $Stable debt.
- User can redeem their asset by repaying the $Stable recorded in their CDP
In the existing model, users are indeed giving up their sovereignty of their assets by locking them onto the contract, which has been believed to be necessary for stablecoin minting.
We are going to challenge this today.
If it’s the reserve stored on the contract keeps us away from our self-sovereign vision, then let’s make it a contract without reserve owned by others. And we named it a non-reserve contract.
Introducing a new CDP standard (sorry, can’t resist on the pun),
- Instead of recording just as a CDP transaction, users who borrow our stablecoin MeterUSD will also mint a NFT of representation of the CDP.
- Users’ assets are locked within the CDP NFT, signed by the contract.
- Users hence maintained their sovereignty on their assets (a debt position in this case), and of course, freely to do anything with it.
Not only now the contract does not hold any reserved collaterals that supposed to be owned by others (and hence better security and sovereignty to people), this also unlocks few interesting features that we will also implement after the launch of the stablecoin module:
i. Trading CDP NFT as a normal NFT
this enables an additional new way to regain liquidity without redeeming MeterUSD, even better, degens may now also long and short their CDPs in a secondary market for future arbitrary.
ii. Moving their CDP to any Standard-supported Chains
following on our CTO’s proposal EIP-4469, NFT can be wrapped into ERC20 and be transferred across multiple chain through our Standard Portal later this year.
iii. NFT Staking for Standard CDP
this may worth its own article indeed. but to keep things short, we will allow CDP Staking to yield our network inflation, i.e. farming $STND, meaning that you will be able to borrow stablecoins for leverage but yield return at the same time.
In such design, our contract no longer owns any reserve that is owned by you, and for once, our users can finally own their assets in a stablecoin protocol.
Rethink Liquidation — Community Owns the Process
In overcollateralized stablecoins protocol, sovereignty does not only exists on the asset ownership side, but also within the stabilization mechanics, the liquidation process.
For most stablecoin protocols, liquidation is the essential step when the collaterals in a bearish turn and causing those on-contract CDP (as records) no longer be able to support the lent value of stable tokens in the market. What they would commonly do is, as the contract owns your assets like a bank, theysimply liquidate your assets to a selected group of users. Says, MarkerDAO auctioning out liquidated assets only to $MAKER owners. This is, of course, still a proven model to handle assets and most of them are indeed operating well with reputation. The thing is, in our point of view, its decentralization claim starts breaking at this point. Protocol holding the reserve and being the sovereignty might not be ideal to Web3.0 philosophy.
Members that have been following us knows that a cross-chain DEX is one of the key-to-success component in our design, and indeed this is also our answer to the above problem. With CDP and assets held in users’ wallet, liquidation triggers in a different way in Standard Protocol:
- Community members “hunt” for CDPs that should be liquidated (i.e. those have assets with lesser market value than the borrowed MeterUSM), and trigger the full / partial liquidation remotely through our contract.
- Portion of the asset from the CDP will be collected and streamed to our DEX, which will be tradable for everyone in a permission-less way.
- “Hunters” will then be rewarded with a small portion of the liquidation fee that taken from the liquidation process.
In short, we let the free market to step in liquidation in a timely manner.
When liquidation happens, usually the market situation of a particular asset is likely, ugly. In contrast, the beauty being the sovereignty of your own debt (i.e. you hold your CDP NFT now) is that you have more options under Standard Protocol design:
- if the assets in your CDP NFT is bearish at the moment with value near the liquidation thershold, instead of rushing to collect stablecoin from the market for redemption (which usually positively off-peg in a bearish moment as more people are locking down their profit), you may instead sell your CDP to someone who thinks the position is going to recover soon with an arbitrary premium.
- if you’re a community members and own some MeterUSD, you can wait for the liquidation happened, wait for the asset available on DEX, and shop for some discounted assets and gain some arbitrary as well.
On the economical perspective, liquidating to the market directly enable capital efficiency; in additional to this, users have full control in their collaterals with much more financial options — Just because Standard Protocol is designed to be self-sovereign.
These days, people keep asking the team why building yet another stablecoin? Don’t we have enough in the market already? That’s actually not wrong. Yet, to us, in Standard Protocol point of view, the current landscape is still far from our Web 3.0 vision — with every individual be the sovereignty of the web, or in other way round, the free web that truly owned by individuals.
But worry not, from now on, you know you have a new self-sovereign stablecoin to choose.
Ready to join us in this self-sovereign finance movement? :)
About Standard Protocol
Standard Protocol is the first Self-Sovereign Stablecoin protocol that embraces and visions the true decentralized form of Web3.0. Empowered by its interoperable DAO ecosystem, Standard Protocol empowers its users with full control over its monetary system through a multichain DEX, a decentralized Oracle and a non-reserve design for CDP using NFT. We’re also a recipient of the Polkadot Web3 Foundation Grant, Polygon #DefiForAll Fund and Shiden Network Builders Program Grant. Standard Protocol strives to innovate as the next-generation digital settlement currency, and prides itself on its global movement in self-sovereign finance.
- Behind the Product #3 — Visioning Self-Sovereignty in Protocol
- Sovereignty in Protocols
- Sovereign is he who decides on the exception. — Carl Schmitt
- The Stablecoin Protocol Owned by Individuals
- Rethink CDP — You Own Your Debt
- i. Trading CDP NFT as a normal NFT
- ii. Moving their CDP to any Standard-supported Chains
- iii. NFT Staking for Standard CDP
- Rethink Liquidation — Community Owns the Process
- About Standard Protocol