Decentralized finance is playing an increasingly important role in the Ethereum ecosystem with the adoption of classic financial operations such as borrowing, lending and various derivative issues, as well as instruments with stable value creation. DeFi is in the early stages of its existence, and the overall efficiency and variety of decentralized services is low compared to the fiat financial world. However, the programmable and decentralized nature of these services offers the potential for massive growth in the years to come.
DeFi services have different purposes and functionality, but their token business models are mostly weak, such as simple token business models of governance, and do not allow for long-term value capture. The majority of their symbolic value is based on speculation without sustainable biological engines. While many projects weathered the storm of cascading liquidations, Unit Protocol has proven the legitimacy of its business model with its USDP stablecoin.
What is the $ USDP?
$ USDP is a dollar indexed stablecoin similar to other stablecoin offerings like $ DAI. However, one of the concerns increasingly associated with the $ DAI is its growing reliance on centralized assets (e.g. USDC, USDT, WBTC, etc.) as collateral. One of the main differentiators of the $ USDP is the diverse set of cryptocurrencies allowed for collateral, giving it a healthier mix of decentralized collateral.
USDP Token Address: 0x1456688345527be1f37e9e627da0837d6f08c925
The $ USDP is pegged to the US dollar in a floating peg. This means that the value of the $ USDP, although pegged to the US dollar, will still experience little fluctuation in value. $ USDP maintains its stability through a combination of external (market), internal forces and incentive tools used by the $ DUCK token holders and the protocol team.
Each $ USDP issued is oversized, which means that at some point the value of the collateral provided is greater than the value of the $ USDP in circulation.
The Unity Protocol takes into account that the market can be self-regulated and ensures that the price of stablecoin hits its peg. The unit protocol allows users to issue the $ USDP stablecoin for a collateral provided. Instead of focusing on the price of stablecoin, it focuses on the value of $ USDP to ensure that it hits the peg over time. This mechanism allows Unit Protocol to adapt over the long term.
What if the value of the collateral drops?
In the Unit protocol, each USDP is fully secured by the guarantees provided. If the debt / collateral ratio exceeds a Liquidation Ratio (LR) for a CDP, the CDP will be liquidated. Anyone can trigger the liquidation by sending a trigger trade. There are liquidation robots that systematically monitor CDPs and trigger liquidations if the stated condition is met.
After triggering a CDP for liquidation, a Dutch auction starts for the underlying collateral with a linear decrease in price. (the price decrement step may be different for various assets, but for most assets this is a decrease of about 0.09% per block).
Each participant can redeem the portion of the collateral for the current price by paying the USDP debt for a liquidated CDP. The USDP debt is equal to the USDP amount borrowed plus the liquidation fee as a% of that amount.
After the collateral is fulfilled, the remaining part is returned to the borrower’s address, their USDP debt is burned, and the liquidation fee is sent to the governance pool’s address for fee distribution.
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