I’m currently at the Start of a Project and would like Blockzero Labs opinion.
The main Goal is to create a DEX(AMM) that allows its users to HEDGE their Fiat Currency against Inflation.
How will it Work:
You Collateralize any Crypto that’s accepted by the DEX at a rate of 95%
->while doing so your Crypto will be put into an AMM together with fresh minted USDH(Stable coin of the DEX) at the Market Price.
->you will recieve 95% of your provided Crypto in form of also fresh minted USDH
You can now stake your USDH and get rewarded with a part of the AMM’s fees.
If you don’t want to face impermanent loss you might swap your USDH into any Crypto and than to Fiat or other Stablecoins.
→ the swap rate of USDH/USD will be volatile to the extend of vollatily of the underlying assets
→ to lower Volatility the max Liquidity of one Market can not be bigger the X % of total Liquidty.
Impermanent loss on profits.
→ If you Collateralize your Asset with USDH you are highly protecting the downside of your asset but also halving the upside.
→ Downside, if your Asset losses 75% of its Value you can now buy nearly 4 times the amount of your Collateralize’d Asset.
→ Upside, if your Asset increases by 100% your position will be worth +50% instead of +100%.
Ones you wish to redeem your position you have to Pay back your received 95%.
→ If you redeem your Position, your USDH and USDH of the AMM will be burnd.
→ If the Crypto price is higher then at the provided time you will receive Back a part of your Crypto and additional USDH as replacement +fees.
→ If the Crypto price is lower then at the provided time you will receive back 100% + fees in Crypto.
→ Additonal Crypto from the your redeemd Liquidty which equals the part of missing USDH will be sent to the BurnPool.
->Users can burn their USDH in exchange for Crypto from the BurnPool.
The Value of USDH comes from the value of paired Assets in the AMM with USDH. Mechanisms to create stability and more:
Stability through predictability. Although Pairs like USDH/USDT or USDH/DAI won’t stay at 1:1 their Price change can be predicted most likely quit accurate.
→ How to know the future Price of USDH → Simply by looking at possible Arbitrage opportunity between USDH-Marketplace and other CEX’s/DEX’s.
→ Since People like to make Money, Somebody most likely will take advantage of Arbitrage opportunity and therefore driving the Price into the overall Markets direction.
Stability through diversification.
→ Cryptocurrency’s, Stable coin’s, Metal-pegged-Token, Synthetic Assets(Fiat,Stocks,Bonds…) all paired with USDH will naturally create uncountable amount of Arbitrage opportunity’s.
100% of USDH in circualtion is always backed by Crypto
→ USDH created through collateralizeing have approx. 105% its value backed.
→ to get USDH out of the AMM, one has to swap it with another Crypto and therefore automatically backing the received USDH
Hedge against inflation? Blockchain although now having marketcap of 1 Trillion dollars, its most likely still in its “early days”.
→ there is no big Mainstream adoption yet for Blockchain’s, but we most certainly are heading there.
→ therefore as more people start using Blockchain’s it will most likely increase the value of trusted/ used Blockchain’s.
→ holding Crypto is for some people to “risky” because of the high volatility of Cryptocurrency’s.
→ allowing collateralizeing of Crypto at approx. 95% of its value gives everybody the possibility to invest long term into Blockchain without risking more then ~5% of ones capital.
Success of the Platform. Most important is to create some initial Liquidity high enough for Hedgers to collateralize at ~95%.
Now please everyone reading this Article please share your opinion.
→ Does everything explained above makes sense to you? If no, what doesn’t ?
→ Would you use such a DEX either to Collateralize, Arbitrage or Stake? If no, why not?
→ Do you see any flaws in the System? If yes, what flaws and what would be your solution?
→ Any other suggestions, ideas, thoughts…?