Why Synthetic Derivative-Backed Dollar?
Synthetic dollar backed by derivatives can achieve stability, scalability, and censorship resistance.
Last updated
Synthetic dollar backed by derivatives can achieve stability, scalability, and censorship resistance.
Last updated
Synthetic stablecoins are backed by a synthetic asset or a combination of assets rather than being directly backed by fiat currencies or other collateral. Synthetic crypto dollars are often created and traded on decentralized finance (DeFi) platforms, where users can mint or purchase them in a permissionless manner. USS and eUSS is a synthetic dollar backed by derivative contracts and spot positions of Solana.
USS uses a delta-neutral approach by staking JitoSOL and offsetting risks with shorting spot SOL. Similarly, eUSS is also based on delta-neutral position of staking jitoSOL and perfectly hedged SOL with perpetual dexes. This strategy ensures both USS and eUSS maintain stability irrespective of market movements in SOL while offering users attractive yields. USS achieves enhanced yields by blending returns from staked assets and MEV reward from Jito. eUSS achieves superior yields by combining USS' enhanced yield with earnings from funding and basis spreads in perpetual markets.
Stability is ensured by a delta-neutral position executed immediately on the assets transferred to mint USS and eUSS. The delta-neutral position makes sure USS and eUSS are not subject to the directional move of the underlying SOL. This is because any price movement on the spot SOL side is completely offset by the movement on the SOL perpetual side. In the unlikely event of a large swindle in the funding rate, our insurance fund is sufficient to absorb any losses until the funding rate reverts to the mean. We extensively discuss the low risk of depegging in the Risks section.
Users in eligible jurisdictions can freely mint or redeem USS and eUSS in a permissionless manner. This decentralized governance arrangement ensures full transparency and allows users full control of their assets. Hence, there are inherently no risks of fraudulent activities and fund misuse.
Unlike traditional overcollateralized crypto-backed stablecoins that require more than $1 worth of crypto assets to mint $1 of stablecoin (as much as $1.50 in some cases), Setora Labs allows users to mint 1 USS or eUSS for just $1 worth of crypto assets. This is possible because a delta-neutral position only requires $1 face-value to generate $1 worth of USS or eUSS. Therefore, users do not bear the opportunity costs of having to overcollateralize their stablecoins.
When USS token is minted, Setora Labs establishes a delta-neutral position, which is able to generate yield through a combination of staking yield and funding rates for perp positions.
Setora Labs operates on a non-custodial basis, which means we do not hold users' deposited crypto assets. Instead, assets are directed to decentralized protocols based on the strategy defined by the protocol per our smart contract. In the first stage, users' assets are staked with and used to purchase derivatives on DeFi exchange .
As of May 2023, Solana's market cap is at a staggering $65 billion, while the total value of staked Solana is $43 billion. This market cap is much bigger than the second largest stablecoin--USDC--thus allowing USS and eUSS room to scale tremendously. In the beginning stage of the project, we stake with , which has a Total Value Locked of $1.58 billion, and trade perpetuals on , which has more than $23 billion in cumulative volume. In the later stages of the project, we can easily expand our model to more trading and staking platforms.
