BIP 000X: Balancing aggregated stablecoins

There is one important thing which we have to discuss and decide on - what percentage of the XUSD composition, should particular aggregated stablecoins have.

Another thing - what to do to balance those stablecoin pools.

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Do you think it would be possible to implement a feature where customers can swap aggregated coins backing their xUSD? Maybe we can rebalance the percentage of each coin by incentivizing certain swaps by creating a yield on the trade? Of course we would probably need to find arbitrage opportunities in Defi for transferring from one stablecoin to another. The yield the customer gets would be less than the arbitrage opportunity for the fund, so it could provide an income source to the protocol.

Everything is possible - although not always easy.

I have created this thread to discuss the potential pitfalls of xUSD in the event of a Stablecoin going bust and how we can prepare a system to minimize damage.

For example, Tether turns out to be worth $0.00

This could drag down the price of xUSD, for example say to $0.50

This would incentivize tether aggregators to never take back their Tether (we are stuck with it). It would also incentize everyone who aggregated other stable coins to liquidate xUSD. Then we would be stuck with nothing but the worthless stable coins.

I believe, if we want to keep xUSD stable in the event of a stablecoin collapse, we need to lay out a plan that will advise the rest of the xUSD holders not to panic liquidate their xUSD. This plan can be advertised as part of the marketing story so most of our customers know not to panic when something occurs. (maybe we can make a new character around this concept?)

Some ideas I have so far:
We should generate a list of the top 3 stable coins to reimburse collapsed stablecoins with (for example USDC, TUSD, DAI). This way when a coin collapses, the highest coin on the list still standing is what we reimburse the collapsed stablecoin with.

Therefore, Tether collapses →the insurance fund purchases the top stablecoin on our list and uses it to back xUSD in place of Tether (no one panic liquidates because they know how the stablecoins will be managed…hopefully)

Also, since (at least I believe) we do not have enough in the insurance fund to fully back a stablecoin, we can implement a payment schedule in this event so that collapsed coins are not immediately reimbursed, but maybe over the course of a year. I realize that this probably sounds lame, but it may be necessary for an extreme scenario until we have a larger insurance fund.

What do you guys think?

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I believe that this discussion belongs here - since we want to have composition of XUSD balanced to minimize the risk.

At this moment it would be great to be able to exchange a portion of USDT to BUSD as it got quite low in the XUSD composition at the moment.

The biggest question is - how to do it.

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Heya! I’m not the most technical guy with a good understanding of economics, please do bear with my noob thoughts whuaha xD

I understood that Babelfish project devours more and more stablecoins to become an ultra-stable coin. So far, I believe NUE and ZUSD are coming soon, so I’m guessing they will be part of this project as well? Are there any other stablecoins that can become part of XUSD? That might help?

Also, maybe it would be cool to start a marketing project that says something around the line:
There is a potential problem with USDT. There is a chance that it might lose its value, so instead of keeping your asset in USDT, why don’t you keep it in a more trusted form of a stable coin - XUSD! It is an aggregated stable coin that will ensure the solidity of value, even if one fails. In the case of any failures of stable coins, we have your back. XUSD ensures stability and security. Get XUSD - be free from worries.

Whuaha, its just a draft idea to persuade/manipulate people into thinking that they should hold their assets in XUSD. So, instead of people going crazy and taking out their funds from it, they would do the opposite, bringing all their assets to XUSD in times of trouble.

The technological approach to the economy is really great, but the true foundation is people or psychology of the people. Some problems might be fixed with the power of fear and actions. Maybe it would be a great idea to balance technology and psychology to solve issues :smiley:

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What if we start with a simplified threshold target for each stablecoin. 90% of the aggregated holdings can be for stablecoins with greater than $1B marketcap (USDT, USDC, BUSD, DAI). While the other 10% is for smaller stablecoins, like DOC (not sure what the marketcap is). The goal would be to balance each basket evenly across each stable coin. For example, the 90% of aggregated value would be split 1/4th USDT, USDC, BUSD, and DAI. This minimizes largescale exposure to any one stablecoin.

To achieve this balancing, we would put the intended amount of each currency to work in lending. For example, if we have 70% Tether, but want 25%, we would put 25% to work and use a percentage of the yield to pay for transactions to rebalance the portfolio into other coins.

Later on, maybe we can introduce a mechanism for users to swap coins on the back end (which token they have deposited into the xUSD protocol) because this could minimize liquidation of tokens as different stablecoins vary in relevance?

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I agree that part of the solution for stability is to build trust in the public to avoid panicking. Without specifically calling out any stablecoin, we could build general strategies for disaster scenarios and educate the users on our plans to create confidence and minimize liquidation.

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Hey, I’d like to add some input with regards to balancing stablecoins. Unless the protocol is able to take on the risk incurred during balancing (i.e. transferring coins over bridges) it would be much safer for users to be given an incentive to balance instead. I have balanced the bridge a few times by injecting dai/usdc and withdrawing tether. During the entire process the protocol is not at risk because I am simply using my stake in the pool to balance. The same cannot be said if stablecoins were manually removed.

Given that xUSD is currently severely skewed towards rUSDT, a non-withdrawal asset I feel that the composition is less of an issue and rUSDT withdrawal should be prioritized instead. I currently would like to move more liquidity to babelfish but do not feel safe as I am unable to redeem for collateral.

While babelfish’s position is not underwater, it might as well be if rUSDT cannot be redeemed. There is also no rationale as to why rUSDT should not be redeemed, only deposited – there is significant liquidity in the rsk.co bridge for one to do so should they deem it necessary.

Whether users should be incentivized for balancing the basket certainly deserves a longer consultation period on both the forum and discord but rUSDT withdrawal should be enabled as soon as possible!

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I am leaning towards making withdrawals of rUSDT possible. That is the simplest and the easiest solution to implement in the short term.

As an idea to think of - for those who help balancing the pools, we could issue FISH tokens as a reward. It could be done on some fixed ratio, or there could be a pool of FISH to get each month - dependent of the imbalance…

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Hi randuck. This makes a lot of sense. Are you one of the devs on babelfish? Also, what do you mean by rUSDT being a non-withdrawal assets? Does the protocol have certain stablecoins that are illiquid?

I think the FISH reward sounds like a good idea, at least in the short term since I don’t think we have a renewable source of FISH.

Also, do you think that part of balancing the protocol might just be adding more stablecoins to it? Maybe a little bit.

If You check on Sovryn portfolio or Sovryn Bridge powered by BabelFish - You will see that rUSDT withdrawals are not possible at the moment. I think that this will change soon.

Protocol has all the aggregated Stablecoins liquid. You can check the composition of XUSD here : http://ec2-3-15-221-107.us-east-2.compute.amazonaws.com/

There could be a renewable source of FISH - it just require FISH buy backs. But this is something to think about at later stage.

I do think, that people who would take action of balancing the pools - when it’s needed could be rewarded with FISH, as those are the people who care about this project, and they should have a greater influence on it.

Yes - but that requires people willing to do so and willing to provide different than USDT stables into protocol. It is happening slowly. I am watching XUSD closely few times a day.

We have to consider the max./min. percentage of the the different aggregated stables, and how to approach this. On one hand - locking at specific thresholds is something what could be programmed into smart contracts easily. We could also set a level, when users could have a chance to act and be rewarded for it.

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Thank you for answering my questions.

I think this is a good idea.

Do you think that at a threshold there could be a small fee for adding more of a specific currency? Then this fee from people adding more rUSDT would go to those adding more of the other tokens in the form of FISH? Of course this only this works with a sustained increase in rUSDT and the other tokens (with the rUSDT rate being lower than that of other tokens).

Ideally, there could be an internal form of rebalancing on the customers’ part. Such as a rebalancing smart contract that swap ownership without selling xUSD, so the customer does not have to keep moving money back and forth. Would it be possible to implement a fee for stablecoins above a threshold (rUSDT) and at the same time create an arbitrage opportunity to swap rUSDT in the protocol for a different stable coin?

So then the smart contract for swapping would use the pool of collected fees to pay for the transaction fees of swapping aggregated stablecoins and also pay a small arbitrage to the swapping customer, for example in the form of FISH?

P.S. I don’t know anything about how the coding for cryptocurrencies works and I am starting to think I should learn solidity to make sure my ideas make sense.

That is an interesting approach. Worth a deeper thought.

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I understand that incentives around balancing should be slowly discussed on but can we fast track rusdt withdrawals? It has been a few days but we do not see any significant return of liquidity to the bridge. If a vote must be done I suggest that we get that going ASAP. I am of the opinion that it shouldn’t though, as it is not a new feature nor would require any extensive tooling. (As mentioned already, deposits from rUSDT->xUSD is possible, just not the reverse.)