In this article, we will give an update on the progress of UXD Protocol development, and provide a broad vision/roadmap for UXD. This is a longer post, so feel free to read the tl;dr and get back to your regularly scheduled degen activities.
- We’ve added six team members in the past month.
- UXD’s smart contract code is complete and being audited by two security audit firms.
- UXD’s vision is to be a decentralized stablecoin that is used in all aspects of the crypto economy.
- UXD’s anticipated roadmap is as follows: ~3 Weeks, launch mainnet; Q1 2022, launch liquidity mining program and other incentives; Q1-Q2 2022, enable functionality of UXP token and begin transition to DAO management; Q3-Q4 2022, cross-chain development; Q3-Q4 2022, mint other stablecoins for fiat such as JPY, EURO, GBP.
UXD is an Solana-native stablecoin that uses basis trading to keep its peg to USD:
Before we get started, we want to welcome some new team members. Since our last post regarding the IDO, we have added a strategy advisor, three front-end devs (two full-time, one part-time), one UI/UX designer (full-time), and one smart contract dev (full-time). This brings the UXD team up to 11 full-time and 4 part-time members! The UXD team will continue to expand as we hit key milestones in our roadmap.
First, an update on development and UXD’s projected launch timeline. The team has been working hard to complete UXD’s smart contract code to hand off to security auditors. This code is now complete and we’ve contracted two security audit firms, and they will begin providing feedback and testing for vulnerabilities in the coming days. We’re also internally testing our mainnet code, and have been pleased with the results so far. We’re hyper-focused on security before launch, and want to make sure our users have a high level of trust in the protocol. We only get to launch once, and we want to make sure our mainnet launch goes as smoothly as possible.
We’re also reworking a lot of the front-end user interface to incorporate community feedback, including adding protocol dashboards detailing funding rates, insurance fund metrics, etc. We want the protocol’s current state at any time to be as transparent and easy to understand as possible.
We are in the process of setting up our DAO structure as we speak. We will adapt Solana’s governance program to fit the needs of UXD’s stakeholders. Initially the DAO will be managed by a council of UXD team members, with functions being transitioned to stakeholders and DAO control over time. We will release a detailed post about governance some time after mainnet launch.
Taking a step back for a moment, we wanted to give the community a sense for UXD’s broad vision, how we’re thinking about the long-term future of the protocol and some guiding principles for the future of UXD. We’re extremely excited to be launching the first stablecoin on Solana that is decentralized, capital efficient ($1 of assets mints 1 UXD*), and stable (UXD is fully-collateralized at mint by a delta-neutral trade).
*Less fees incurred in setting up the basis trade (selling a short perpetual future on a derivatives dex incurs “taker fee+ slippage” generally around 0.1%-0.3%). UXD itself does not charge any fees to users.
Let’s start with a simple question: “what exactly are stablecoins for?”. UXD views stablecoins as the essential link between the real world and the crypto economy. Stablecoins are a way for people to feel comfortable moving back and forth between the real and digital economies. Our strategy advisor, Dirac, recently wrote a short twitter thread on this concept:
In order to serve as a useful “ruler” of value in the digital world, stablecoins need to achieve three things:
1. Stability — Stablecoins are useless if they can’t be relied on to measure digital value relative to real world fiat currency.
- UXD is fully-collateralized at mint ($1 of assets backs 1 UXD), and will remain fully-collateralized as long as funding rates are not negative for an extended period of time. Historically, funding rates have been positive, which is a net value to UXD (see previous explainer post). UXD’s insurance fund, which currently holds $57 million, will be used to pay negative funding rates. At the insurance fund’s current size, UXD could withstand -11.4% funding rates on $500 million of UXD for an entire year. We are of the opinion that sustained negative funding rates of this size and duration are unlikely, and have not occurred historically. As the insurance fund grows (through asset management strategies), UXD will be able to sustain even higher negative funding rates on ever larger amounts of UXD.
2. Sufficient liquidity — Stablecoins are useless if they aren’t sufficiently available in liquidity/borrowing pools, as well as in economic functions like decentralized banking and NFT trading. Stablecoins without sufficient liquidity are generally used for speculative purposes like rewards farming of governance tokens, rather than actual stablecoin usage.
- UXD is designing a liquidity mining program to incentivize immediate liquidity for trading + borrowing/lending, and is designing a governance token to create long-term stakeholders. UXD is exploring partnerships with top platforms on Solana and will focus on incentivizing real economic activity using UXD. UXD will be thoughtful about how to grow liquidity in a sustainable way.
3. Managed Risk — Stablecoins by definition will require users to take some risk, whether that be through smart contract security, stability, or centralized entity regulation/failure. (In contrast to centralized stablecoins, users of decentralized stablecoins can manage their risk directly. We like decentralized stablecoins because users can manage known risks. Centralized stablecoin’s risks are much less transparent and knowable.)
- First, UXD will undergo as many security audits as it takes for our team and the community to feel comfortable. We will also have generous bug bounty programs once we open source our code. UXD will align the incentives of UXP holders and UXD holders via risk management. UXP holders will take an active role in areas such as asset management of the insurance fund. Finally, UXD will eventually deploy to as many derivative dexs as possible to spread out smart contract risk.
With these three goals and solutions in mind, what principles should guide the continued development of UXD?
- Developing confidence in UXD — UXD should help user’s feel comfortable with and knowledgable of UXD’s solutions to the above three goals. Transparent and frequent communication, educational materials, and incorporation of feedback from the community are key.
- Simplicity — At the end of the day, UXD is a tool for Solana users. UXD is not an end in itself, but a way for Solana users to do other things they’d like to do on Solana, including DeFi, digital goods trading, etc. Therefore, UXD should be as simple as possible (but no simpler), and provide a clean mint/redeem process and governance structure. This includes concepts like governance minimization, which we interpret as “UXD stakeholders should spend time only on things that require human input to be effectively managed, no time should be wasted on tasks that can be decided automatically”. For example, thinking about clever asset management strategies for the insurance fund is a good use of time, whereas bickering about the color scheme of the website would not be.
- Thoughtful design on EVERY aspect of UXD — In our studies of previous projects in DeFi, including stablecoins, we’ve been surprised to find that many projects neglect essential aspects of their protocols (including governance token structure, liquidity mining rewards structure, and other long-term value drivers) and instead rely on lazy heuristics. For example, we’ve seen plenty of governance tokens that are forks of the governance tokens of other platforms, without any regard for the needs of their particular protocol. We’ve also seen plenty of half-thought liquidity mining programs, including multi-year constant emission programs (e.g. reward 100,000 gov tokens per day for 5 years, decided on day 1). At UXD we believe that every aspect should be treated with the same thoughtful care and tailored to provide value to UXD stakeholders. We also believe that our community members are highly intelligent and should be given the opportunity to provide feedback on aspects of the protocol before implementation, when possible.
Finally, we would like to share our anticipated roadmap for the 2022 as we approach the New Year. It’s been an amazing year of breakneck growth for the Solana ecosystem (exactly 1 year ago today, SOL was $1.70 and DeFi was a fledgling idea).
Now, on to the anticipated roadmap. Of course, these are the team’s best estimate for timing and may be updated as we hit key milestones:
- ~3 Weeks, Mainnet Launch- As noted above, the smart contract code is complete and we’ve contracted security audit firms to test for vulnerabilities. Assuming all goes well, we will be ready to launch soon. In anticipation of mainnet launch, we will be working to spread awareness of UXD and announcing partnerships so stay tuned! We will release exact details about the mainnet launch over the coming couple of weeks.
- Q1 2022, Liquidity Mining Program Launch- What’s a launch party without some goodies? We will be releasing the details of our UXP rewards liquidity mining program for feedback from our community, followed by a gradual roll-out of rewards to our partnership platforms. We are thinking through the best ways to reward long-term stakeholders and are using the successes and failures of those who came before us to inform our design.
- Q1-Q2 2022, Enable Functionality of UXP token and Begin Transition to DAO Management — As a decentralized stablecoin, our goal is to be as decentralized as possible in the long-run. We’re already developing our DAO interface, and are excited to see active community participation. More details will be released about UXP’s structure (including staking, voting systems, and rewards programs) over the coming weeks.
- Q3-Q4 2022, Develop Cross-Chain — As other DeFi ecosystems develop, there will be opportunities for UXD to develop and deploy on other chains, providing broad network effects to UXD holders in the broader crypto economy, while also providing upside value to Solana-native UXP holders. UXD is already beginning discussions on when/how to deploy onto other chains.
- Q3-Q4 2022, Mint non-USD Fiat Stablecoins — Rather than pledge the future of UXD to the FOMC, UXD will expand by minting other stablecoins pegged to JPY, EURO, GBP, etc. The delta-neutral strategy that backs UXD works for any currency, so long as there are perpetual futures in that currency (e.g. SOL-USD, SOL-JPY perps).