Flash Talk by Martin Froehler - CEO, USPD

Yeah. Hello everyone. Thanks for having me. I want to talk today about stable coins and decentralization or much rather the unfortunate lack thereof mostly. [laughter] Yes.

So let's take a look at stable coins first principles. I mean stable coins have really gained popularity among norms. So people outside crypto they used for a lot of things. Savings, remittances, payments, you name it. And last year they already settled more transactions than Visa.

And we can expect that this year they will actually settle more than all the credit card companies combined. Stable coins are a huge industry. It's already like 50 billion dollars that's locked in stable coins on chain. The biggest players are Tether, Circle and I also want to take a look at two cryptonative projects like Athena and die. But what they all have in common to some extent as I will show is that they are centralized, opaque and mostly dependent on banks.

So let's take a look at TE. How does TE actually work? So it's actually pretty simple. You send money to these three honorable gentlemen in the Fiat banking system and they mint an ERC20 token for you, the TED token and they make a pinky promise that they keep your money and take good care of it and in the back end they buy bonds or other assets with it if they are honest and if they are not spending the money and they collect the interest that these assets provide and the whole process is unfortunately very centralized op and to this very day TE has audit blue chip rating d blue chip is stein rating agency independent one and they conclude that t is not safe to use use with caution allr circle how does this work yeah well you send money to this guy in the banking system this guy mins an20 token for you on chain this guy sponsds with it and gets the interest that these bonds provide however jeremy operates a bit differently. So he is actually regulated with circle and they are also performing audits from time to time at least quarterly.

So they deserve a blue chip rating of B plus because they play by the rules. They are actually US regulated. Etthina that's an interesting one. How does this work? Well, you send Ether to this guy and this guy means you an ERC20 token USDE.

What does he do in the backend? does not buy government bonds with your money, but T actually shorts ether for the same amount that went in. So if you send an E to Gang's Ethina protocol, then he opens a short for one E on a perpetual futures exchange and he collects funding fees as a business model. This is already much better than the other two because it is cryptonative. It is sempparent but it is still custodial unfortunately and it is still centralized.

It doesn't have a blue chip rating yet but when it comes out I suspect it wo n't actually be a bad one. Alr Mus die the decentralized stable coin right so die is created via an overcollateralized loan. So you essentially manage a vault on Ethereum you put in like say 50 worth of E and then you can take out worth of so the it's overcollateralized the collateralization ratio is typically 150% for a volatile asset for the privilege of borrowing against your own assets. You pay 5% a year ok eh but it is at least overcollateralized and it is permissionless but die has a dirty little secret unfortunately. And the dirty little secret is tell me again how a def stable coin depacks when a bank goes under and that is exactly what happened in March of 2023 die dect in sync with circlesc 76% of the reserves of die are already USDC so die is at this point no better than USDC its all the problems that come with the tradf stable coin it has become more or less a wpper for USDC on chain.

So that's no solution either. Crypto is like a really come full circle. We have built crypto to do peer to peer decentralized trustless transactions. And when it comes to stable coins, it seems we want stable coins and we want them centralized, opaque, and permissioned. Unfortunately, that's like the state of the industry.

I think we can do better as crypto and that's why I work on USPD. dollar on the blockchain back to first principle to say USPD is an onchain proof of reserve stable coin it can be minted by everyone by sending collateral to a smart contract so you essentially create USBD yourself if you want to use it this collateral can be anything it can be another stable coin it can be e the smart contract converts it into staked e and keeps it there of course you can also redeem from the smart contract if you send your USB to the smart contract they are burned and you get your collateral back out in the form of E or stuck E that whole process is decentralized permissionless and transparent as it should be for a crypto stable coin that deserves the name. You have certainly realized that since we keep the reserves in E the reserves are volatile so they change in value. constantly changes in price and we might end up in a situation either have too much if the price of E goes up or we might not have enough collateral if drops in price. So our ecosystem has a second set of actors and these actors are the soced stabilizers and they are decentralized so anyone can operate a stabilizer if they want to and their job is to keep the dollar value of the staked e in the pool constant by hedging it.

So the stabilizers deploy their own money and that's the important difference to eina uses your money to create a dollar neutral delta neutral position in our m the stabilizers deploy their own money so extra collateral out of their own pocket to create a delta neutral position they do this for everyone by pledging extra dollars as onchain collateral and5 to build up a short position short perpetual futures. 125% notional short position and the stabilizers do this with their own money and they don't do it because they are a charity but they do it because they make like 25% APY from funding fees and that will get to how that works in a bit. But first a quick explainer of a delta neutral position that just means that no matter what the price of E always has the same number of dollars or the same amount of dollars in the system. So if the price of Ether goes up that means that our onchain collateral is now worth more and the stabilizers can use the excess collateral so everything above 125% to cover the short losses that they had when Ether went up in price and of course in the other scenario if Ether falls in price that means that the onchain collateral is not at 125% anymore but the stabilizers have made a profit with their short position and they can top up the onchain collateral again to back to 125 to avoid liquidation. So what does the business model look like?

Well, it's actually pretty simple for the stable coin holders themselves. Since the backing asset is staked and stable coin holders generate 3% native yield. All the yield that's taking E generates is passed on one to the stable coin holders. So this stable coin is natively yielding. For the stabilizers the business model is slightly different.

It's somewhat similar to Ethina. in a sense that funding fees fees that you receive on perpetual exchanges for shorting E for providing liquidity for the longs essentially amount to roughly 10% annualized in the long run not every year but in the long run eh and since stabilizers don't need the full notional amount of the stable coins that they p or back with their own money but they only need 50 for every worth short position effectively trade with a leverage of 2.5 that means that their income calculated on their own equity capital that they put in is 25% APY. This is also our business model. We will operate one of the stabilizers in our ecosystem and we aim to generate 25% APY with that.

So to sum it up again for every minted by someone wanting to use USPD we deploy $50 out of our own pocket 25 on chain, 25 on the exchanges and generate $.5 in revenues for stabilizing USPD. Now what is the competitive edge? USBD is unstoppable money on the blockchain and that's what makes it unique. It's a cryptonative stable coin.

You can audit the reserves in real time yourself because the reserves are kept by a smart contract. So you get the health of the whole ecosystem in real time. It has permissionless conversion to and from if at any time. So there are no middle man, no custodian. You don't have to trust anybody.

You can just do this. It comes with 3% native field that makes it already 3% better than circle and teta. And that's a very important feature that most people like to forget. It is not freezeable. Typically centralized issuers, centralized staff coin issuers need to be able by regulation to freeze your funds on an address level.

That means you think you own circles USDC, you think you own TE in your wallet, but a call from a hostile regulator or other authority is enough and your address is frozen. That's not the case here. So USPD is as decentralized and unfreasable as Ether itself. And another beautiful property is its zero exposure to banking and tradfy. That means if banks crash left and right USPD.

We live now on Ethereum in our public beta. We are testing the stabilizing mechanisms and the backend. We aim to become the dollar of the decentralized nation. I fundamentally believe you cannot build a solid decentralized finance ecosystem on a corrupted base layer that is centralized. So that's why we're here.

If you want to join us in our journey, you can try it out already. We have giveaways and quests for early citizens of the decentralized nation. At the moment we have a quest up on Merkle. Thank you for your attention. [applause]