In-depth Analysis of USDV A Community-driven New RWA Stablecoin

Comprehensive Examination of USDV A RWA Stablecoin Driven by Community Participation

Author | Wade

Stablecoin is the “crown” of the cryptocurrency industry. How will the new stablecoin USDV issued by the Verified USD Foundation bring changes to the industry? Can it stand out among a multitude of competitors trying to take the crown?

From the data, the current market value of stablecoins has reached $125.1 billion, accounting for 8.7% of the total cryptocurrency market value. However, the development of this industry has not been smooth sailing. Since 2022, it has experienced the collapse of UST, the brief anchor detachment of USDC, the regulatory challenges faced by BUSD and PYUSD, and other events. As the demand for stablecoins continues to grow, the requirements for their stability and transparency are also increasing.

At the same time, the industry lacks an on-chain algorithm to track token demand generated by CeFi or DeFi applications, resulting in stablecoin issuers being unable to fairly reward contributors who generate demand and contribute to the ecosystem. To address this issue, USDV, launched by the Verified USD Foundation, has chosen to create a more fair, transparent, and mutually beneficial stablecoin ecosystem by tracking token demand and rewarding ecosystem contributors.

USDV Introduction

USDV is a community-driven stablecoin backed by US Treasury Bond tokens, launched by the non-profit organization Verified USD Foundation. It is also a native full-chain stablecoin that uses the ERC-20 standard and integrates LayerZero’s universal fungible token (OFT) standard. It was launched natively on Ethereum, Arbitrum, BNB Chain, Avalanche, and Optimism on the first day and supports cross-chain transactions. There are plans to rapidly support more chains and ecosystems in the future.

The first reserve asset chosen by USDV is the US Treasury Bond token STBT issued by the Matrixport Group’s RWA brand Matrixdock, which is also the second-largest short-term US Treasury bond token on the Ethereum chain. According to the official introduction, STBT is selected as the reserve asset for USDV for numerous reasons, including being a “risk-free asset” with flexible redemption, high stability, high transparency, and real-time Proof of Reserve provided by Chainlink off-chain. STBT adopts the ERC-1400 token standard in terms of technical standards and restricts transfers and transactions only between authorized account holders through a contract whitelist mechanism.

Regarding the minting and redemption process, eligible USDV minter X can mint USDV with STBT at a 1:1 ratio. For example, X can deposit K STBT into the Vault contract and receive K USDV_X in return. When redeeming, minter X will deposit K USDV_X into the USDV official website for redemption, and the corresponding amount of STBT will be unlocked. The entire minting and redemption process is on-chain, and the underlying collateral is also on-chain assets, making the whole process fully transparent and traceable.

Features and Advantages

As mentioned earlier, to address the challenge of fairly rewarding contributors who generate demand and contribute to the ecosystem, USDV utilizes the ColorTrace algorithm, an innovative value attribution mechanism created by LayerZero Labs. This mechanism allows licensed community contributors to securely and transparently derive corresponding returns from on-chain reserve assets using blockchain technology. It aims to reward ecosystem contributors who have made efforts and achievements in promoting the widespread use of USDV and enable USDV to freely circulate as a fungible stablecoin in various ecosystems without affecting its liquidity and availability. The entire process is publicly and transparently carried out on the blockchain through USDV’s smart contracts.

This system incentivizes contributors in the ecosystem, expands and enters innovative usage scenarios, brings new vitality to traditional stablecoin issuance and circulation methods, and solves the problem of insufficient incentives for ecosystem participants. In addition to the unique value attribution mechanism, ColorTrace, USDV’s characteristics are also reflected in the following aspects:

1. Security of Assets:

USDV ensures the high security of underlying assets by using STBT (Short-term US Treasury Bond Token) as its reserve asset. STBT also achieves 100% bankruptcy isolation protection through the structure of an orphan trust, eliminating potential counterparty risks. STBT holders have the first priority claim to the underlying entity asset pool. Even in the most extreme cases, such as Matrixdock’s bankruptcy, the value of STBT is fully guaranteed by the asset pool and can be redeemed for the corresponding assets after the liquidation of these securities.

USDV is issued on-chain by the non-profit organization Verified USD Foundation, and the issuer has legal ownership of all reserve assets. The value of the reserve assets will always be greater than or equal to the circulating USDV.

2. Price Stability:

Price stability of USDV is achieved through two aspects: First, minters can always exchange USDV and STBT at a 1:1 ratio (i.e., mint USDV with STBT at a 1:1 ratio and redeem USDV for STBT at a 1:1 ratio). Since STBT is anchored to the US dollar at a 1:1 ratio through the rebase mechanism based on the market closing price of each US business day, USDV is not affected by price fluctuations.

STBT, as the initial reserve asset, is completely composed of highly liquid short-term US Treasury bonds and reverse repurchase agreements, which ensures quick settlement in times of liquidity demand while considering asset quality and liquidity requirements. Considering the potential value decline of these bonds in extreme cases, the value of STBT may be affected. STBT adopts overnight reserve repurchase agreements (Overnight Reserve Repo) as more than 95% of its secure reserve assets to enhance the liquidity of underlying reserve assets, thus avoiding decoupling caused by market conditions.

3. Real-time on-chain transparency:

Compared with centralized stablecoins that disclose reserve assets on a monthly or quarterly basis, the reserve assets of USDV have achieved two innovations for the first time: 1) complete on-chain reserve assets; 2) reserve assets can be verified on-chain at any time, with real-time third-party decentralized Proof of Reserve verification provided by Chainlink. In contrast, centralized stablecoins are limited in terms of transparency, and their reserve verification often relies on third parties for offline asset audits, which may result in a lack of transparency and timeliness of information.

4. Attracting traditional fiat investors:

Due to its asset stability, transparency, and compliance, USDV is more attractive to traditional financial investors seeking low-risk investment opportunities. Especially, the STBT reserve assets behind USDV establish a direct connection with traditional financial markets. This design not only lowers the entry barrier but also enhances the confidence of traditional investors in the cryptocurrency market.

5. Accessibility and compatibility:

The ERC-20 standard of USDV ensures its compatibility with a wide range of blockchain ecosystems, including various decentralized applications (DApps) and exchanges. It was first launched on Ethereum, Arbitrium, BNB Chain, Avalanche, and Optimism, supporting cross-chain transactions, and in the future will have the technical capability for cross-interoperability among more than 40 L1 and L2 chains, expanding to more ecosystems.

USDV adopts LayerZero’s OFT standard, which enables bridge transactions between different chains without worrying about liquidity issues, making it more secure and efficient. It also provides a user-friendly and convenient experience for users. This wide accessibility and compatibility enable USDV to have high accessibility in multiple platforms and applications, providing convenience for users.

USDV can be transferred between different chains on the USDV transfer page.

6. Community-driven ecosystem co-building:

USDV emphasizes community participation and co-construction from ecosystem partners. Through reward mechanisms and open development strategies, USDV encourages different communities and ecosystem partners to participate in the construction and maintenance of the ecosystem. Community contributors have greater freedom to maintain and expand the ecosystem, achieving a win-win situation for community contributors and USDV users. USDV’s fair and transparent reward distribution mechanism will also attract more community contributors, leading to more application implementations and forming a positive flywheel for the USDV ecosystem.

This community-driven approach may be more likely to stimulate community vitality and creativity compared to other centrally controlled stablecoins. The natural growth ecological model is also an innovation in the current stablecoin industry.

Conclusion

In terms of security, USDV has set up three safeguards to ensure the stability and security of its assets. Firstly, it uses tokenized “risk-free” US short-term treasuries and repurchase agreements as its underlying asset reserves to ensure the stability of its assets; secondly, through the ultra-high liquidity and short-term nature of STBT underlying assets (mostly overnight reverse repurchase Repo), it ensures that even in rare extreme cases of sharp fluctuations in US bond prices, USDV can maintain price stability; finally, STBT and USDV minimize counterparty risks through the design of orphan trusts, ensuring the legal ownership and preferential settlement rights of USDV holders over USDV reserve assets.

In terms of transparency, the real-time asset proof and real-time on-chain records provided by Chainlink ensure high transparency of assets and avoid information delays. In terms of usability, USDV complies with ERC-20 and OFT standards, can be used on mainstream public chains upon launch, and also has the technical ability to interoperable across more than 40 L1 and L2 chains. It is expected to have a rich range of use cases in various DeFi projects, mainstream exchanges, wallets, OTC businesses, and more. In addition, USDV’s community incentives and value attribution mechanisms will also promote and encourage more participants to engage in ecosystem construction and maintenance, further enhancing its attractiveness.

Although there are many stablecoin issuers currently, considering the advantages of USDV itself in asset security, price stability, high transparency, and community-driven mechanisms, the ecological layout and application of USDV may have certain advantages. However, whether it can develop and grow needs to make more breakthroughs in application scenarios.

References:

1. https://etherscan.io/token/0x530824da86689c9c17cdc2871ff29b058345b44a

2. https://matrixdock.gitbook.io/matrixdock-docs/

3. https://stbt.matrixdock.com/

4. https://platform.arkhamintelligence.com/explorer/token/short-term-t-bill-token

5. https://defillama.com/stablecoins

6. https://docs.usdv.money/docs/what-is-usdv/faq

7. https://twitter.com/USDV_Money/followers_you_follow

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