Liquidity Backed Stablecoins Introduction
An introduction for a liquidity backed stablecoin on DXS
Last updated
An introduction for a liquidity backed stablecoin on DXS
Last updated
We direct this post at DXS's current and future insurance pool liquidity providers.
DXS has come so far over the last year. We couldn’t have achieved such a level of success without the support of our insurance pool liquidity providers.
We are now taking the opportunity to express gratitude for your support. We are also taking the opportunity to share the next step of our vision for explosive DXS growth:
DXS liquidity backed stablecoins (LBS).
Please note that this scheme will be strictly opt-in. We do not take liberties with your liquidity contributions at DXS.
Have you looked at our insurance pool recently? We designed it to snowball. It has certainly snowballed:
We’re going to start doing some really exciting things with that insurance pool. We are almost ready to execute on DXS's broader vision. What you’ve seen up until now has simply been the first step.
Before we elaborate on that teaser, let’s refresh on DXS's business model and its use of an insurance pool.
DXS's business model is simple and powerful — we allow traders to speculate on asset price movements. We leverage bitcoin to capture competitive advantages that are absurdly compelling:
Trade straight from your wallet (no deposits, no withdrawals)
Margin is returned instantly to your wallet
Speculate on price increases and decreases (long or short). Use flexible leverage and trade size ($0.01 minimum)
Trade a huge range of assets. Stocks, Indices, Commodities, Forex, Crypto
Short-term trades (less than 8 hours) are free
Alignment of incentives. DXS does not profit when traders lose (unlike other brokerages)
DXS does NOT go offline during periods of extreme volatility (unlike most crypto exchanges)
Current risk (max potential loss) is displayed to traders. Most brokerages opt to not show this information
100% transparency and auditability. Trading data is logged on the blockchain and is owned by users
Public, transparent provision of liquidity. We don’t allow arbitrary decisions to be made behind closed doors, wiping out liquidity provisioning for large winning trades. Liquidity provisioning is public, codified and operated in the open
DXS's insurance / liquidity pool is one of our key innovations and competitive advantages. It allows us to provide a platform where traders can confidently trade against other traders.
Some traders win, some traders lose. Our engine settles winners against losers and taps into session liquidity to cover any shortfall.
How do you know how much liquidity is up for grabs? Well, we leverage the transparent nature of the bitcoin ledger. Here’s the insurance pool. Here’s the session liquidity. You can reconcile this on DXS's trading page:
To protect our liquidity providers, we have designed liquidity provisioning such that only a small portion of the insurance pool is at risk at any given point in time. We call this ‘session liquidity’.
Session liquidity is = [(insurance pool * 0.33%) + (session losses * 0.96) — session gains]
In the screenshot above, $13,752 is available to cover any trading gains that exceed the amount of trading losses in that particular 8 hour trading session.
Here’s what you might be asking:
“You’re using 0.33% of the insurance pool as session liquidity at any given time — what are you doing with the remaining 99.67%”
The answer is: nothing.
The 99.67% (currently $4.4m) that remains in the insurance pool represents a liquidity-store that resists erosion over time.
We want to put this insurance pool to work. We are going to leverage this underutilised value sitting in the insurance pool to back stablecoins on BSV.
We want you to imagine:
The ability to mint USD, EUR, JPY, CNY and INR stablecoins by depositing BSV into DXS's insurance pool
The ability to redeem USD, EUR, JPY, CNY and INR stablecoins back into BSV from DXS's insurance pool
Using stablecoins that leverage bitcoin’s infrastructure, such as instant transactions, low fees and microtransactions
Using stablecoins to profit-seek in your currency of choice on DXS (or any other BSV app for that matter)
We’ve long dreamed of this future at DXS. Stablecoins are extremely symbiotic to our business model. Consider this:
Every Dollar, Euro, Yen, Yuan or Rupee minted requires an equivalent amount of BSV to be locked into DXS's insurance pool
More BSV locked into our insurance pool means more session liquidity for traders, which allows for bigger trades, bigger profits, more users and bigger liquidity pay-outs for our liquidity providers
Stablecoins allow for Dollar, Euro, Yen, Yuan and Rupee backed trading on DXS. Liquidity can be provisioned to each of these markets in the stablecoin in question. The only way to mint these tokens is to lock BSV into our insurance pool. Return to step 1!
Did you pay attention to 3 above? If you missed 1,000% returns on our BSV liquidity allocation, you will get 5 more chances to provide liquidity at high rates of interest. Liquidity provisioning for all our stablecoins will follow the same schedule:
There is one more really exciting feature of DXS stablecoins. This feature is unique to our implementation.
During periods of extreme market volatility, traditional collateralized stablecoins are put under a huge amount of stress as their backing diminishes in value.
DXS's stablecoins are antifragile in nature. DXS's insurance pool achieves most of its growth during market crashes. The insurance pool is designed such that its response to market stressors is to grow bigger and stronger. Let’s look at the growth of the insurance pool again:
Paying special attention to the circled area above, look at how insurance pool growth lines up with the price of BSV sharply correcting from $440 in mid April:
The chart visualises the insurance pool feeding on volatility.
An interesting addition is that coupling stablecoin backed trading to this insurance pool mechanism naturally diversifies our order book. We don’t want liquidity to be tightly coupled to BSV price movements. The net effect of improved diversification of our order book will be smoothing the demand on our insurance pool and session liquidity.
This post is an introduction. We’re incredibly excited about the possibilities of stablecoins on BSV and we trust we have piqued your interest.
Stay tuned for our technical documentation of how these stablecoins will work under the hood.
Edit: here is the link to our technical documentation of the Liquidity Backed Stablecoin Proposal.
