It all starts with a Stabilizer. They have ETH they want to put to work to earn yield.
Next, they set their desired overcollateralization ratio. For example 150%: For every 1 ETH a user provides, the Stabilizer will add 0.5 ETH, for a total of 150%.
Now, a User arrives with 1 ETH. They want to mint USPD, a stablecoin pegged to the US dollar.
To meet the 150% ratio, the Stabilizer's Escrow automatically moves 0.5 ETH into the Position Escrow, matching the user's deposit.
With the position now fully collateralized, 2,500 USPD are minted and sent to the User's wallet. The Position Escrow securely holds the 1.5 ETH.
The Position Escrow is now overcollateralized at 150%, with the ETH price at $2,500. This creates a safety buffer against price drops.
The price of ETH increases to $3,000. The value of the collateral is now $4,500, pushing the collateralization ratio up to a very safe 180%.
The price of ETH drops to $2,700. The position's collateral is now worth only $2,835, pushing the ratio down to a risky 113%. The position is now at risk of liquidation.
A new actor, the Liquidator, sees the risky position. They can help secure the system and earn a reward by providing 2,500 USPD to close the position.
To do this, the Liquidator uses their own ETH to acquire 2,500 USPD from the system's aggregate liquidity pool, which is backed by many other healthy Stabilizer positions.
The Liquidator calls the liquidation function, sending their 2,500 USPD to the system. This cancels out the original user's debt.
The system seizes the 1.05 ETH from the risky Position Escrow. The original Stabilizer loses their collateral, but the system remains solvent.
The Liquidator receives ETH equal to the USPD they provided, plus a 5% bonus. In total, they get 0.97 ETH for their service.
The remaining 0.08 ETH is sent to the system's Insurance Fund, which provides an extra layer of security against extreme market events.
The risky position is closed, the system's health is restored, and all participants were incentivized to act. The peg is secure.
The original user's position was liquidated, but their 2,500 USPD are still safe, now backed by the system's aggregate liquidity pool.
At any time, the user can burn their USPD to redeem the equivalent value in ETH from the system at the current market rate.
They receive 0.926 ETH. At the current price of $2,700/ETH, this is worth exactly $2,500. The user's funds were fully protected, and the USPD peg held perfectly.
The user has successfully exited their position. The system ensured their funds were safe, even when their original counterparty's position was liquidated.
Stabilizing USPD is not just a public good; it's a powerful, delta-neutral yield-generating strategy based on funding fees.
To remain market-neutral against their long ETH exposure, Stabilizers open a short position on a perpetual futures exchange. This hedges against ETH price volatility.
In most market conditions, traders who are short ETH are paid funding fees by those who are long. This provides a consistent yield, averaging around 11% annually.
This strategy is highly capital-efficient. Stabilizers only need to provide a fraction of the capital for the short position they open, effectively leveraging their capital.
Stabilizers can choose their level of risk. A conservative 2x leveraged short can yield ~22% APY, while a more aggressive 3x leverage can yield ~33% APY.
It all starts with a Stabilizer. They have ETH they want to put to work to earn yield.
The Stabilizer mints a Stabilizer NFT, which represents their position in the system. The NFT automatically gets two contracts attached: A Stabilizer Escrow contract and a Position Escrow contract.
They then deposit 10 ETH into their personal Stabilizer Escrow. This ETH is now unallocated collateral, ready to back new USPD.
Next, they set their desired overcollateralization ratio. For example 150%: For every 1 ETH a user provides, the Stabilizer will add 0.5 ETH, for a total of 150%.
Now, a User arrives with 1 ETH. They want to mint USPD, a stablecoin pegged to the US dollar.
The User deposits their 1 ETH (worth e.g. $2,500) into a new Position Escrow. This ETH is now locked, ready to be collateralized.
To meet the 150% ratio, the Stabilizer's Escrow automatically moves 0.5 ETH into the Position Escrow, matching the user's deposit.
With the position now fully collateralized, 2,500 USPD are minted and sent to the User's wallet. The Position Escrow securely holds the 1.5 ETH.
The Position Escrow is now overcollateralized at 150%, with the ETH price at $2,500. This creates a safety buffer against price drops.
The price of ETH increases to $3,000. The value of the collateral is now $4,500, pushing the collateralization ratio up to a very safe 180%.
The Stabilizer can withdraw any collateral above the 125% minimum. They take 0.45 ETH, rebalancing the position to a lean 126% and realizing a profit.
The price of ETH drops to $2,700. The position's collateral is now worth only $2,835, pushing the ratio down to a risky 113%. The position is now at risk of liquidation.
A new actor, the Liquidator, sees the risky position. They can help secure the system and earn a reward by providing 2,500 USPD to close the position.
To do this, the Liquidator uses their own ETH to acquire 2,500 USPD from the system's aggregate liquidity pool, which is backed by many other healthy Stabilizer positions.
The Liquidator calls the liquidation function, sending their 2,500 USPD to the system. This cancels out the original user's debt.
The system seizes the 1.05 ETH from the risky Position Escrow. The original Stabilizer loses their collateral, but the system remains solvent.
The Liquidator receives ETH equal to the USPD they provided, plus a 5% bonus. In total, they get 0.97 ETH for their service.
The remaining 0.08 ETH is sent to the system's Insurance Fund, which provides an extra layer of security against extreme market events.
The risky position is closed, the system's health is restored, and all participants were incentivized to act. The peg is secure.
The original user's position was liquidated, but their 2,500 USPD are still safe, now backed by the system's aggregate liquidity pool.
At any time, the user can burn their USPD to redeem the equivalent value in ETH from the system at the current market rate.
The user burns their 2,500 USPD. The system removes this liability from circulation, keeping the currency fully backed.
They receive 0.926 ETH. At the current price of $2,700/ETH, this is worth exactly $2,500. The user's funds were fully protected, and the USPD peg held perfectly.
The user has successfully exited their position. The system ensured their funds were safe, even when their original counterparty's position was liquidated.
Stabilizing USPD is not just a public good; it's a powerful, delta-neutral yield-generating strategy based on funding fees.
To remain market-neutral against their long ETH exposure, Stabilizers open a short position on a perpetual futures exchange. This hedges against ETH price volatility.
In most market conditions, traders who are short ETH are paid funding fees by those who are long. This provides a consistent yield, averaging around 11% annually.
This strategy is highly capital-efficient. Stabilizers only need to provide a fraction of the capital for the short position they open, effectively leveraging their capital.
Stabilizers can choose their level of risk. A conservative 2x leveraged short can yield ~22% APY, while a more aggressive 3x leverage can yield ~33% APY.
Become a Stabilizer today to start earning a competitive, delta-neutral yield while helping to secure the USPD ecosystem.