Stablecoins have become a significant segment in the crypto industry due to their prominent role in decentralized finance. They are designed to peg to real-world assets and are not volatile like traditional crypto-assets such as Bitcoin and Ethereum.
However, stablecoins like USDT have had controversies in recent years, and a new USD-pegged stablecoin called ‘’WUSD’’ intends to provide an alternative to the status quo. WUSD is being developed by popular DeFi protocol Wault Finance and is set to become the first commerce-backed stablecoin. Below, we will explore the unique features of this stablecoin and its novel framework.
What is WUSD?
WUSD is a stablecoin designed to provide an alternative to the existing models of sablecoins. The Stablecoin market is primarily divided into three forms: fiat, crypto, and algorithmic-backed stablecoins.
Each form has its problems that makes it inefficient. Fiat-backed stablecoins require real-world custody and are subject to strict regulations. Crypto-backed stablecoins, although more decentralized, are not capital efficient and typically require over-collateralization. Algorithmic stablecoins are inherently unstable and have not yet proven reliable enough for mass adoption.
Wault Finance has designed a unique model that combines the best attributes of the above models to ensure stability and sustainability. WUSD is commerce-backed and built on the fundamental mechanism that the peg is guaranteed by active commerce within the Wault ecosystem.
Currently, WaultSwap (WSwap), a leading decentralized exchange on BSC and Polygon is the most profitable product in the Wault Finance ecosystem and drives the stability mechanisms of the WUSD stablecoin.
How does WUSD Work?
WUSD, as a commerce-backed stablecoin, is backed by both USDT collateral and WSwap’s native commerce token WEX at a ratio of 9:1. In other words, 90% of WUSD’s collateral is held in USDT deposits, and the remaining 10% is from the commerce token. This means that even in the worst-case scenario of a bank run, a WUSD holder can never lose more than 10% of their capital.
The entire WUSD minting process can be simplified as follows: when a user deposits 10 USDT as collateral, Wault mints 10 WUSD and gives it to the user. The smart contract then deposits 9 USDT to the treasury and uses the remaining 1 USDT to buy WEX which is also held in the treasury.
When the user wants to redeem his collateral, the 10 WUSD is burned, and the user receives 9 USDT and 1 USDT-worth of WEX according to the real-time price. This creates stability for WUSD since the stablecoin is always backed by a treasury, enforcing the peg since arbitrage between WUSD’s minting/burning and market pricing is always available whenever WUSD’s price moves away from $1.
Furthermore, Wault Finance has instituted four stability mechanisms to ensure the WUSD stablecoin does not lose its peg to the USD. This includes the treasury, WSwap emissions support, WSwap trading fees support, and WUSD staking support. More information on these mechanisms is available in WUSD’s announcement article.
Potential use cases for WUSD
Wault has already revealed that it will expand the utility of WUSD towards DeFi and farming pools. To promote adoption, Wault will offer high APY pools for WUSD holders to stake in. In addition, although WUSD will initially launch on Binance Smart Chain (BSC), it’s scheduled to launch on Polygon as well.
Wault wants to implement cross-chain compatibility and will build a cross-chain bridge for the BSC and Polygon blockchains. WUSD will also be listed on external platforms increasing its use-cases and market cap. As far as adoption, Wault finance has the benefit of having an existing active DeFi ecosystem that will help generate initial use-cases for the stablecoin.
WEX holders will also have governance power to vote on new proposals and to adjust the parameters of the stablecoin.
About Wault Finance
Wault is a community-driven decentralized project that focuses on connecting all the primary DeFi use-cases within a single platform. The platform provides a user-friendly and straightforward interface with different dApps designed to offer varied earning opportunities.
Users can easily begin their DeFi experience with the intuitive user experience offered by Wault’s platform. In addition, Wault is a cross-chain DeFi protocol that can be accessed by both Binance Smart Chain and Polygon communities.
This makes it one of the few DeFi protocols that’s a top platform on multiple blockchains. BSC and Polygon are two of the fastest and scalable blockchain networks. This means that users can take advantage of low transaction fees and shorter confirmation times for their trading activities.
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