Wault Finance Announce Commerce Backed Stablecoin, WUSD, Integrating a WEX BuyBack

Wault Finance unveils their next huge project evolving the Wault Finance ecosystem, WUSD.

By
John Tunney
on
July 17, 2021
Category:
BSC News

WUSD

Wault Finance recently announced their own stablecoin: WUSD. The new stablecoin from Wault Finance is not fiat-backed, or an algorithmic stablecoin

WUSD is instead a ‘commerce-backed stablecoin.’ This is a unique variation of crypto-backed stablecoins. Wault Finance announced the news of their new WUSD stablecoin on July 14th through a Medium article

“it will be backed by our WEX token, which is the foundational token of our exchange on BSC, explained by Samsara NotALlama in the Medium post.  He continues on, mentioning the key point that “Instead of creating a new token without utility out of thin air, we’ll be using one that already has a market cap in the tens of millions.”

Source 


What is a Commerce Back Stablecoin?

Wault Finance’s WUSD stablecoin involves blockchain assets, is not over-collateralized, and does not mint tokens lacking utility.  One of the chief mechanisms supporting the WUSD peg is the “guarantee” of active commerce on the WaultSwap Decentralized Exchange (DEX)

The commerce aspect of the stable coin peg utilizes the revenue and yield farming rewards from the WEX token. This means that WEX holds 10% of the peg.

The utilization of WEX is the root of the ‘commerce-backed’ stablecoin. On top of the basic collateralization outlined below, there are three chief stability mechanics. Let’s first understand the collateralization aspects.

How Does WUSD Function?

As stated above, WUSD is not over-collateralized and has 100% of its value derived from crypto, making WUSD 100% crypto-backed.
How WUSD works:

  1. A user deposits 10 USDT as collateral.
  2. Wault mints 10 WUSD to the user.
  3. Wault deposits 9 USDT in the treasury and uses the remaining 1 USDT to buy WEX, which is sent to the treasury.
  4. When a user redeems their 10 WUSD, Wault Finance will return them 9 USDT and 1 USDT worth of WEX. 

A Unique Collateralization of Crypto Assets

This model is unique compared to other crypto-backed stable coins. Typically these tokens account for high volatility in crypto assets through over-collateralization.

Over-collateralization utilizes a peg of 2:1 or 1.5:1 versus a traditional peg of 1:1. This is to combat market volatility and ensure there will always be a 1:1 peg.

Wault does not utilize over-collateralization of crypto assets. This puts them at risk of de-pegging in market volatility; to combat this, Wault has introduced four novel stability mechanisms.

This is the true innovation of their ‘commerce backed’ stable coin. These stability mechanisms impose complex ‘cryptonomics’ concepts. 

The key point is that WUSD utilizes trading fees, yield farming redirection, and yield incentives to enforce the peg. 

Source 

Variable Trading Fee Support

The first stability mechanism focuses on keeping the treasury filled. WUSD will utilize three treasury building mechanics within the first mechanism. They are as follows:

  • ~15% of trading fees from WSwap will go towards the treasury
  • .5% redemption fee will be charged on each WUSD redemption --half of which will go to the treasury, the other half going to the dev fund.
  • A portion of idle treasury will be used to earn yields -- these earnings will feed back to the treasury

The goal here is to create a treasury that can always hold 10% of WUSD market cap. This will legitimize the peg. This system goes a step forward and utilizes a flexible allocation of trading fees.

To be specific, for every .001 that WUSD’s peg drops under $1 on a 24-hour TWAP, the WUSD treasury will earn an extra .5% of the trading fees, reinforcing the treasury when the peg is low.


WEX Buyback and Trading Fee Support

The second stability mechanism focuses on strengthening the peg through collateralizing WEX. The goal here is to hold 10% of the WUSD peg in WEX. This is achieved through:

  1. Buybacks of WEX to hold as 10% of WUSDs collateral. The WEX tokes will be locked as liquidity.
  2.  For every .001 of WUSD falls below $1 (representing the target collateralized value), .5% of the emissions rate to LPs will be sent to the WUSD treasury

This emission redirection seems to have no cap. Wault Finance did not elaborate on the max amount of emissions that will go towards the treasury. 

In short, this directs yield farming rewards to the treasury. This aspect is crucial as WEX is highly inflationary. These rewards must be redirected to account for inflation and volatility of WEX.

Source


WUSD Yield Farming Incentives

Everybody loves a good yield farming campaign. WUSD will grow with utility and support multiple trading pairs. To begin, Wault Finance will initially offer a BUSD-WUSD pair with high APYs.

This is in place to incentivize the use of WUSD. This mechanism also incorporates variable yields to best support the token under a de-pegged event. It works as follows:

Every .001 that the WUSD peg drops under $1, we will raise allocated emissions for WUSD by 5% up to 500%. Vice versa, for every .001 that the WUSD peg is above $1, we will lower allocated emissions for WUSD by .8%, down to a minimum of 20% of starting emissions.


WUSD a New High-Risk Stablecoin

The addition of WUSD adds a significant use-case to the Wault Finance protocol. Holders of both WEX and WEXpoly have celebrated the bullish news.

Everything seems like a rainbow and roses in theory. Except this is a novel idea. WUSD only holds a peg slightly over 1:1.

While this token is different from un-collateralized and algorithmic stable coins, the risk is apparent. It combines aspects of partially collateralized tokens and unique variable tokenomics structures. 

The token holds a peg of 1:1, but under extreme market volatility, a de-pegging is not out of the question. For example, under extreme volatility, even USDT can depeg by 10-20%.

This means in the worst-case scenario that USDT depegs and WEX loses nearly all value, WUSD can easily lose ~30% of its value.

So what are the odds of this? Nobody knows. Overall the system has tons of mechanics in place to combat these occurrences. If designed properly, WUSD will have no issues.

The only way to figure it out is through trial by market.  In the coming days, Wault Finance plans to announce its launch date of WUSD. Make sure to stay tuned. 


WEX Inflation Continues

Through all these mechanics the Wault team has made a crucial decision to stop emission reductions. This is two-fold.

 The yield incentives are now a crucial part of holding the peg -- if balanced correctly. On top of that, the redirection yield to support WUSD would result in lower yields for users. 

To combat this WEX inflation will remain constant for the foreseeable future.


What is Wault Finance?

Wault Finance is a Decentralized Finance (DeFi) platform that serves as a hub on Binance Smart Chain (BSC). Wault is open-source and focuses on making things as simple and convenient for consumers as possible. The team hopes to create a relaxed and comfortable interface that will make investing as hassle-free as possible. Wault Finance aims to make the benefits of DeFi accessible intuitively, saving investors and new users from the confusing interfaces, high fees, and unknown risks of other projects.

Where to Find Wault Finance: Website | Twitter | Medium | Discord | Telegram |


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John Tunney

John Tunney is an accomplished analyst and crypto enthusiast. The UCLA alum has been actively reporting and blogging for 3 years, and has a passion for all things finance.

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