What is xUSD?

xBacked launched an over-collateralised stablecoin xUSD on Algorand. Learn more here.
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What is xUSD?

xBacked launched an over-collateralised stablecoin xUSD on Algorand. Learn more here.
17.11.22

xBacked built an over-collateralized stablecoin on Algorand – xUSD to be used as store of value in a volatile market that is pegged to $1 USD worth of the collateral in the basket. Fully backed by decentralized collateral, our mission is to be the most capital-efficient stablecoin on Algorand and beyond.

What is xUSD?

xUSD is a stablecoin built on Algorand that aims to maintain a stable 1:1 value against 1 US Dollar worth of the collateral in the basket.

Hang on, what is a stablecoin?

A stablecoin is a class of cryptocurrencies that aim to provide users with price stability. This stability is achieved through protocol incentive design, and by making sure each stablecoin token has more than $1 of collateral backing it. Unlike traditional cryptocurrencies, stablecoins can be pegged to fiat currencies, such as the U.S. dollar or Euro, precious metals or other cryptocurrencies. 

What do you mean by collateral?

Collateral is any crypto assets that you can deposit to back a stablecoin. This could be Algorand (ALGO), BTC, or ETH. A user of the protocol would be able to deposit in $100 worth of a supported collateral type, and mint up to 90 stablecoin tokens. 

In this case, underlying collateral is required to make sure each stablecoin token has more than $1 of asset value backing it. This helps keep xUSD stable. Algorand (ALGO) and a number of other Algorand-based cryptocurrencies (goEth, goBTC) are used as collateral.

How is xUSD different from an algorithmic stablecoin like TerraUSD?

  1. Aligned with proposed regulations by being ≥ 100% backed: Over-collateralized portfolio of assets (Algorand, bridged BTC & ETH, LP tokens) on the balance sheet.
  2. Highly capital efficient: With a low minimum collateral ratio of 110%, the borrower’s capacity increases, thus making it appealing by allowing for 11x leverage on investments.
  3. Stability pool: Allows users to stake their xUSD and in a pool that receives a pro-rata share of all redemption & liquidation fees from the protocol.
  4. Isolated Risk Vaults: Isolating each vault from the other, if one asset price tanks, rugs, or otherwise fails to serve as decent collateral, it will only affect a small portion of xUSD in supply.
  5. Protected from volatile swings in supply and demand: Always able to redeem 1 xUSD token for $1 of the underlying collateral.
  6. Committed governance token backstop (future roadmap):  In times of severe stress in the market, tokens of governance token stakers will be sold to buy xUSD to repay any bad debt or liquidate any vaults via the stability pool.
  7. Censorship resistant: xUSD is a decentralized stablecoin and there is no centralized entity in control of the asset.

How stable is the xUSD stablecoin?

Using the mechanism above, xUSD tokens are always redeemable for $1 of underlying collateral, at a minimum. 

Why borrow xUSD at all and what can I do with it?

Sure, you might be thinking – why borrow a lower amount by locking in a higher amount? After all, you don’t borrow USD $100 from the bank by locking in USD $110 as collateral, right?

But if you believe in a more accessible future of finance, the main reason users want to borrow xUSD with their cryptocurrency is because they want to have liquidity and money available without having to actually sell their cryptocurrency. They merely ‘park’ their cryptocurrency in the protocol, and eventually repay the xUSD debt so they get their cryptocurrency back.

xUSD makes it possible for users like yourself to speculate in new cryptocurrencies without having to sell the cryptocurrencies you are currently holding.

Main benefits of using xUSD

  • Decentralized, which means that no centralized organization (i.e. government) controls the supply of new xUSDs in circulation
  • Protect against market volatility and fluctuations
  • A tool to unlock your digital assets by using cryptocurrency as collateral to mint a stablecoin
  • Deposit in a number of exchanges within decentralized finance (DeFi) and earn interest on your crypto

Who made xUSD?

A group of doxxed (not anonymous!) core contributors formed the xBacked protocol in 2021 with a vision to improve capital efficiency on Algorand and across all of DeFi. They believe that the future of finance, blockchain and digital assets will create a safer, more accessible and transparent system compared to the current traditional finance. 

Is the xBacked protocol fully audited?

Yes, fully audited by our auditing partners Ulam Labs and Runtime Verification.

How is xUSD minted? -> Maybe film a loom to explain

All xUSDs are generated from a tool called xBacked Vault:

  • User deposits Algorand (ALGO) or another supported cryptocurrency as security.
  • xUSD is then minted/generated
  • xUSD is paid out to the user in the form of a loan
  • User then deploys xUSD to our partners (Pact, Folks Finance) to a pool and earn yield

The user can give the same amount of xUSD back and pay a small fee and get back their collateral above.

To put this simply, picture yourself getting a loan from the bank, and you use your own home as security (collateral) for the loan, proving you can pay the loan back. And if you fail to pay, you lose your house, and get liquidated (losing your original collateral).

How does xBacked secure against people not paying their xUSD loans back?

When you borrow xUSD, you must provide at least 110% of the loan value as security. You then unlock more money in security than the value of the loan. If the security falls below 110%, the security you deposited is forcibly sold (liquidated) and the borrower (you) will be deducted a small fee. 

Example:

If you want 100 xUSD, which is equivalent to the value of 100 US dollars, you must deposit Algorand (ALGO) worth at least 110 US dollars in xBacked’s protocol. Should the $120 in ALGO fall in value to, for example, $118 in ALGO, the smart contracts in xBacked Protocol will automatically sell the Algorand you used as collateral. This is to ensure that the value you deposit as collateral will never be lower than the amount you borrow, keeping the market stable and therefore, the stablecoin will always keep its peg and be stable. And if you fail to pay xUSD back, you get liquidated and lose your ALGO that you put in.

I am ready to mint xUSD, where do I start?

Follow these 4 easy steps:

  1. Get Pera Wallet or MyAlgo Wallet and purchase Algorand (ALGO)
  2. Open a vault by minting 100 xUSD (the minimum amount) 
  3. Deploy xUSD to our partners (Pact, Folks Finance) to earn yield
  4. Monitor your vaults health to avoid being liquidated (don’t let your vault collateral ratio get less than 110%)