Stablecoin Minter
Last updated
Last updated
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Stablecoin Minter is one of the three synthetic asset minters in the Duet protocol. It Mints and Redeems Duet USD(dUSD) with whitelisted USD stablecoins at a rate of 1:1.
The Stablecoin market is extremely competitive, legacy projects like USDT, DAI, USDC are competing with new stablecoins like UST as well as potentially with CBDCs in the future.
Despite their claim to be stable and value-backed, Duet governance will rate the stable coins similar to how bonds are rated by agencies, only AAA-rated stable coins will be whitelisted to generate dUSD with a 100% utilization rate, while others can be used to generate dUSD using an over-collateralization method
The Stablecoin Minter is a modified version of the traditional Automated Market Maker(AMM) Mechanism.
The Stablecoin Minter facilitates the exchange between whitelisted stablecoins and dUSD. Traditional AMM setup requires an unnecessarily large amount of liquidity to decrease transaction slippages.
Duet introduces a "Virtual Automated Market Maker(VAMM)" mechanism, where a depth is simulated so that slippage is minimal during exchanges.
The Stablecoin Minter VAMM requires no liquidity to be locked up, its liquidity pool increases every time dUSD is minted by purchase order and decreases when dUSD is sold to redeem whitelisted stablecoins.
VAMM automatically mints more dUSD and supplies it to the VAMM when a purchase order moves the price of dUSD higher from its peg (i.e. 1 dUSD= $1). In case a sell order moves the price of dUSD lower from its peg, VAMM will burn excessive dUSD in the pool so that the price of dUSD returns to its peg.
During the launch, a virtual depth of 50 million is simulated, which will subsequently be removed once the depth of the VAMM is self-sustainable.
It should also be noted that the stablecoin minter currently restricts redeem transactions that would amount to more than 50% of the stablecoin reserves to be redeemed.
Duet charges a 0.2% fee whenever a dUSD is minted or redeemed.
Although Stablecoin minter only accepts whitelisted stablecoins, situations might arise where a whitelisted stablecoin lost its peg to the US dollar.
When the value of a whitelisted stablecoin falls below 0.98 USD, a circuit breaker is triggered, so that users can no longer mint dUSD with that stablecoin with the stablecoin minter.
The circuit breaker protects the peg of dUSD to USD during extreme events where a whitelisted stablecoin significantly deviates from its peg.