More than 23 different stablecoins have failed and gone to zero, or near zero.
And with around 200 stablecoins on the market, that’s an astonishing 10% failure rate.
But this is generous.
See, some stablecoins have not technically failed, but they have censored individuals who have interacted with code that the central issuer did not like.
Others have not failed yet, but are ticking time bombs due to uncertainty in the underlying collateral.
Truth is, if ‘we’ want truly decentralized financial solutions, we must have trustless, censorship resistant, and reliable stablecoins.
USDL fits the bill.
USDL is an algorithmic stablecoin designed to maintain a constant value of one US dollar, at all times.
And, unlike other stablecoins that rely on fiat currency held in bank accounts, USDL coin is created by users depositing PLS (PulseChain coin) as collateral.
This collateral is locked in individual smart contracts called Vaults, ensuring that all USDL within the Liquid Loans ecosystem is supported by a surplus of collateral.
USDL serves as a means to pay off loans on the protocol and can be redeemed at any time against PLS at its face value.
USDL is different from most stablecoins in that:
This means that USDL is resistant to:
USDL crypto is a coin (on PulseChain) that works just like any other token that trades on the free market of centralized and decentralized exchanges.
When an individual sells it, the price goes down. When they buy it, the price goes up.
The dilemma for all stablecoins is what happens when lots and lots of USDL is sold.
The fundamental solution is to have a robust redemption mechanism that incentivizes users to buy USDL and redeem it for the underlying collateral at a profit.
USDL crypto is minted (or created) when users elect to lock their PLS in smart contracts called Vaults within the Liquid Loans Protocol.
The value of PLS must be 110% the value of the USDL when the loan is created to ensure overcollateralization and system-state solvency.
The design of USDL maintains its price stability by both hard and soft peg mechanisms.
The "hard peg mechanisms" involve the ability to redeem the USDL coin for PLS at a value equivalent to $1. This creates a price floor. If the price falls below $1, any user can buy USDL off market (pushing the price up) and redeem it for $1 worth of PLS.
Additionally, a minimum collateral ratio of 110% establishes a price ceiling, preventing the value from exceeding its intended peg. This means that if the price of USDL exceeds $1.10, users can collateralize their PLS and immediately sell their USDL on the market for profit.
The "soft peg mechanisms" operate indirectly to ensure USD parity. One such mechanism is the concept of parity as a Schelling point, which promotes cooperation and equilibrium without direct communication. Liquid Loans treats USDL as equal to the USD value of an asset, implying that parity between the two is an inherent state within the protocol.
Another soft peg mechanism is the implementation of borrowing fees on new debts. As the number of redemptions increases, indicating that USDL is below its $1 value in PLS, the baseRate also rises. This discourages borrowing and reduces the influx of new USDL into the market, preventing its price from falling below the value of $1 worth of PLS.
Redeeming USDL stablecoin for PLS is a simple process. Holders will:
The USDL will be taken out of existence and PLS will be removed from the lowest collateralized vault (i.e. one with a collateral ratio of 111%) and placed in the redeemer's wallet address.
Holders of USDL have a variety of options:
Cryptocurrencies are volatile, which is a large reason why merchants are hesitant to use it for payments.
But the vast majority of stablecoins are unreliable.
USDL provides a much needed solution to the problem.
It is fully-backed, redeemable, censorship resistant, trustless, and comes from a decentralized network of vaults in a protocol which is admin key and governance free.
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Disclaimer:Please note that nothing on this website constitutes financial advice. Whilst every effort has been made to ensure that the information provided on this website is accurate, individuals must not rely on this information to make a financial or investment decision. Before making any decision, we strongly recommend you consult a qualified professional who should take into account your specific investment objectives, financial situation and individual needs.
Connor is a US-based digital marketer and writer. He has a diverse military and academic background, but developed a passion over the years for blockchain and DeFi because of their potential to provide censorship resistance and financial freedom. Connor is dedicated to educating and inspiring others in the space, and is an active member and investor in the Ethereum, Hex, and PulseChain communities.
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