Proposal for the Development of a Native IoTeX Stablecoin

Introduction

The IoTeX ecosystem is rapidly growing, with a vibrant community of developers and users. However, one of the challenges facing the ecosystem is the lack of a native stablecoin. This means that all developers using stablecoins in their applications have to assume that the bridge remains uncompromised. This can be a major risk, as bridge hacks have become increasingly common in recent years.

In this post, I express my concerns about this situation, and propose the something that can be done about it to help developers mitigate the risks associated with bridged stablecoins and foster a more independent ecosystem.

The Problem with Bridged Stablecoins

Bridged stablecoins are stablecoins that are minted on one blockchain and then bridged to another blockchain. This can be a useful way to access stablecoins on different blockchains, but it also introduces a number of risks.

One of the main risks is that the bridge can be hacked. The recent bridge hacks that have plagued the cryptocurrency industry, including the Wormhole, Ronin, Nomad, and Wintermute incidents, serve as stark reminders of the inherent risks associated with cross-chain bridges. These hacks have resulted in the loss of hundreds of millions of dollars in assets, highlighting the potential vulnerabilities that exist when transferring funds between different blockchains.

Given the nascent stage of the IoTeX ecosystem and its growing emphasis on DePIN applications, over-reliance on the IoTube bridge could pose significant risks to DePIN applications building on IoTeX and might even actively deterred developer adoption. A bridge hack that compromises stablecoins could severely damage DePIN protocols emerging on IoTeX and jeopardize IoTeX’s standing in the DePIN landscape

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Learning from Celo Dollar (cUSD)

The Celo Dollar (cUSD) is a successful example of a native stablecoin that has gained significant traction in the Celo ecosystem. cUSD is collateralized by a reserve of assets, including CELO, the native token of the Celo blockchain, and other stablecoins. The reserve is managed by a decentralized network of validators, ensuring the stability and security of cUSD.

The Celo Dollar has a number of features that make it a good inspiration for an IoTeX stablecoin

  • Reserve-backed stabilization: cUSD is backed by a reserve of assets, which helps to maintain its stable value.
  • On-chain governance: The Celo community has the ability to vote on changes to the Celo protocol, including the parameters of the reserve and the dynamic peg adjustment mechanism. This helps to ensure that the protocol is aligned with the needs of the community.

ioUSD: A Path Towards a Robust IoTeX Ecosystem

The IoTeX ecosystem can learn from the success of cUSD by implementing a similar native stablecoin, ioUSD. ioUSD could adopt the reserve-based collateralization model and decentralized governance structure of cUSD, tailored to the specific needs of the IoTeX ecosystem.

Increased Security

Bridged stablecoins are at risk of being compromised during cross-chain transactions, leading to potential losses for users and developers. A native stablecoin like ioUSD would eliminate the need for bridges, significantly reducing the risk of security breaches and enhancing the overall security of the IoTeX ecosystem.

Improved Liquidity

Bridged stablecoins often face liquidity issues, making it difficult for users to buy or sell them during times of high volatility. A native stablecoin like ioUSD would have a broader market presence within the IoTeX ecosystem, leading to improved liquidity and smoother transactions.

Enhanced Community Governance

With a native stablecoin like ioUSD, the IoTeX community would have direct control over the asset’s parameters and governance, ensuring that it aligns with the ecosystem’s needs and priorities. This decentralized approach would foster a more engaged and empowered community.

Promotes Innovation in DeFi and DePIN

A native stablecoin like ioUSD would provide developers with a more reliable and secure asset for building DeFi and DePIN applications on IoTeX. This would encourage further innovation and development in these sectors, fostering the growth of the IoTeX ecosystem.

Reduces Reliance on External Stablecoins

Currently, the IoTeX ecosystem relies on bridged stablecoins from other blockchains, increasing its exposure to external risks and dependencies. A native stablecoin like ioUSD would reduce this reliance, making the IoTeX ecosystem more self-sufficient and resilient.

Strengthens IoTeX’s Position in the DePIN Sector

The development of a native stablecoin would establish IoTeX as a leader in the DePIN sector, demonstrating its commitment to providing a comprehensive and secure DeFi infrastructure. This would attract more users and developers to the ecosystem, further solidifying IoTeX’s position in the DePIN landscape.

The development of ioUSD would mark a significant step towards a more secure, self-sufficient, and thriving IoTeX ecosystem. By minimizing reliance on bridged stablecoins and embracing a native stablecoin solution, IoTeX can mitigate risks, foster innovation, and establish itself as a leading hub for DeFi and DePIN applications. ioUSD would empower developers, enhance user confidence, and propel the IoTeX ecosystem towards long-term sustainability and growth.

TLDR;

The IoTeX ecosystem currently lacks a native stablecoin, forcing developers to rely on bridged stablecoins that carry inherent risks. To address this challenge, we propose the development of ioUSD, a native IoTeX stablecoin collateralized by IoTeX and other assets. ioUSD would be governed by the IoTeX community, ensuring alignment with the ecosystem’s needs. Its implementation would enhance security, liquidity, and community-driven governance, fostering the growth of DeFi and DePIN on IoTeX.

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Thank you for starting this conversation about a potential native IoTeX stablecoin. Its certainly a conversation worth having. Would love to hear more perspectives on this from other community members!

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This is a great proposal that if implemented will be good for the ecosystem at large

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Very good idea

My concern is where the value of iousd comes from? There are very few BTC and ETH on the IoTeX chain, and the market capitalization of IoTeX itself is not large, so it may be difficult to form a positive flywheel

And one of the most important questions is, where does the revenue from minting IOUSD come from?

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The success of Celo’s stablecoin, cUSD, demonstrates that even with the small market cap of CELO, a native stablecoin can thrive and contribute to the growth of an ecosystem.

IoTeX, with a comparable market cap, can also effectively implement and grow a native stablecoin like ioUSD.

Similar to DAI vaults, the stable ioUSD can be minted by depositing IOTX into dedicated collateral vaults, allowing regular IOTX holders to participate in the creation of ioUSD.

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Great proposal! This definitely would help with our rapidly expanding ecosystem!

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Hello. I like this proposal, it has more pros than cons for the IoTeX ecosystem. The ioUSD proposal aims to create a native stablecoin for IoTeX, mitigating risks associated with using external stablecoin bridges.

However, a concern arises that launching a properly backed stablecoin requires substantial reserve assets and liquidity, potentially depleting community resources.

As IoTeX seeks to bridge the real world with the virtual, one solution to address reserve and liquidity issues is to tokenize real-world assets (RWA), such as art, real estate, commodities, bonds, etc., and add them to the ioUSD reserve assets.

This approach offers several key advantages:

  1. Tokenized RWAs bring tangible and long-term value to the ecosystem supporting the stablecoin, enhancing trust.
  2. Asset diversification significantly strengthens the reserve, as it is not limited to just IoTeX’s own IOTX and cryptocurrencies.
  3. Partnerships formed for RWA tokenization benefit IoTeX by expanding usage options and integration.
  4. Secondary markets and liquidity provision for RWA tokens enable active reserve management.
  5. Specific assets can generate passive income, e.g., proceeds from art sales or real estate rentals, providing additional financial support for ioUSD.
  6. Stake rewards in ioUSD for IOTX stakers can incentivize system self-balancing through arbitrage. IOTX stakers can receive a portion of rewards in ioUSD and invest them in fractional shares of tokenized assets constituting the ioUSD reserve.

Strategic use of tokenized real-world assets can provide diverse and substantial backing necessary for a successful ioUSD launch, avoiding strain on community resources. Formed partnerships also contribute to the development of the IoTeX ecosystem. Additionally, income from assets like art appreciation or real estate rentals can drive the adoption of stablecoins.

With careful RWA program development, these assets can both secure ioUSD and generate income for the IoTeX community.

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Leveraging tokenized real-world assets (RWAs) on the IoTeX ecosystem as collateral for ioUSD is a compelling idea that aligns with IoTeX’s strengths. Provided that RWAs exhibit sufficient liquidity, this approach could prove highly effective. The optimal composition of RWA collateral would be determined by the ioUSD governance committee.

While RWAs can certainly contribute to collateralization, it’s crucial to maintain a component of IOTX tokens within the reserve. IOTX’s high liquidity would play a vital role in managing liquidations and upholding the stablecoin peg.

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I like this idea but at the same time we need to know how the mint price is calculated. We shouldn’t use any third-party oracle we should fetch the price within the ecosystem.

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Utilizing Mimo exchange for determining the price of IOTX within the reserve seems like a feasible approach, considering that in mimo’s liquidity pools, wrapped IOTX is frequently paired with other assets. However, for the RWA portion of the reserve, this approach may not be feasible and could require a more sophisticated pricing systems. The effectiveness of this approach will largely depend on the protocols employed to create RWAs on IoTeX.

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Interesting proposal - this can potential help with the liquidity proposal currently in DEPIN category that we are always building for.

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iChristwin I think you’ll be interested in what Magma Protocol are creating for IoTeX, $IOTX and the stablecoin needs of their blockchain.

The RWA element is perhaps one to introduce as a developmental expansion, and it’s an enticing proposition for IoTeX as a DePin pioneering space. However, safety first must be the watchword there I feel.

A stablecoin based on IOTX collateral, from an immutable codebase as we’ve seen promulgated throughout DeFi with Liquity and forks thereof, would seem like a strong proposition for IoTeX. Especially with the markets turning as they are now. Tying in the RWA aspect would be a cool addition to a resilient protocol design and a way for IoTeX to be a leader along that fledgling RWA/DeFi space - it would sit rather nicely on the border between the two in fact!

(MagmaProtocol on Twitter FYI. I’ll just say that instead of a link, as it might not be permitted.)

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I think so, too. Securing the liquidity of stablecoin using RWAs could open up new opportunities for IoTeX and for the entire project ecosystem

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Decentralized stablecoins have to be backed by defi in order to flywheel positively. With arguably almost no defi on our chain, it would also be difficult to incentivize users to mint stablecoins, and would be a further blow to the brand image?

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I agree with iChristwin that an IOTX native stablecoin is needed to further strengthen and unite the DePIN ecosystem.

A native stablecoin like ioUSD or other names would provide a more secure foundation for developers building in this space. I also see the emergence of DeFi and DePIN as an opportunity to generate yield from real world assets, not just protocol fees. This will further expand the possibilities for the IoTeX ecosystem.

Overall, I welcome and support the idea of developing a DePIN asset-backed stablecoin native to IoTeX. This would align with the community’s needs and priorities, while also mitigating the risks associated with external dependencies. I look forward to seeing the proposals from teams working to make this a reality. A native stablecoin for DePIN assets would be an important step towards realizing the full potential of DeFi and DePIN on IoTeX.

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thanks for sharing @iChristwin - I think this is a very interesting proposal, and I agree with some of the comments that it has more pros than cons. Stable coins are a great tool in the DePIN space, and I’m lately very much leaning towards a dual token-economy when thinking of how to successfully craft a DePIN project.

It’s great to see other points of view as well, and I also wanted to mention that our next Webinar episode will be about token-economy. This would be a very interesting topic to tackle as well, I’ll keep you guys posted on the timeline.

@Foxfortytwo I like the RWA collateralization suggestion and, as you mentioned, it would be a great complementary feature to the IOTX backed ioUSD + other prominent DePIN tokens

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Hello all. As a long time supporter but non developer, my perspective is a little different. I have a hard time seeing the downside of a native stable coin on chain. We KNOW the future of finance is NOT going to include bridging. Not as they are implemented today. I DO believe that a machine economy, data economy and many other micro-payment applications can evolve and tokens can be used to implement these. However there will be business and employees, perhaps DEFI that develops. All of these things can live on chain natively with a native digital dollar on Iotex. Especially while the US dollar is still the preferred way for many to transact. Having native dollars could be very attractive. It would also be an important signal for the market. My experience is 30 years of customer facing retail sales\marketing along with product market fit. Thats my two chai’s worth on the stablecoin subject.

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OK Let’s talk about it

Celo is supported by well-known DeFi protocols such as Uniswap, Curve, and Sushi, and cUSD has enough application scenarios. In addition, CELO has a tvl of 100M to support cUSD

The most valuable asset on the IoTeX chain is IOTX, which is still a highly volatile asset so far. To mint ioUSD with high-volatility assets, users have no motivation and the liquidation mechanism is difficult to design. Where is the application scenario of ioUSD? MIMO only has a TVL of 7M!

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I have a few serious questions about the IoTeX stablecoin (assuming that the IoTeX stablecoin is backed by excess collateral of crypto assets)

  1. What are the assets used for minting IoTeX stablecoin?
  2. How to attract mortgage assets to mint IoTeX stablecoins?
  3. What are the application scenarios of IoTeX stablecoin after its launch?
  4. What is the scale/potential scale of these application scenarios?
  5. What are the risks and benefits of IoTeX’s own stablecoin compared to other existing stablecoin solutions (such as bridging or existing stablecoins to issue initial coins to IoTeX)?
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the concerns you raised about the volatility of IOTX and the lack of application scenarios for ioUSD are valid, but they can be addressed through careful planning and execution.

In the early days of DAI, it was primarily collateralized by Ether (ETH) This was because ETH was the most liquid and valuable asset on Ethereum at the time. However, MakerDAO has since expanded the range of assets that can be used to collateralize DAI, including other cryptocurrencies, stablecoins, and real-world assets.