System Architecture

The USDD system architecture is designed to ensure stability, security, transparency, and scalability. It operates as a decentralized platform leveraging robust collateral mechanisms, efficient liquidation processes, and community-driven governance to maintain the stability of USDD and its integration within the DeFi ecosystem.

Collateral Management

USDD employs an over-collateralization model to safeguard its stability and reduce systemic risk. Users can lock eligible assets, such as TRX, and USDT, to mint USDD. Key aspects of collateral management include:

  • Over-Collateralization: Users are required to maintain a collateral ratio above the minimum threshold, varying by asset based on its volatility.

  • Multi-Collateral Support: Diversification of supported collateral types minimizes risk and promotes flexibility for users.

  • Real-Time Monitoring: The system continuously monitors collateral ratios, alerting users to potential risks and ensuring prompt responses.

Liquidation Mechanism

The protocol incorporates a secure liquidation process to address under-collateralized positions and protect the system’s integrity:

  • Triggering Liquidation: When a vault’s collateral ratio falls below the minimum threshold, it becomes eligible for liquidation.

  • Keeper Incentives: Liquidators, or “keepers,” are incentivized with rewards to participate in the liquidation process.

  • Risk Containment: This mechanism ensures that under-collateralized positions do not threaten the overall stability of the system.

Auction System

The USDD platform utilizes an efficient auction system to optimize the management of liquidated collateral and system deficits:

  • Collateral Auctions: Liquidated collateral is auctioned to recover outstanding debt. Participants bid competitively, ensuring fair market pricing and efficient debt recovery. Collateral Auctions are conducted using a Dutch model, where prices decrease over time, encouraging timely participation and equitable pricing.

  • Debt Auctions: In the event of a protocol deficit, the system initiates debt auctions, selling governance tokens to recapitalize and maintain stability.

Peg Stability Module (PSM)

The PSM (Peg Stability Module) is designed to maintain the peg of stablecoins through a fixed 1:1 exchange rate (e.g., between USDD and USDT). Users can exchange one stablecoin (such as USDT) for USDD directly, with no slippage. This process involves:

  • Minting: When users exchange USDT for USDD, the system mints new USDD and sends it to the user while depositing the USDT into the reserve pool.

  • Redeeming: When users exchange USDD for USDT, the system burns the USDD and releases the corresponding USDT from the reserve pool.

The Peg Stability Module (PSM) plays a critical role in maintaining USDD’s 1:1 peg to the US dollar by facilitating and hence reducing arbitrage through seamless stablecoin conversions:

  • Zero-Slippage Swaps: Users can exchange USDD for other stablecoins, such as USDT, at a 1:1 ratio without incurring slippage.

  • Gas-Only Transactions: The PSM allows for seamless swaps with no service fees, requiring users to pay only the gas fees. This approach fosters user trust and enhances liquidity.

  • Demand-Supply Balancing: By offering stablecoin swaps, the PSM mitigates price volatility during periods of heightened market activity.

Governance and Risk Management

USDD leverages a decentralized governance framework to ensure adaptive decision-making and effective risk mitigation. Further details will be shared soon—stay tuned!

Transparency and Auditing

Transparency is a cornerstone of the USDD protocol, fostering user trust and ensuring accountability:

  • On-Chain Auditing: All transactions, collateral reserves, and system metrics are recorded on the blockchain, enabling real-time verification.

  • Performance Dashboards: User-friendly dashboards display vital statistics, including total USDD minted, collateral locked, and liquidation activity.

  • Open-Source Integrity: The protocol’s codebase is fully open-source, allowing the community and security experts to audit and enhance its reliability.

  • Independent Third Party Auditing: The smart contracts have been thoroughly audited by independent third-party security firms to ensure safety and reliability.

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