First time we are posting here! Hope everyone is doing great. We initially posted our COAST project idea on the Cosmos forum, where we received a suggestion from @BlueStitch to share our stablecoin project idea here on starscan and explore the possibility of building it on Function X. While we were initially considering Cosmos or Osmosis as potential platforms, we believe it’s beneficial to explore additional options and be part of welcoming community.
Please find our proposal below:
To start with, COAST is a stablecoin enforcer of crypto and real-world assets (RWA) collateralization. We are proposing to build a 1:1 stablecoin on the Cosmos ecosystem - and that includes L1s connected to Cosmos Hubs.
The stablecoin is generated via effective collateralization of various crypto, and future RWAs. It should be redeemable anytime.
COAST is a fork of MakerDAO and we plan to make changes to the chain configuration (GitHub - makerdao/dss-deploy-scripts). MakerDAO is the best on-chain collateral system and its auction system and peg have performed exactly as wished during the most intense market turmoil. The key differentiator for COAST is it focuses on assets in the Cosmos ecosystem.
COAST consists of
an on-chain collateral system for coUSD (co representing Cosmos, Collateral and Coast)
a collateral monitoring system with oracle
A auction system for fair liquidation
Benefits for COSMOS?
This will unlock considerable liquidity in COSMOS that can fuel DApps usage. Imagine coUSD going into an NFT Marketplace to buy NFTs or become the liquidity for DeFi DApp trades.
Secondly, COSMOS will further strengthen its standing as an L1 that is strong in financial assets (replacing Terra) , eg: buy OIL using crypto. If done successfully, the derivative narrative can be built without users crossing into source L1 (say COAST is launched in COSMOS) as derivative assets can move from one chain to another.
Utility of various L1 tokens $ATOM, $JUNO, $EVMOS etc will increase as they can be locked up to generate coUSD.
Low debt ceiling (vaults evaluated based on liquidity)
No collateralization of $COAST. (MakerDAO is proposing this)
High CR-ratio with low collateralization ceiling.
Our asset types
Asset type 1: BTC, ETH, USDC, DAI, USDT etc
Asset type 2: Cosmos tokens $OSMO, $ATOM, $CRO etc
Asset type 3: LPs of asset types above
Looking forward to your comments and questions from both the Function X team and the community! Open for discussion.
Welcome Coast and thank you showing an interest in Function X!
I have a few general questions.
1. What will be the collateral assets for the initial launch of coUSD?
Will it be major cap tokens such as the Asset Type 1 you’ve listed?
BTC, ETH, USDC, DAI, USDT
2. Do you have a risk assessment model to select which asset should be chosen as a collateral asset and if so, will it be shared to the public?
Riskier tokens usually have a lower debt ceiling as most of MakerDAO’s assets are selected based on a certain risk assessment model.
3. What will be your maximum CR Ratio? - 150% to 200%?
You mentioned High CR-ratio with low collateralization ceiling as a feature of Coast.
4. Low Debt Ceiling was mentioned as one of the key features.
Do you have an example of how low the numbers will be? Example if it’s $1M worth of different assets liquidity.
I understand that each asset also has its own debt ceiling but would love to see an example of Coast’s if possible.
5. Will it be possible for the collateral ratio to be adjustable to a higher fixed ratio?
Asking this because MakerDAO’s system actually did not perform as intended during March 2020’s drastic price movement.
One of the long-tail systemic risk assiociated with DAI is that it’s soft-pegged and doesn’t actually guarantee a 1:1 exchange.
The main risk is when prices fluctuate at an extreme pace while the network is congested simultaneously.
They were not as diversified back then because they were previously only backed by ether, thus the present multi-collateralized DAI has not been put to a real black-swan test yet.
While the underlying issue was that the chain became extremely congested and DAI was not diversified and being only backed by Ether in 2020, it also meant that MakerDAO’s CR of 150% was not high enough to protect users in a black swan event with a highly congested network, as seen in March 2020, where some users lost their full collateral, not partial.
I also understand that raising the CR-ratio may mean more capital inefficiencies but it will generally provide a higher degree of protection in times of an unforeseen black swan event, especially for a soft-pegged stablecoin and a newly-launched project, even though it’s a fork since the underlying collateralized assets are different.
6. What will happen if the project’s revenue is insufficient to cover its ongoing maintenance costs?
Reasons could be due to having a lack of liquidity
Asking this out of curiosity as I would love to see if there are future backup plans
Hello @SCENE, thank you for your questions. Please find below our answers.
After researching Function X ecosystem, we came with the following assets types:
Asset type 1: BTC, ETH, USDC, DAI, USDT
Asset type 2: Cosmos tokens $OSMO, $ATOM, and other cosmos eco tokens
Asset type 3: FunctionX $FX, $PUNDIX
Asset type 4: LPs of asset types above
Keep in mind that the above types of assets mentioned are not a final decision, but it is in our plans.
We will provide further information on our risk assessment model for collateral asset selection at a later time.
Our maximum CR (Collateralization Ratio) will be set at 150%. However, we are open to suggestions and feedback, so please feel free to share any ideas or recommendations you may have regarding the CR Ratio.
Initially, we are planning to set the low debt ceiling at $1 million. However, please note that this amount will be subject to evaluation based on the liquidity and performance of the first batch of tokens.
Yes, we are aware of the potential need for adjusting the collateral ratio to a higher fixed ratio. The collateral ratio can be adjusted by consensus.
We appreciate your question regarding the scenario where a project’s revenue is insufficient to cover ongoing maintenance costs. However, we kindly request that we discuss this matter with the chain foundation before providing any public statements. This ensures that we have accurate and up-to-date information to share with you. Thank you for your understanding, and we will provide more details as soon as possible after discussion.
If $coUSD is deployed on Function X as the main chain, we will need to work with the Function X team to integrate $coUSD with dapps on Function X (AMM DEX, Perp DEX, Yield Aggregator) and integrate with other appchains. The benefit is that the main chain, $coUSD, will bring liquidity from other chains to Function X, because all liquidity will be locked on Function X. There are only a few chains on Cosmos that can support IBC and EVM, so Function X is a good option.
Here is the scenario: if a user wants to mint $coUSD to utilize it on the Cosmos ecosystem, he or she needs to bridge the collateral token and deposit that to Function X. We are planning to reward the liquidity providers with our own treasury, or the foundation of the main chain can contribute (let’s say Function X contributes 5% of the amount minted once it reaches $1 million USD). With this mechanism, it will attract more liquidity because rewards will be distributed once the minted supply has reached the target. This reward is not included with the other rewards with the appchain partner, where it will be our job to negotiate with the developers.
There are several stablecoins, but all of them have different functions. You can take a look at $SILK on Osmosis and $USK on Kujira as examples. We are trying to create a stablecoin that is the main stablecoin on the main chain (like $USK) but also heavily adopted on other IBC chains. There is huge potential because no one has done it yet.
I’m having an extremely hard time understanding how a new stablecoin would help the ecosystem.
I just feel like we’re designing expert systems for expert users like other expert chains…
I sincerely don’t see the point, and there’s probably one.
I’ll leave it to experts to discuss about this. Too much DeFi for me…