Introduction

With the overall recovery of the crypto market in 2024, the narratives across different sectors have evolved from the multi-crypto asset explosion of the previous bull market. The changes are evident, with a shift from merely speculative returns to real-time gains that users now prioritize. This shift has brought forth new participants focusing on returns from mainstream crypto assets, such as USDe, Bouncebit, Solv, and USDX discussed in this article.

Stablecoins have long been a focal point within the crypto market. USDT and USDC, ranking among the top ten cryptocurrencies by market capitalization, have become widely accepted stablecoins, with their market caps continually growing over the past two years.

Investing in the crypto market always involves various risks. Stablecoins have become a mature means for users to mitigate these risks and are also the most effective circulation proof within the current market, thus attracting substantial market capital. Consequently, the derivatives market based on stablecoins has become a popular sector. Presently, a significant portion of the $40 billion Delta neutral positions are concentrated in BTC contracts. However, BTC and other mainstream networks face limitations due to network constraints and incomplete infrastructure, making it challenging to offer strategy returns while genuinely hedging against price volatility. This presents an opportunity for stablecoins based on Delta neutral positions.

Many players have already entered this market. Recently, the distributed synthetic stablecoin project usdx.money has garnered attention. USDX is a new type of synthetic stablecoin that hedges multiple collateral exposures held by the protocol to anchor to the dollar value and capture funding rate yields. The project’s total TVL has surpassed $180 million.

This article will explore the features of USDX, a new stablecoin project with viral potential similar to MEME coins. The project has completed its pre-launch goals and opened its DApp and leaderboard entry to users, with more market updates expected in the future.

WhatIs it USDX?

USDX is an emerging synthetic USD stablecoin protocol that adopts a multi-chain, multi-currency strategy, leading to higher overall returns compared to its competitors. Unlike various staking and LSD (Liquid Staking Derivatives) products, USDX focuses on providing users with returns through holding stablecoins. This distinct risk profile sets USDX apart from the crowded mainstream crypto yield strategies.

USDX offers a native stablecoin solution that does not rely on traditional banking infrastructure, boasting censorship resistance, scalability, and high stability. Unlike current dollar-pegged stablecoins primarily based on BTC and other mainstream assets, USDX aligns with the new concept of crypto savings, providing a multi-currency savings tool accessible worldwide.

USDX has already implemented a full suite of minting and redemption mechanisms, supporting interactions with various stablecoins and planning to integrate other mainstream crypto assets in the future. The protocol supports over-collateralized minting methods.

USDX maintains its peg to the dollar through a Delta hedging strategy for derivative positions. This strategy offsets the risk of value fluctuations in the collateral held by the protocol, ensuring the stability of USDX’s value while providing returns to USDX holders or ecosystem participants.

Delta Hedging Strategy

USDX employs an automatic Delta neutral hedging strategy to maintain value stability under all market conditions, thereby mitigating risks associated with price volatility. “Delta” refers to the sensitivity of a derivative’s value to changes in the price of its underlying asset, which is a crucial parameter for maintaining the stability of USDX’s value.

Delta neutral hedging involves creating offsetting investment positions to balance potential price movement risks, protecting the portfolio’s value from market fluctuations. In the context of USDX, this means that if the price of collateral assets changes, the program automatically adjusts the hedging positions to keep USDX’s value stable.

This strategy ensures that USDX’s value remains relatively stable regardless of market conditions, offering crypto users a high-quality risk mitigation strategy while unlocking the vast potential liquidity of BTC and other crypto assets.

Delta Neutral and Market Making Strategies

In the context of USDX, “Delta” refers to the sensitivity of a derivative’s value relative to changes in the price of its underlying asset. When Delta equals zero, the portfolio is considered “Delta neutral,” meaning it is insensitive to changes in the underlying asset’s price. This is the fundamental condition for maintaining the stability of USDX’s value.

For example, in the case of BTC, USDX inherently has a positive Delta due to its underlying BTC assets. The protocol hedges this by shorting BTC perpetual contracts, keeping the protocol’s Delta neutral. In other words, the Delta neutral strategy ensures that the dollar value of the protocol’s asset portfolio is unaffected by market price fluctuations, maintaining the relative stability of USDX. Except for brief discrepancies between spot prices and the derivatives market, USDX’s value does not change due to crypto market volatility. Any gains from rising crypto asset prices are offset by losses in the corresponding short perpetual positions, ensuring the stability of USDX.

usdx.money engages in market making activities across various exchanges without using leverage. It maintains Delta neutrality by ensuring the size of short positions in perpetual contracts matches the scale of the underlying assets. Maintaining a Delta neutral state is essentially the market making strategy used by usdx.money. This approach allows the protocol to generate long-term returns.

Maintaining Delta neutral positions is a common strategy used by institutional market makers to hedge against price fluctuation risks. This practice is well-established in both traditional finance and the cryptocurrency markets.

For more official information, refer to the usdx.money DOCs

Protocol Arbitrage Mechanism

Since USDX is minted using crypto assets, short-term market fluctuations affect the prices of the corresponding tokens, creating arbitrage opportunities for users. When the price of USDX deviates from its $1 peg, users can exploit this by using the protocol’s minting and redemption contracts to buy or sell USDX for arbitrage.

Arbitrage Example

• When USDX Price is Below $1: If the external market price of USDX is below $1 (e.g., $0.995), users can buy 1 USDX for 0.995 USDT and redeem it through the protocol for 1 USDT, earning a 0.5% profit.
• When USDX Price is Above $1: If the external market price of USDX is above $1, users can deposit USDT with the protocol to mint USDX and sell the newly minted USDX at the higher market price for a profit.

The difference between the minting and redemption prices within the protocol and the trading prices in the external market provides users with long-term arbitrage opportunities.

Yield Token sUSDX

USDX holders can stake their USDX to earn sUSDX, which provides yield. This is an early native application of the USDX protocol, utilizing the ERC4626 Token Vault standard, which offers high scalability.

Staking rewards are accumulated from the protocol’s earnings from Delta hedging derivative positions and basis yield, along with additional staking yield. Since the earnings from Delta hedging derivatives can fluctuate, users’ staking returns are variable.

When no protocol earnings are transferred to the staking contract, the usdx.money insurance fund ensures that the underlying protocol collateral remains unaffected, safeguarding users’ USDX principal assets. Upon unstaking, users receive their staked USDX principal along with their proportional share of the protocol earnings at the time of unstaking.

sUSDX is not a governance token but a utility token that guarantees users’ profit-sharing rights within the protocol.

Key Features of USDX Protocol

1. Permissionless Acquisition: USDX can be purchased through other stablecoins on AMM platforms.
2. Stable Token Staking Yield: USDX used for staking is not utilized for other purposes, employing a token vault strategy similar to Binance’s WBETH.
3. Flexible Minting and Redemption: Users can mint USDX by depositing approved crypto assets into the protocol and redeem them at any time.
4. Clear Arbitrage Mechanism: The protocol is integrated with multiple AMM platforms, allowing for arbitrage opportunities through minting and redemption during market fluctuations.
5. Delta Neutral Market Making Strategy: Ensures long-term returns and maintains USDX value stability, supporting the protocol’s overall health.
6. Secure and Scalable Staking Contracts: The ERC4626 Token Vault standard facilitates future use case deployments while ensuring collateral asset security.

USDX employs various measures to ensure the security and integrity of its deployed contracts. These measures aim to protect user assets, achieve effective governance, and maintain the overall health of the protocol.

Future Plans

USDX is currently deployed on Ethereum, Arbitrum, and BNB Chain. The protocol plans to integrate with more external markets, including centralized and decentralized spot markets like USDX/USDC pairs, and major AMM platforms such as Uniswap and Curve.

The protocol will expand its use cases and network ecosystems, aiming for USDX to become a mainstream stablecoin protocol in the crypto market. Currently, USDX has an invitation-based point system for whitelist users. As USDX is still in its early stages, non-whitelist users cannot directly purchase USDX but can stay updated for future developments.

Conclusion

Examining the current development of various sectors in the crypto market, it is evident that stablecoins will continue to play a crucial role as foundational infrastructure. The demand for multi-currency synthetic stablecoins will become a significant component of ecosystem infrastructure, which is the specific market demand that USDX aims to meet.

Unlike other USD stablecoin protocols based on single mainstream crypto assets, USDX’s approach and model of incorporating multiple currencies are unprecedented. Additionally, its overall visual style leans heavily towards a MEME aesthetic, potentially bringing more dynamic changes to the market.

Compared to other stablecoin protocols that adopt over-collateralization or LSD (Liquid Staking Derivatives) models, USDX places greater emphasis on the safety of users’ assets. Its approach to risk management and yield model design is relatively conservative, driven by the protocol’s Delta neutral market making strategy. This design is undoubtedly more user-friendly and secure.

If USDX and sUSDX can garner more support for use cases and venture capital scenarios, the more conservative stablecoin solution promoted by this protocol will undoubtedly have greater development prospects. The upcoming BTCFi’s universal demand for stablecoins like USDX is unmistakably promising.

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