In “The Plague,” Camus once said: “If you want to understand a city, just look at how its people work, how they love, and how they die.” Similarly, when evaluating the ecosystem of a public blockchain, the first thing people examine is how many DeFi protocols it supports, how high its Total Value Locked (TVL) is, and the diversity of its use cases. In many ways, DeFi metrics are a direct reflection of the health and success of a blockchain. Although this evaluation method, much like GDP, has its limitations, it remains the go-to framework for many observers today.

Modern DeFi relies heavily on four key components: decentralized exchanges (DEXs), lending protocols, stablecoins, and oracles. Beyond that, there are also liquid staking tokens (LSTs) and derivatives. While these elements are commonplace in the Ethereum Virtual Machine (EVM) ecosystem, they are much rarer in the Bitcoin ecosystem. As a result, we’ve seen countless projects emerge under the banner of BTCFi and Bitcoin Layer 2.

However, over time, the flaws of BTCFi and Bitcoin Layer 2 have become apparent. Many projects have simply added an EVM Chain to the Bitcoin ecosystem, with decentralized applications (DApps) mostly ported over from Ethereum, making Bitcoin feel like an extension of Ethereum. These EVM Chains lack novelty and fail to tell a compelling story.

In contrast, UTXO-based public blockchains like CKB and Cardano offer a more intriguing alternative to EVM Chains. Cipher, the founder of the RGB++ Layer, once proposed the concepts of “isomorphic binding” and “Leap bridge-less cross-chain” based on the unique features of the UTXO model, which garnered significant attention. Combining this with UTXOSwap, a protocol that is intent- and order book-friendly, ccBTC with equal collateral, and the JoyID wallet supporting multiple chains and Passkey technology, makes these developments truly noteworthy.

However, within the CKB and RGB++ Layer ecosystems, one of the key focuses is the stablecoin system. As the backbone of various DeFi scenarios, having a stable and reliable stablecoin issuance protocol is crucial to shaping the ecosystem. Equally important is providing an appropriate environment for the stablecoin’s circulation. Take USDT, for example—it was initially issued using Bitcoin’s Omni Layer protocol, but due to Omni Layer’s inadequate smart contract support, USDT eventually moved away from it. This demonstrates that stablecoins thrive best in a fully developed smart contract environment.

(Source: Wikipedia)
In this context, the RGB++ Layer built on CKB, with its Turing-complete smart contract environment and native Account Abstraction (AA) features, offers an ideal environment for stablecoin circulation in the BTCFi ecosystem. Furthermore, since many major BTC holders prefer long-term holding over frequent transactions, allowing BTC to be used as collateral for stablecoin issuance, while maintaining security, could incentivize these holders to engage more with BTCFi, increase BTC’s capital efficiency, and reduce reliance on centralized stablecoins.

In the next section, we will explore the Stable++ stablecoin protocol within the RGB++ Layer ecosystem. This protocol uses BTC and CKB as collateral to mint RUSD stablecoins. By integrating the Stability Pool insurance mechanism and bad debt redistribution system, it offers a secure and reliable minting process for BTC and CKB holders. Additionally, with CKB’s unique issuance mechanism, Stable++ can establish a slightly underdamped system within the RGB++ ecosystem, serving as a buffer during periods of significant market volatility.

Stable++ Features and Mechanism Design

When it comes to how stablecoins operate, they generally fall into four categories:

1. Fully centralized stablecoins, like USDT and USDC.
2. Collateral-backed stablecoins, such as MakerDAO and Undo (these can be either centralized or decentralized, but follow similar principles).
3. CeDeFi stablecoins, like USDe (which maintain value through derivative contracts on centralized exchanges).
4. Pure algorithmic stablecoins, like AMPL.

(Source: The Block)
MakerDAO is a prime example of a stablecoin protocol based on the CDP (Collateralized Debt Position) model. In this model, users mint stablecoins by over-collateralizing blue-chip assets like ETH and BTC. These assets, due to their strong consensus and relatively low volatility, make stablecoins issued through this system more resilient to risk. The CDP lending protocol operates similarly to the “pool-to-pool” mechanism in AMM (Automated Market Makers), where users’ interactions are directly with a liquidity pool.

To illustrate, let’s look at MakerDAO. A borrower first opens a position on Maker, deciding how much DAI they want to generate from the CDP. They then over-collateralize and borrow DAI. When repaying the loan, they return the borrowed DAI to the Maker platform, retrieve their collateral, and pay interest based on the borrowed amount and duration. This interest is payable only in MKR, which is one of the main revenue streams for MakerDAO.

(Schematic of CDP pool-to-pool lending)

DAI’s price stability mechanism depends on “Keepers.” Essentially, the total supply of DAI can be considered fixed, split into two parts: the DAI within MakerDAO’s liquidity pool and the DAI circulating in the external market. Keepers act as arbitrageurs between these two pools, ensuring that the price of DAI remains stable. As shown in the diagram below:

(Schematic of the DAI Anchoring Mechanism)
The focus of this article, Stable++, similarly adopts a CDP model in its design and inherits part of Bitcoin’s security through RGB++’s isomorphic binding technology. From a functional perspective, Stable++ includes several key features:

1. In Stable++, users can over-collateralize BTC or CKB to borrow RUSD, the stablecoin, and also use RUSD to redeem their BTC or CKB. A fee is applied to both collateralization and redemption processes.
2. Users can restake their borrowed RUSD back into Stable++ to earn the governance token STB as a reward and gain the right to participate in asset liquidation. This is the main deflationary mechanism for RUSD. If you’re familiar with Ethena (USDe), this will sound familiar. Additionally, you can also stake your governance token STB back into Stable++. By doing this, you will receive a portion of the fees charged to others when they collateralize or redeem their assets, based on your STB stake.
3. RUSD supports the isomorphic binding and Leap features. Using Leap, you can transfer RUSD controlled by a BTC account to another person’s Cardano account, without the need for a traditional cross-chain bridge. This reduces security risks and makes the process much simpler.
4. Stable++ has an LSD module where NervosDAO users can stake their CKB into Stable++ to receive wstCKB. To explain further, NervosDAO is a crucial part of the CKB ecosystem, rewarding users for long-term staking. Now, with the integration of Stable++, NervosDAO users can stake CKB, continue earning rewards, and maintain the liquidity of their assets.

(Stable++ Product Function Overview) These functions are straightforward and don’t require much elaboration. However, it’s essential to recognize that the success of a CDP-based stablecoin protocol hinges on several key factors:

• The reliability of the collateral
• The efficiency of the liquidation mechanism
• Its ability to empower the ecosystem it operates in

We’ll now focus on the liquidation mechanism and break down the design of Stable++. The effectiveness and efficiency of the liquidation process are crucial since it serves as the key safeguard to keep a lending protocol running smoothly. Stable++ introduces some innovations in its liquidation mechanism to address problems seen in traditional systems.

In the Stable++ system, after users over-collateralize assets in the CDP to borrow stablecoins, if the collateral value drops and the collateral ratio falls below the required threshold, users will face liquidation unless they top up their collateral in time. The purpose of liquidation is to ensure that every RUSD in the system is backed by sufficient collateral, thus mitigating systemic risks. During liquidation, the platform must reclaim some RUSD from the market, reducing the circulating supply and ensuring that the issued RUSD has enough collateral backing it.

Most lending platforms use a Dutch auction for liquidation, where the collateral is sold to the highest bidder (the liquidator). For example, suppose ETH is priced at $4,000, and the collateral ratio to mint DAI is 2:1. The system allows you to mint up to $2,000 DAI using 1 ETH as collateral, but you choose to mint 1,000 DAI. If the price of ETH falls below $2,000, the collateral ratio becomes less than 2:1, triggering liquidation. The 1 ETH you put up as collateral is automatically auctioned. In a Dutch auction, the price starts high and gradually decreases until a buyer steps in. Suppose the auction begins at $1,500 and finally sells for $1,200. The liquidator pays 1,200 DAI to acquire the 1 ETH collateral, making a profit. Afterward, the MakerDAO protocol will either burn or lock the 1,200 DAI to reduce the circulating supply.

This process is fully automated by smart contracts, ensuring that the stablecoin supply is always supported by sufficient collateral, while also removing highly leveraged positions. However, in practice, MakerDAO’s liquidation mechanism has two main issues:

1. The auction process takes time, and during steep market declines, bad debts may go uncleared. The goal of automatic liquidation is to sell collateral at a discount, offering a portion of the profit to attract liquidators. However, if the collateral continues to lose value, liquidators’ willingness to participate can drop sharply, making it difficult for the platform to find buyers.
2. In cases of extreme network congestion, individual liquidators may not have their transactions processed on-chain in time, which can disrupt the liquidation process. This was demonstrated during the market crash on May 19, 2021, when high volatility led to significant congestion on the blockchain, causing many liquidators and users facing liquidation to miss their transactions.

These problems have affected platforms like MakerDAO and AAVE, where slow liquidation processes have resulted in losses for both the platform and users. To address this, Stable++ has focused on designing a highly efficient liquidation mechanism, incorporating a dual insurance system: the “Stability Pool” and “Redistribution” mechanisms, which are key highlights of Stable++’s innovative approach.

(Stable++ Liquidation Mechanism Overview)
In Stable++, users can deposit stablecoins into the Stability Pool (referred to as the insurance pool), which acts as a “standing reserve” always ready to liquidate bad debt positions. When a liquidation occurs, the protocol first uses the insurance pool to clear the bad position and then rewards the pool’s LPs with the collateral from the liquidation. The Stability Pool ensures liquidators are always available, acting as an efficient buffer, removing the need to scramble for liquidators during liquidation events.

There are two key points to note here:

1. The Stability Pool currently only accepts RUSD, the stablecoin issued by Stable++ itself. Some may worry that having RUSD as the reserve asset could create a “bootstrap” situation (lifting itself by its own bootstraps). Is this a valid concern? It’s important to clarify that the RUSD in the insurance pool is destroyed during liquidation. For example: Suppose the collateralization ratio (CR) for RUSD is 110%, and there are 100 RUSD in the Stability Pool contributed by an LP. Now, a position that minted 100 RUSD with collateral worth $109 triggers liquidation. When the position is liquidated, the 100 RUSD in the insurance pool is destroyed, meaning the LP loses 100 RUSD but receives $109 worth of collateral, making a $9 profit. Afterward, the liquidated user no longer owes the 100 RUSD debt. As a result, 100 RUSD are burned, and $109 worth of collateral is removed from the platform, eliminating the undercollateralized position and keeping the rest of the platform’s collateral ratios healthy.

To summarize Stable++’s insurance pool design: It essentially requires some borrowers to lock up their RUSD, and when liquidation occurs, the platform destroys some RUSD and removes bad collateral, maintaining system health. In MakerDAO’s liquidation model, liquidators from the market provide the DAI that is burned, while Stable++ relies directly on the insurance pool. As such, it’s reasonable for the Stability Pool to use only the platform’s own stablecoin without raising concerns about bootstrapping.

This example also explains how LPs in the Stability Pool calculate their collateral discount. The discount rate is tied to the system’s set collateralization ratio (CR). Based on the 110% CR example above, an LP uses 100 RUSD to obtain $109 worth of collateral, giving a 9% discount, which is similar to traditional liquidation discounts (this is just an illustrative example and not Stable++’s actual parameters). Because Stable++ operates a standing insurance pool, liquidation is faster and more efficient, eliminating the need to find liquidators on the fly.

On the other hand, ensuring the Stability Pool has enough liquidity to handle liquidations is an important challenge that needs careful consideration.

1. If the Stability Pool doesn’t have enough stablecoins to handle a liquidation, the Redistribution mechanism kicks in. The debt and collateral from the liquidated position are proportionally redistributed across all active positions. For example, if the insurance pool can’t cover the bad debt, that debt becomes a global debt, spread among all borrowers. Here’s how it works:

Suppose there are 100 borrowers, and a liquidated position has 100 RUSD in bad debt. The Redistribution mechanism assigns each borrower an extra 1 RUSD of debt, but at the same time, they receive a proportional share of the collateral from that position as compensation. This differs from older DeFi platforms like Synthetix, where bad debt is distributed as global debt among borrowers, but they only take on additional debt without receiving any corresponding benefits from the collateral.

With these two layers of protection, Stable++ ensures that liquidation events can be quickly resolved. This high-efficiency liquidation mechanism effectively addresses the bad debt issue that often plagues traditional lending protocols. Moreover, this dual-layer liquidation system allows Stable++ to operate with a lower collateral ratio (for example, below 110%), significantly improving capital efficiency.

To summarize, CDPs are essentially a form of lending, and since it’s a lending relationship, bad debt is inevitable—when the value of collateral drops and liabilities exceed assets, liquidation is necessary. Each of the two liquidation methods discussed below has its own strengths and weaknesses:

Traditional auction-based liquidation methods, such as those used by MakerDAO and Aave, have been well-tested over time. They don’t require a large-scale “insurance mechanism” and typically rely on the liquidity of collateral assets. As long as the collateral has good liquidity and high market acceptance, large-scale liquidations can be handled smoothly. However, as mentioned earlier, the downside to this model is that during extreme market events, the process is less efficient. In addition, aside from assets like ETH, most collateral lacks sufficient liquidity, leaving a shortage of liquidators to quickly restore the protocol to a healthy debt level.

In contrast, protocols like Stable++ and crvUSD use “liquidation pools,” where the protocol-controlled asset pools serve as liquidators. These pools execute liquidations quickly through reverse orders, bringing the overall debt back to a healthy level. While each protocol has its own approach, an interesting comparison is Aave’s latest Safety Module—Umbrella. This model does not sell the assets in its insurance pool but instead reduces bad debt by burning them. Stable++ adopts a similar burn mechanism, where assets in the liquidation pool are destroyed, and the resulting collateral is distributed to the insurance pool’s LPs. On the other hand, crvUSD follows a trading approach: during liquidation, crvUSD is used to purchase collateral, and when the collateral value rises, it is sold, and the proceeds are used to buy back crvUSD. In this case, Curve retains ownership of the collateral.

A key question is whether Stable++ can establish an “underdamped” system within its ecosystem. What defines a healthy economic system? One key requirement is an “underdamped mechanism” that counters price fluctuations. In physics, “underdamped” refers to a force that slows but does not completely stop the motion of an object, decelerating the rate of change. In tokenomics, this means that whether prices rise or fall, the system has a buffer mechanism that mitigates, but cannot prevent, such changes. This type of system allows for sustainable growth without excessive leverage, offering a “soft landing.” For example, Bitcoin’s transaction fees and Ethereum’s gas pricing model adjust dynamically based on real-time network activity, which is an example of an “underdamped mechanism.”

Conversely, when an asset’s price rapidly rises or falls, and the system lacks a mechanism to slow down these changes, it becomes an unhealthy economic system that can collapse under excessive leverage—this is a common criticism of Ethereum’s LSD (Liquid Staking Derivatives) and restaking projects.

Since Stable++ uses BTC and CKB as its main collateral, and it is built on the RGB++ Layer, it’s important to consider how the relationship between Stable++ and CKB affects the ecosystem as a whole. Apart from the Genesis block, CKB has two issuance methods. The first is through PoW mining, with a total supply cap of 33.6 billion CKB. The issuance of new CKB is halved every four years, with the most recent halving in 2023, reducing the annual issuance from 4.2 billion to 2.1 billion. This is known as “primary issuance.”

CKB also has a unique mechanism where users must lock up CKB to store data on-chain (when you hold assets on the CKB chain, corresponding data needs to be stored, and you must pay a storage fee). However, the network does not directly charge users rent for this storage; instead, it dilutes the value of tokens through inflation, indirectly collecting rent. This is known as “secondary issuance.” The total annual amount of secondary issuance is fixed at 1.344 billion tokens, distributed as follows:

1. Miners: The secondary issuance of CKB allocated to miners is based on the proportion of on-chain storage space occupied by users.
2. NervosDAO
3. Treasury: The portion of secondary CKB issuance allocated to the treasury is proportional to the circulating supply of CKB relative to the total issuance, and this part is burned.

Stable++ allows users to stake CKB to generate wstCKB or use CKB as collateral at a lower collateralization ratio to borrow RUSD. When the price of CKB rises, more users will collateralize their CKB to mint RUSD, which effectively locks up more CKB. The minted RUSD, in turn, boosts activity within the on-chain DeFi ecosystem. This dynamic reduces the inflation rate of CKB indirectly, increases on-chain activity, and allows miners to benefit more, motivating them to enhance the economic security of the network.

Thus, unlike other collateral-backed stablecoins, the combination of Stable++ and CKB’s issuance mechanisms creates a more sustainable token economy, introducing an “underdamped mechanism” rather than merely adding leverage. With the integration of CKB’s Liquid Staking Token (LST), its composability and liquidity will further improve.

Conclusion: The Necessity of Stable++ from a Market Perspective From a market standpoint, the BTCFi ecosystem needs a large-scale decentralized stablecoin. Currently, USDT and USDC dominate 90% of the stablecoin market, but their centralization risks are hard to overlook. As previously mentioned, BTCFi users prioritize security. A decentralized stablecoin that addresses both the trading and security concerns of large holders is essential to encourage their participation in the BTCFi ecosystem.

(Current top 10 stablecoins by market capitalization)

Secondly, the total market capitalization of stablecoins is around $80 billion, just a small fraction of Bitcoin’s total market cap. This indicates there’s still a large amount of BTC that could be used as collateral to mint stablecoins, showing that there is tremendous growth potential for BTC-backed stablecoins.

(Bitcoin vs. Ethereum Market Capitalization Comparison)

In the past, some stablecoins launched within the Bitcoin ecosystem but failed to make a significant impact in the market. The main reason was that they arrived too early, without sufficient technological support. Today, however, with the growing prosperity of the RGB++ Layer ecosystem and the ongoing development of projects like UTXOSwap, Stable++, and JoyID, the foundational infrastructure for BTCFi on CKB is just beginning to take shape. Bitcoin-based stablecoin protocols are poised to bring new possibilities to the BTCFi ecosystem. CKB, with its untapped potential, will become a fertile ground for entrepreneurs, and the future holds exciting prospects for this vision.

Statement:

1. This article is reposted from [Geeker Web3], with the copyright belonging to the original authors [Bai Ding & Vicent Zhao, Geeker Web3]. If you have any objections regarding the repost, please contact the Gate Learn Team, and the team will process it promptly according to the relevant procedures.
2. Disclaimer: The views and opinions expressed in this article are solely those of the authors and do not constitute any investment advice.
3. Other language versions of this article are translated by the Gate Learn team. Without mentioning Gate.io, the translated versions of the article may not be copied, distributed, or plagiarized.