Tether, the world’s largest stablecoin issuing company, recently launched a new stablecoin, aUSD₮, designed to meet growing market demand and inject new vitality into the DeFi ecosystem. aUSD₮ is a unique digital asset that is over-collateralized by Tether Gold (XAUT), meaning aUSD₮ is backed by real physical gold stored in Switzerland.

What are Alloy by Tether, Tethered Assets and aUSD₮?

Recently, Tether announced the launch of a new platform called Alloy by Tether and introduced a new type of digital asset known as Tethered Assets. These assets are designed to track the price of reference assets using stability strategies such as over-collateralization with liquid assets and secondary market liquidity pools. Tethered Assets can accept single or multiple types of collateral and can track the prices of most known assets, such as fiat currencies, commodities, and other similar products.

Alloy by Tether is an open platform that allows for the creation of different Tethered Assets with broader support mechanisms, potentially including yield products. This technology also provides institutions with a modern asset management approach by offering a secure, gold-backed digital asset that can be integrated into portfolios. Moon Gold NA, S.A. de C.V., and Moon Gold El Salvador, S.A. de C.V. are authorized by El Salvador’s CNAD to issue and manage Alloy by Tether to meet different client bases and regulatory requirements.

Alloy by Tether tokens use Tether Gold (XAU₮) as collateral, making them a type of Tethered Asset. aUSD₮ is the first Alloy by Tether token designed to track the value of 1 USD. Tether Gold represents physical gold stored in Switzerland, with each XAU₮ token linked to one ounce of physical gold that meets the London Bullion Market Association (LBMA) Good Delivery standards. This combination aims to provide the stability and reliability of gold while offering the transactional functionality and convenience of the USD. aUSD₮ is created on the Ethereum network, and the entire process is managed by Ethereum-compatible smart contracts to ensure transparency and security. This approach not only bridges physical gold with digital transactions but also uses price oracles to monitor the relationship between the token and its underlying value in real-time, further enhancing stability.

As of June 30, over 19.04 million aUSD₮ tokens have been minted, with collateral gold exceeding 417.23 kilograms.

aUSD₮ Minting Mechanism: Over-collateralization and Vaults Smart Contract

aUSD₮’s minting mechanism includes the following aspects:

1. Over-Collateralization: Over-collateralization is a core feature of aUSD₮. Each aUSD₮ token is backed by Tether Gold (XAU₮) valued higher than its face value. The excess XAU₮ serves as a buffer, protecting aUSD₮ from gold price fluctuations. When minting aUSD₮, users need to deposit gold worth more than the value of the aUSD₮ they wish to mint, ensuring the token’s stability and security.
2. Minting Process: Users mint aUSD₮ by locking a specified amount of Tether Gold in a smart contract. The maximum amount of aUSD₮ that can be minted is determined by the Minting Value Ratio (MTV), with a maximum MTV of 75%. The entire minting and management process is conducted through Ethereum-compatible smart contracts (Vaults), ensuring transparency and security. Users can mint as long as they pass KYC and their CMP’s MTV does not exceed the liquidation point.
   MTV’s calculation formula:
   MTV = (aUSD₮ value minted / XAU₮ value staked) * 100
   For example, if a user collateralizes $10,000 worth of Tether Gold and mints $7,500 worth of aUSD₮, the MTV is 75%. If the ratio exceeds 75%, the position will face liquidation.
3. Vaults Mechanism: Vaults are smart contract systems used to store users’ collateral and unissued aUSD₮, allowing for independent, permissionless verification of the XAU₮ collateral backing each issued aUSD₮. Vaults also store users’ CMP information and address metrics, such as minted aUSD₮ and provided XAU₮, as well as the position’s MTV. Only KYC-verified addresses can interact with the Vault and mint aUSD₮. Vaults obtain price data in real-time through oracles, monitoring and calculating the MTV of each user’s collateral position.
4. Oracle Mechanism: The oracle mechanism ensures that aUSD₮’s value remains pegged 1:1 to the US dollar. Oracles obtain real-time price data for XAU₮ and USD from multiple trusted sources to calculate each user’s current MTV, ensuring system stability and transparency. This mechanism not only maintains the value of aUSD₮ but also utilizes the intrinsic value of gold to provide additional stability and security.
5. Liquidation Mechanism: Liquidation occurs when the value of the collateral falls below a predetermined threshold (typically set at 75% of the collateral value). If a user’s collateral position approaches the liquidation point, authorized liquidators can intervene, reclaiming the user’s XAU₮ and returning the corresponding amount of aUSD₮. This mechanism ensures the system’s integrity and prevents under-collateralization.
6. Fee Structure: The minting, redemption, and liquidation of aUSD₮ incur certain fees. Currently, minting and redemption fees are set at 25 basis points (bps), and liquidation fees are set at 75 basis points. These fees help cover the system’s operational costs and maintain its stability.

Through this mechanism, aUSD₮ provides a digital asset that combines the stability of the US dollar with the value of gold, suitable for various trading and investment needs.

Detailed Minting Process:

• Collateral Deposit: Users first visit the Alloy by Tether website and choose to start minting. On the left side of the screen, users select the amount of Tether Gold (XAU₮) they want to provide and decide how much aUSD₮ to mint. (XAU₮ can be purchased through the Tether Gold platform or the secondary market.)
• Set Parameters: The system will display information about the collateral, the amount of aUSD₮ to be minted, minting fees, liquidation point, MTV, health bar, XAU₮ price, and liquidation price.
• Transaction Overview: Detailed transaction summary is shown, including changes in wallet balance, CMP impact, and related fees.
• Confirm Minting: Users click the “Add Collateral and Mint aUSD₮” button to confirm the transaction, transferring XAU₮ from their wallet to the Vault as collateral. The minted aUSD₮ will appear in their wallet.
• Monitor CMP: Users can monitor CMP and current status on the right side of the screen.

aUSD₮ Core Advantages: Gold’s Stability and Full-chain Transparency

aUSD₮ offers the following key advantages:

1. Gold-Backed Stability and Direct Exposure to Gold Value: aUSD₮ is collateralized by Tether Gold (XAU₮), which is stored in Switzerland, ensuring its value stability. Through an over-collateralization mechanism, each aUSD₮ token is backed by Tether Gold valued higher than its face value, providing a buffer to protect aUSD₮ from gold price fluctuations. Additionally, aUSD₮ offers the convenience of everyday use similar to fiat currency, while providing users with direct exposure to the value of physical gold. Users can enjoy the security of gold while utilizing aUSD₮ for efficient transactions and value storage.
2. Transparency and Security: The minting and management of aUSD₮ are carried out through Ethereum-compatible core smart contracts, which can independently and permissionlessly verify the XAU₮ collateral, ensuring system transparency. All interactions require KYC verification, ensuring that only verified addresses can interact with the smart contracts. Price oracles continuously monitor the relationship between the token and its underlying value, further enhancing system stability.
3. Liquidity and Efficiency: aUSD₮ provides a streamlined way to trade gold, suitable for both daily transactions and as a stable asset management tool for investors. Through Ethereum-compatible ecosystems, aUSD₮ can also seamlessly integrate with various DeFi platforms, promoting yield generation and asset diversification.
4. Versatility and Wide Applications: In addition to stability and transparency, aUSD₮ offers a new approach to asset management, suitable for different financial institutions and individual investors. Its design is not only suitable for traditional financial transactions but also enables automated minting, redemption, and liquidation through smart contracts, providing a modern asset management solution.
5. Ongoing Transparency and Auditability: aUSD₮ operates independently of the banking system as a robust, fully on-chain solution, offering high levels of transparency and security.

Through these advantages, aUSD₮ provides users with a stable and efficient digital asset management tool, combining the security of gold with the transparency and efficiency of blockchain technology. It offers investors a reliable tool for value storage and transactions.

Conclusion

Tether’s new stablecoin aUSD₮ combines the stability of Tether Gold with the transparency of blockchain technology, providing users with an innovative digital asset management tool. aUSD₮ uses an over-collateralization mechanism and smart contracts to ensure its value stability and system transparency. It not only leverages the intrinsic value of gold to provide additional stability but also enables automated management through Ethereum-compatible smart contracts, making it suitable for various trading and investment needs. With its transparent operations and robust security, aUSD₮ offers investors a reliable tool for value storage and transactions, and it provides the DeFi ecosystem with more options and possibilities.

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