Forward the Original Title ‘一文读懂新兴合成美元稳定币 USDX，TVL 破 1.8 亿美元，支持多币种铸造的 Delta 中性做市策略协议’

Introduction

With the overall crypto market warming up in 2024, the narratives across different tracks have shifted from the multi-crypto asset explosion seen in the last bull market. The market change is evident, moving away from conceptual yield expectations to a focus on real-time, tangible returns. Narratives across many fields are subtly changing, and new participants based on mainstream crypto asset yields, such as USDe, Bouncebit, Solv, and USDX discussed in this article, are emerging.

For a long time, the stablecoin ecosystem in the crypto market has been a key focus for both the industry and the market itself. Among the top ten cryptocurrencies by market capitalization, USDT and USDC have grown into widely recognized universal stablecoins, with their market value steadily increasing over the past two years.

Investing in the crypto market always comes with various risks, and the mature stablecoin track has consistently provided an effective way for users to mitigate investment risks. At the same time, stablecoins are among the most effective circulating certificates in the market today. These reasons have provided the stablecoin track with a substantial amount of market capital.

Correspondingly, the derivatives market based on stablecoins has become one of the hottest tracks today. Currently, delta-neutral positions amounting to $40 billion are primarily concentrated in BTC contracts. However, BTC is limited by its network constraints and lacks comprehensive infrastructure support, with other major networks showing similar limitations. This means they cannot provide strategy yields while genuinely avoiding price volatility. This scenario creates participation opportunities for stablecoins based on delta-neutral positions.

There are already many entrants in the market, and the recently involved distributed synthetic stablecoin project usdx.money has garnered some attention.

Reportedly, USDX is a new type of synthetic stablecoin that hedges the dollar value of various collateral held by the protocol and captures funding rate yields. The project’s total TVL has exceeded $180 million.

This article will introduce and analyze the features of USDX, an emerging stablecoin project with a unique initial appearance and viral propagation potential similar to MEME coins. The project has completed its pre-launch goals and opened its DApp and leaderboard entries to users, with more market dynamics expected in the future.

What is USDX?

USDX is an emerging synthetic dollar stablecoin protocol that adopts a multi-chain, multi-currency strategy, resulting in higher overall returns compared to similar products in adjacent sectors. Unlike various re-staking, LSD, and other yield methods or products, USDX has chosen a path where users earn returns by holding stablecoins. Its risk curve differs from existing market products, thereby avoiding the relatively crowded mainstream cryptocurrency yield strategies.

USDX provides a crypto-native stablecoin solution that does not rely on traditional banking infrastructure, offering features such as censorship resistance, scalability, and high stability. Compared to current projects based on mainstream yet singular USD stablecoins like BTC, USDX aligns more closely with the concept of new crypto savings. It offers a multi-currency savings tool that is available globally.

Currently, USDX provides a complete set of minting and redemption mechanisms, supporting interactions with various stablecoins. In the future, it will gradually integrate other mainstream crypto assets and support the minting method of over-collateralization.

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

USDX Stability Mechanism

USDX achieves value stability under all market conditions through the implementation of an automatic Delta neutral hedging strategy on its target assets. This method mitigates the risk of price volatility, thereby ensuring the stability of USDX’s value.

“Delta” refers to the rate of change (or sensitivity) of a derivative’s value in response to changes in the price of its underlying asset. It is a crucial parameter for maintaining the stability of USDX’s value. Delta neutral hedging is a strategy that balances the potential risk of price changes by establishing offsetting investment positions, thus safeguarding the portfolio from market volatility.

In the context of USDX, this means that if the price of the collateral assets changes, the system will automatically adjust the hedging positions to maintain the stable value of USDX. This strategy is designed to ensure that, regardless of market conditions, USDX’s value remains relatively stable, providing crypto users with a high-quality investment 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 represents the sensitivity of a derivative’s value to changes in the price of its underlying asset. When Delta is zero, the investment portfolio is described as “Delta neutral,” indicating that it is insensitive to changes in the underlying asset’s price. This neutrality is crucial for maintaining the stability of USDX’s value.

For example, with BTC, USDX generates a positive Delta due to its underlying BTC assets. The protocol hedges this by shorting perpetual contracts of BTC, thereby keeping the protocol’s Delta neutral.

In other words, the Delta neutral strategy ensures that the dollar value of the protocol’s asset portfolio remains unaffected by market price fluctuations, thus keeping the value of USDX stable. Except for brief discrepancies between spot prices and the derivatives market, the value of USDX remains stable despite market volatility in cryptocurrency prices. Gains from rising crypto asset prices are offset by losses in the corresponding short perpetual positions, ensuring USDX’s stability.

USDX.money engages in market-making activities across various exchanges without using leverage. By ensuring that the short positions in perpetual contracts match the scale of the underlying assets, Delta neutrality is maintained.

Maintaining a Delta neutral state is essentially the market-making strategy employed by USDX.money. This approach allows the protocol to operate in a manner that can generate long-term returns.

It is worth mentioning that maintaining delta neutral positions is a common strategy used by institutional market makers to avoid risks related to price fluctuations. This approach has been very mature in both traditional finance and cryptocurrency markets.

Check out more official information: usdx.money DOCs

Protocol Arbitrage Mechanism

Since USDX is minted using crypto assets, short-term market fluctuations can affect the prices of these tokens, creating arbitrage opportunities for users.

Whenever the price of USDX deviates from its $1 peg, users can exploit this discrepancy through the protocol’s minting and redemption contracts by buying or selling USDX. The protocol allows certified or whitelisted users to mint or redeem USDX to profit from short-term price changes. For example, when the price of USDX in the external market is below $1 (e.g., $0.995), a user can buy 1 USDX for $0.995 USDT, then redeem it through the protocol for 1 USDT, earning a 0.5% profit.

Conversely, if the external market price of USDX exceeds $1, users can interact with the protocol to deposit USDT and mint USDX, then sell the newly minted USDX at a price higher than $1 to make a profit.

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

Yield Token sUSDX

USDX holders can stake their USDX to obtain sUSDX and earn returns. This is an early native application provided by the USDX protocol, utilizing the ERC4626 Token Vault standard, which offers high scalability.

Staking rewards accumulate based on the funds and basis profits obtained by the protocol from Delta-hedged derivative positions, along with additional staking returns. Since the funds and basis profits from Delta-hedged derivatives can fluctuate, users’ staking returns are variable.

When there are no protocol earnings transferred to the staking contract, the usdx.money insurance fund ensures that the underlying collateral of the protocol remains unaffected, safeguarding the principal of users’ USDX assets.

Upon unstaking, users receive their staked USDX principal along with a proportional share of the protocol’s accrued earnings at the time of unstaking.

Essentially, sUSDX is not a governance token for the protocol but rather a utility token that ensures users’ profit-sharing rights within the protocol.

Features

Overall, the USDX protocol has the following characteristics:

1. Permissionless Access: USDX can be purchased through AMM platforms using other stablecoins.
2. Stable Token Staking Returns: USDX used for staking is not repurposed for other uses. The protocol employs a token vault strategy similar to Binance’s strategy for WBETH.
3. Instant Minting and Redemption: Users can mint USDX by depositing crypto assets allowed by the protocol, and redeem it at any time.
4. Clear Arbitrage Mechanism: The protocol is integrated with multiple AMM platforms, allowing users to arbitrage through the minting and redemption mechanism during market fluctuations.
5. Delta-Neutral Market Making Strategy: Ensures the protocol generates long-term returns and maintains USDX’s value stability, ensuring the protocol’s health.
6. Secure and Scalable Staking Contracts: Uses the ERC4626 Token Vault standard, facilitating future deployments of more use cases while ensuring the safety of collateral assets.

Regarding the protocol’s security, USDX has implemented a series of measures to ensure the integrity and scalability of deployed contracts. These measures are aimed at safeguarding user assets, achieving effective governance, and maintaining the protocol’s overall health.

Future Plans

Currently, USDX has been deployed on Ethereum, Arbitrum, and BNB Chain, and plans to integrate with multiple external markets, including centralized and decentralized spot markets like USDX/USDC, as well as mainstream AMM platforms such as Uniswap and Curve.

The protocol aims to connect with more use cases and different network ecosystems in the future. The ultimate goal of the USDX synthetic dollar stablecoin, based on multiple crypto assets, is to become one of the mainstream universal stablecoin protocols in the crypto market.

The protocol has initiated a points-based invitation system as a source for whitelisted users. Currently, USDX is in its early stages, and non-whitelisted users cannot directly purchase USDX, but it is worth keeping an eye on its future developments.

Conclusion

Considering the development of different sectors in the crypto market, it is evident that stablecoins will continue to play an increasingly important role as fundamental infrastructure. The demand for multi-asset synthetic stablecoins will also become a crucial component in various ecosystem infrastructure projects, which is the niche market USDX aims to address.

Unlike other dollar stablecoin protocols based on single mainstream crypto assets, USDX’s approach and model involving multiple assets are pioneering. Its overall visual style is heavily meme-oriented, which may bring more dynamics to the market.

Compared to other stablecoin protocols using over-collateralization, LSD, and other models, USDX emphasizes the safety of user assets. It is relatively conservative in both risk preparedness and yield model design. This is due to the Delta-neutral market-making strategy adopted by the protocol. Undoubtedly, this design is more user-friendly and secure.

If USDX and sUSDX gain more use case support and venture capital scenarios, the more cautious stablecoin solution promoted by the protocol will undoubtedly have greater development prospects. The upcoming BTCFi’s general demand for stablecoins like USDX is clearly promising.

Disclaimer：

1. This article is reprinted from [TechFlow]. Forward the Original Title ‘一文读懂新兴合成美元稳定币 USDX，TVL 破 1.8 亿美元，支持多币种铸造的 Delta 中性做市策略协议’. All copyrights belong to the original author [TechFlow]. If there are objections to this reprint, please contact the Gate Learn team, and they will handle it promptly.
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