Fractional Protocol on NEAR
A partially stable collateralized and partially algorithmically stabilized using perpetual swaps
Stablecoins appear to solve the biggest problem in the current cryptocurrency market, volatility. For traders or investors, they can convert assets to stablecoins to avoid cryptocurrency volatility without necessarily converting to fiat.
Unlike purely algorithmic, “seigniorage” stablecoins like UST and others, UPFI’s protocol utilizes a “fractionalized” hybrid approach of algorithm and collateral. This hybrid still allows the value-capture benefits of seigniorage, while simultaneously retaining the strong peg performance.
There is a wide range of stablecoins circulating in the crypto ecosystem such as :
- Fiat – collateralized : Backed 1:1 by a centralized entity. For every 1 USDC, Circle holds the equivalent in dollars.
- Risk: The issuer cannot prove that the reserve amount so suffer from censorship and audit problems.
- Crypto - collateralized : Often over-collateralized by a highly volatile asset like Ethereum, Synthetic etc. as Dai, sUSD.
- Risk: The volatility in the price of the collateralized crypto coin and capital inefficient
- Algorithmic : Combination of algorithms and smart contracts to maintain price stability. As UST, BAS.
- Risk: When speculators stop buying bonds, the stablecoin will crash.
UPFI Protocol proposes to solve these problems by an algorithmic stablecoin, which is partially collateralized and algorithmically stabilized. UPFI Protocol is also more capital efficient and extremely stable than cryptocurrency backed alternatives, since it only requires a portion of the capital to mint, which is denominated in other stable assets. The remainder is denominated in a volatile asset as collateral. This generates both a natural demand and a value capture for the volatile asset.
We will use BTC, ETH, USN and USD in the following explanations but other cryptocurrencies and fiat can be substituted. The UPFI Protocol will support multiple cryptocurrencies as collateral and other fiat stablecoins will be issued.
UPFI Protocol is an algorithmic stablecoin that to overcome weaknesses for algorithmic stablecoins in particular and stablecoins in general.
Holders of UPFI will receive interest from the funding rate & interest yield-producing, which makes UPFI also an attractive store of value.
By implementing a floating collateralization ratio, UPFI not only maintains peg in the most efficient manner possible, but it also captures value for UPFI holders and produces yield for its community of holders across the whole decentralized finances ecosystem.
Increase use case, organic volume, liquidity, users for USN.
As the UPFI is pegged to the USN, the more UPFI grows, the more USN is used. It is a win-win pocsition.
Redeeming USN does not increase Near's supply, but also when users mint UPFI, most of USN and Near are used in Near ecosystem to generate profits for the community.