TLDR: with ARC you now can unlock liquidity on your interest-bearing assets, allowing you to supercharge yields!
Hey all! As you may remember, I posted about ARC for the first time a few months ago and the idea of creating stablecoins for each debt token. Over the past 3 months we’ve been working super hard to get our second iteration out. This post marks that launch!
ARC is a synthetic asset protocol aimed at creating debt based stablecoins through using collateral users already have but don’t have liquidity for. We started off with the idea of creating a stablecoin for each collateral type with LINK being the first collateral to mint LINKUSD, a synthetic pegged to the US dollar. From the initial launch there were a two key takeaways we learned:
We need better mechanics for maintaining the peg compared to what we have at the moment
Focusing on too many stablecoins in the short term is going to be too hard until we can stabilise the peg of a single stablecoin
At the same time we’ve seen plenty of algorithmic stablecoins take the stage over the past few months such as ESD, FRAX and others. However it’s still uncertain whether algorithmic stablecoins attempting to be a medium of exchange will be trusted by the holders of it. Also, none of these stablecoins can be used for leverage in the way MakerDAO or Synthetix allow you to deposit collateral and retain the upside while unlocking liquidity from the value of the underlying assets.
STABLEx is our second stable coin that takes the learnings from our first stablecoin and all of the various projects listed above to create a more efficient stable coin product that is able to maintain a tight peg. It has the following characteristics:
Partial Collateral: the system as a whole will be partially collateralised over time which will improve on the deficiencies of Elastic Supply Coins and provide confidence in maintaining the peg
Governance Controlled Variables: from algorithm stable coin experiments we have seen that a fully algorithmic coin does not maintain a tight peg yet. As such the design currently allows for governance to control and update the various levers. This will allow for faster learnings on how to maintain the peg
While thinking more about levers to maintain the peg we finalised on the following three:
Savings Rate: the amount of STABLEx that is created and sent to holders of STABLEx (seignorage/negative interest rates)
Interest Rate: the interest rate is how much minters will be paying on their debt (similar to most DeFi applications today)
Collateral Ratio: this is the amount of collateral that is required in the vault. The lower the number the higher leverage available
The thinking here is that by adjusting the three levers described above we can learn about how to create an algorithmic system much quicker as we know how the system has operated under a variety of conditions. Governance minimisation long term, governance heavy short term. You can read more about how the system is intended to operate at: https://wiki.arcx.money/
Previously, the only users who were able to farm ARCX tokens were users who were verified farmers through the Know Your Farmer campaign. The idea here was to filter for the most sophisticated DeFi users who had interacted with certain DeFi protocols up to a certain block #. This allowed us to create sybil resistance on-chain and enforce deposit caps for each user in order to iterate quickly while minimising any downside damage.
Today we’re excited to announce that anyone can start farming ARCx tokens with the launch of Farm #5!
Unlike other yield farming schemes, ARCx employs short term yield farming campaigns which are time limited and have certain conditions. In order to tap into assets which are currently not doing anything in user’s wallets, we’re starting off with cUSDC and yUSD as collateral types to mint STABLEx!
There will be a hard cap of 10m STABLEx that can be minted to begin with. First in, first serve. To learn more about how to start farming ARCx tokens visit: https://wiki.arcx.money/yield-farming
We’re incredibly excited to announce this next phase of ARCx and learn more about how the peg of STABLEx is maintained over the course of the next few weeks. The design space for how stable coins and debt overlap is still highly unexplored and I’ll also be starting a series called “Building in DeFi” where I share my experiences of building ARC and any valuable lessons you as a reader can take from it 🙂
In case you’d like to learn more, here are some links about ARCx: