Original title: A Robust Dominant Stablecoin Built on Move
Original article by Henry Ang, Mustafa Yilham, Allen Zhao & Jermaine Wong, Bixin Ventures
Why do we need stablecoins on Move?
As we stated in our year-end review, one of our core investment principles is to support decentralization and censorship resistance, and a decentralized economy requires decentralized stablecoins. We are also confident that Move-based blockchains such as Aptos and Sui will form the foundation of a strong and vibrant developer ecosystem to build the next generation of Web3 applications and achieve the feat of attracting a billion users. Therefore, we are very much aligned with Thala Labs' vision to develop a more powerful decentralized stablecoin while supporting the development of the entire Move ecosystem.
After the Terra incident last year, we conducted in-depth research on the stablecoin market and found that centralized fiat-based fully collateralized tokens such as USDT and USDC or crypto-based over-collateralized tokens such as DAI have problems such as low capital efficiency and lack of composability. Therefore, we believe that decentralized stablecoins in the Move ecosystem can reduce liquidity risks, while enhancing the autonomous development of its own ecosystem and optimizing the original debt position model.
How does Thala's Move Dollar (MOD) and other Thala products work?
Move Dollar (MOD)
MOD is an over-collateralized stablecoin backed by a class of native and multi-chain assets, including liquid collateralized derivatives, liquidity pool tokens, deposit receipt tokens, etc. In the future, RWAs will be added to the list of collateral.
The basic design of the mod will be:
Users mint (or in other words, borrow) less stablecoin value than the collateral value, so that the value of collateral in the system always exceeds the value of stablecoins in circulation.
Users with open vaults will have the option to redeem MOD for $1 of collateral (minus the exchange fee), making the effective price floor at $1.
MOD holders can deposit MOD into the Stability Pool to receive rewards. The Stability Pool will be used to stabilize the value of MOD.
When the value of collateral in a user’s vault falls below a level deemed safe for MOD backing, a liquidation process will occur.
The liquidation process is as follows:
First, the MOD in the Stability Pool will be used to buy back the collateral, and the collateral will be distributed to the MOD providers in the Stability Pool.
If there is not enough MOD in the Stability Pool to buy back the collateral, the liquidated collateral will enter a Dutch auction.
When collateral is liquidated, only part of the collateral will be liquidated until the value of the user's collateral returns to a safe level, rather than all the collateral being liquidated at once.
For collateral pricing, Thala uses a layered oracle design so that even if one oracle goes offline, there are still other active oracles that can provide quotes. Unless the price data reports an outdated price or detects abnormal price fluctuations, the price of the primary oracle is always preferred. Now, Thala has two primary oracle options, one is Pyth, and the other is Switchboard, which we invested in.
Thala Swap
The primary role of Thala Swap is to help stabilize the value of MOD and increase access to MOD. When reviewing the reasons behind why some stablecoin projects have failed to gain traction, it is clear that a key factor is the availability of stablecoins. If a particular stablecoin has no use case and composability, there is no reason for users to hold it. Thala Swap allows for combination with other crypto assets and tokens in the Move ecosystem, helping to promote demand for MOD.
There are currently three funding pools in the design of Thala Swap:
Weighted Pools are pools that exchange tokens by enforcing a constant weighted product. The weighted product of the tokens will be set to a fixed number, which helps the pool determine the price of the token.
Stable pools are a type of pool that allow assets whose value converges to “1” relative to each other to be exchanged with low price impact and low fees.
ThalaLaunch launches a special pool called Liquidity Bootstrapping Pools (LBP) on ThalaSwap. LBP is a subset of weighted pools, and the weight range of the assets in the pool and the time required to move the weight can be set arbitrarily by the pool creator. After the creator obtains permission, the fund pool will be established and automatically balanced by the LBP manager contract. It is expected that Thala will issue its own governance token, and when many projects on Aptos also start issuing tokens, ThalaLaunch can become the most robust cross-chain compatible platform from day one and return value to Thala.
Thala currently expects the MOD Liquidity Yield to be 5-10%, while for LBP (usually a new small-scale token), it can be 50% or even 100%.
KNIFE
Thala has a native token, $THL, which is Thala's governance token. Holders can initiate proposals, vote on issues, and propose possible changes to protocol parameters, playing a key role in shaping the direction of the protocol.
Although the protocol will initially be governed by the core team, Thala will move to a DAO model once the necessary governance framework is established. $THL will adopt the veModel so that the governance and value of the Protocol can be aligned. In order to better increase the liquidity and usage scenarios of $THL, veTHL is actually an LP token of 80% $THL and 20% $MOD. LP token holders need to lock their tokens into the liquidity pool for up to one year in exchange for more benefits, such as:
Create and vote on parameters of key liquidity pools
Enjoy discounts on project usage fees
Access to a dedicated Discord channel
What makes Thala unique?
The huge market size of the Move ecosystem
In addition to Aptos, there have been more recent blockchains built on Move, including Mysten Labs Sui and Solana Move VM. The ease of deployment and development, as well as its high performance, make the Move blockchain incredibly scalable. Thala recognizes that the lack of a native Move stablecoin is a clear gap in the market, and seeks to capitalize on this by building a dominant robust stablecoin in this ecosystem, just as other stablecoins such as DAI have done in the EVM ecosystem.
Diversified collateral
MOD's main advantage is the diversity of its collateral, they plan to accept RWAs as MOD collateral and are committed to integrating credit, US Treasury bonds, real estate debt and blue chip stocks as collateral. Compared with digital assets, physical assets are less volatile and more tangible, and will be able to provide more residual value. This is critical because we believe that DeFi needs to bridge the gap with the rest of the global economy, including real-world assets.
Focus on safety and risk management
To ensure the security and stability of the entire system and stablecoin peg, Thala is conducting a comprehensive and transparent assessment of proposed collateral types, covering smart contracts, counterparties, market volatility, and liquidity risks. You can read more about their framework here.
Most notably, they implemented an Emergency Redemption Mode (ERM), which inherently prioritizes holder safety as it allows MOD holders to redeem MOD directly in exchange for collateral after an emergency processing period. The ERM is a last resort to enforce target prices directly to MOD and vault holders and protect Thala from attacks on its infrastructure and periods of extreme and prolonged market instability and irrationality. It activates a systemic redemption mechanism that will settle all ongoing protocol proceedings.
Combining AMM
As mentioned above, the relationship between Thala Swap and $MOD, its AMM can continuously bring liquidity to $MOD. At the same time, under the premise of sufficient liquidity, users can use important liquidity tokens such as $MOD-USDC as collateral assets to further mint $MOD tokens, complete leverage operations and increase returns. This approach is similar to MakerDao's G-UNI DAI/USDC pool, and the possibility of leveraging users can be seen in the market. If CDP is not attractive enough to users, users can still obtain returns by staking in the main AMM pool.
Thala's future roadmap
At the time of writing, MOD and ThalaSwap are preparing to launch their mainnet applications in Q1 2023. Subsequently, Thala will focus on its collateral diversity and cross-chain deployment. This includes adding RWA to the MOD collateral list, as well as deploying on other Move-based chains such as Sui, Solana Move VM, and Sei. Thala will continue to expand its business, including the development of more stablecoins such as EUR and CAD in the future. Thala will also achieve greater decentralization through community governance through the future launch of its native token THL and Thala DAO.
We look forward to working closely with Thala in the future to continue building fully decentralized and collateralized stablecoins in the Move ecosystem.