uDEBT Token

Overview

We recognize that the uAD protocol cannot rely on the same set of economic incentives to restore the $1 peg of uAD in its initial volatile period and maintain the $1 peg once the price of uAD attains stability.

For example — as the price of uAD attains substantial stability around the $1 peg, the possible arbitrage return on buying uDEBTs at a low premium decreases. This may make buying uDEBTs in periods of high stability unenticing, which may harm the stability of uAD.

Here, we outline the roadmap of how the uAD protocol shall continue to apply the right amount of upward price pressure during debt cycles.

uDEBT Token

uDEBT coupons are ERC-1155 tokens managed by the protocol’s ERC-1155 Receiver debt redemption contract. These are redeemable for uAD when the price of uAD is above $1.00. The purpose of uDEBT coupons is to apply upward price pressure whenever the time-weighted average price (TWAP) of uAD falls below the intended $1.00 peg by incentivizing users to burn their uAD, lowering its supply.

In debt cycles (i.e., when the TWAP is below $1.00) created by an excess supply of uAD in the market, uAD holders may burn uAD tokens in exchange for uDEBT coupons issued at a premium rate. The premium is calculated as follows:

where R stands for the debt ratio debt/supply. Particularly, the debt ratio is -

(total supply of uDEBTs) / (total supply of uAD).

For instance, if the premium is calculated as 15%, 100 uAD may be burned in exchange for 115 uDEBT coupons.

uDEBT coupons can be redeemed for uAD tokens at a 1:1 rate in an inflation cycle (i.e., when TWAP is greater than $1.00) before they expire. uDEBT coupons are redeemed by depositing them in the protocol’s debt redemption contract.

At present, uDEBT coupons expire approximately within 30 days of issuance.

Secondary uDEBT markets

Natively tokenizing uDEBTs allows for the creation of secondary uDEBT markets where speculators can sell their uDEBT tokens if they require liquidity before the price returns to above $1.00.

For launch, we will leverage OpenSea’s NFT marketplace. We will create a wrapped debt (uDEBTs) token in order to allow speculators to sell batches of uDEBTs of matching expiry on OpenSea.

After launch, we will create a dedicated uDEBT marketplace. This would include a UI to assist with automating pricing and transactions. The tokenization of uDEBT allows for permissionless extension of the protocol. It is not part of our roadmap to create uDEBT protocol extensions. This will be left to the community.