Plutus: Pioneers Program 4th cohort - Lecture 9 - Stablecoin

Today's lecture aims to be a wrap-up of previous lectures by implementing a stablecoin.

It's supposed to be the indexed (i.e. synchronized) representation of a real-world currency.

Cardano already hosts multiple stablecoins indexed on the USD: DJED and USDA.

This lecture will present an over-collateralized algorithmic stablecoin which uses a liquidation mechanism to incentivise stability. Which can be broke down as follows:

• Over-collateralized: it takes an extra (150%) amount of collateral to mint the stable coin
• Algorithimic: it relies on a smartcontracts enforcing stablecoin's price
• Liquididation mechanism to incentivise stability: the extra amount of collateral (in opposition to the minted coin's value) which is used to reward someone when he/she liquidates someone else position
  • Liquidating consists in burning the same amount of token in order get their collateral
  • Liquidating can only be done when the value of the coin and the value locked in the collateral are below a certain threshold
• Stability: it's ensured by miniting more stablecoins when ADA goes up, and add more collaterals or burn stablecoins when ADA goes down

Conceptually, it takes:

• A validator script for the oracle which keeps the value up-to-date
• A minting policy for the collateral, to lock and release collaterals
• A minting policy for the minting of the stablecoin

To deploy the Oracle, we should:

• Mint a NFT
• Actually deploy the oracle validator which is an utxo containing the current ADA/USD rate and the NFT (to identify the oracle)

Then we should deploy the collateral validator and minting policy as reference scripts in the same transaction.

Moreover, we need a smart contract which allows updating the conversion rate, meaning:

• Inputs previous utxo (NFT + old rate)
• Outputs a new utxo (NFT + new rate)

Then comes the user stable coin minting, which is a transaction containing:

• Inputs: user's collaterals (which will be locked), minting policy as reference script, and the oracle validator as reference input
• Outputs: Collateral validator (an utxo with the collateral, and collateral owner and minted amount as datum), and stables in user's wallet

Burning stablecoin takes a transaction which unlock collaterals and mint stablecoins based:

• User's stablecoins
• The first collateral validator as reference script
• Minting policy as reference script
• The second collateral validator (the utxo with the collateral, and collateral owner and minted amount as datum), which ensures it's your stablecoins you're burning

However, liquidating a other user's stablecoin is slightly different as it takes:

• Liquidator's stablecoins
• The first collateral validator as reference script
• Minting policy as reference script
• The second collateral validator (the utxo with the collateral, and collateral owner and minted amount as datum)
• Oracle validator as reference input (with the NFT and the conversion rate)

Doing so gives you access to the other user's collateral.

If we follows a complete example:

• User 1 mints 100 stablecoins, which locks a collateral of 150 ADA (a threshold of 150%, as 1 USD = 1 ADA)
• If the conversion rate drops (let's say 1 ADA = 0.90 USD), then there's an incentive to liquidate User 1 position
• User 2 will then mint 100 stablecoins, at a lower price (135 ADA in the collateral, 100 stablecoins * 150% * 0.90 USD/ADA), and liquidates User 1 position, keeping the rewards (15 ADA), without affecting stablecoin's stability

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