A Comprehensive User Guide About the Stablecoin Issuer Platform on Algorand Network: Introducing ‘xBacked’
With the introduction of crypto-assets into the world’s financial system, the value behind all the cryptos have determined against the US Dollar. Even today, we all check our crypto portfolio in USD or the local currency where we belong. It’s quite reasonable at all while the majority of the crypto community is trying to have a bigger bag loaded with more BTCs. On the contrary, the major launch point of crypto-assets beginning with Bitcoin is to erase the third-party organizations between people. To reach that specific goal of cryptocurrencies, many DeFi organizations issued dollar-pegged stablecoins. USDT and USDC are major examples of stablecoins issued on the Ethereum blockchain. They both lie in the top 5 cryptos in terms of market capitalization according to CoinGecko.
The term ‘stable’ can only be achieved by having more collateral than the issued tokens. If we apply this to the DeFi world, it means that the ‘Collateral Ratio’ should be over 150% or 200%. The users deposit any type of supported crypto assets to receive/mint dollar-pegged tokens. Algorand ecosystem is emerging nowadays and the xBacked team is preparing to be the leading ‘Algorand stablecoin’ issuer platform. In that article, I’ll cover what xBacked is, how the stablecoin issuing work, who is behind the protocol, and why the Algorand chain is selected. Now, let’s start with the basics.
What’s xBacked?
Until now, traditional finance organizations issued stablecoins for decades. The main problems with such currencies are high barriers to reach, high utility costs, and limited access for specialized community members. Now, xBacked is here to let everyone get stablecoin loans against their $ALGO deposits!
xBacked is building a decentralized, permissionless stablecoin on Algorand, fully backed by crypto assets instead of centralized assets. No central entity controls the issuance of xUSD and other tokens the xBacked protocol might build in the future.
The main idea behind the launch of the platform is to issue stablecoins without any prior authorization. The idea appeared in the ‘DeFi Summer’ of 2020, and the team took action in late 2021. For now, it’s only available on the testnet, users can mint stablecoins after depositing $ALGO into related vaults. Don’t worry, these vaults are decentralized, too. Anyone can create vaults and mint xUSD (the stablecoin of xBacked).
What’s xUSD? How to Mint xUSD & Maintain Position?
As I’ve already mentioned above, xUSD is the stablecoin created by the xBacked team, ready to be issued by anyone who uses the Algorand chain. xUSD can be minted through the vaults which are ‘collateralized debt positions’ or CDPs. A core focus of the protocol is capital efficacy. It’s achieved by letting users mint as many xUSDs as possible with the lowest collateral amount. By doing so, users have to agree that the lower the collateral comes the higher risk of liquidation.
For now, the xBacked vaults support only the mainnet token: $ALGO. Anyone has the right to mint xUSD with the testnet tokens through the faucet system. There is a 0% interest rate on minted xUSDs. But a 0.5% minting fee is deducted from your initial deposit. Before minting any stables, you should have Algorand-friendly wallets such as My Algo Wallet or Pera Wallet. For detailed information about how you set up your first Algorand wallet, please visit the xBacked documents.
Please be aware that xBacked is still under testing by the community & you may face different kinds of platform bugs. If you have already visited and seen such errors, please let the team know to improve the user experience.
If you set up your wallet, now it’s time to connect to the testnet. Because it’s a testnet, all testers can receive ‘test tokens’ through the faucets. So, nothing is needed other than a wallet. When you open the testnet page, you are directed to the ‘My Vaults’ part. It displaces your current amount of $ALGO deposits in a specific pool(s) & minted xUSDs if you have any. As I previously mentioned, only $ALGO deposits are accepted now (The testnet ALGO Standard Assets aka ASA). After testnet, it’s expected to open vaults using goBTC & goETH.
The lowest amount of xUSD to mint is 100, so you should have at least 130 $ALGO in your wallet to open a healthy vault (If the $ALGO price is 1.00$). A healthy vault means the collateral ratio should be more than 120%. So, at least 120 $ALGO is needed for collateral, and the remaining tokens for the transactions to be submitted. After you successfully mint xUSD, you’re able to use it throughout the ecosystem in the future. Now, you can still use them to liquidate non-healthy vaults listed ‘Liquidate’ section. The platform incentives the liquidators with a ‘discounted’ minting option as well as liquidation rewards. As you can see below, I minted 100 xUSD in exchange for 160 $ALGO (0.74$ per ALGO) & liquidate a non-healthy pool. So, I got rewarded with 140 $ALGOs in return while my vault is still open and I’m able to mint more xUSDs with new tokens in my wallet.
Liquidators have many incentives including the ‘discounted’ minting option. Please head to the relevant xBacked Docs page to see the other options by only using the testnet!
Why Algorand?
Algorand is a Layer-1 protocol with a PoS option. It’s suitable for decentralized communities with major features including instant finality, 4.5s block times, and a permissionless governance model. The Algorand ecosystem’s growth is expected to be parabolic in the next months/years because of such features in addition to many platforms’ ongoing testnets.
On the other, the Algorand chain is developer-friendly, too. The ‘developers’ who are behind the major DeFi protocols are welcomed along with the network. So, the xBacked team knows that the core of a platform relies on strong, active, and easy-to-reach developers. As a decentralized platform, the work is open-sourced & can be found here.
More information about the decision of Algorand can be found in that Medium article published November 2021.
Please join xBacked Discord server and follow their Twitter account to get updated.
This article is created to spread the awareness of xBacked, xUSD and its features by utilizing my own experiences, the xBacked Litepaper, the xBacked documents and xBacked Medium Blog. None of the words above contain any kind of investment advice! Please DYOR (Do Your Research) before investing.
