Arkadiko 2024 Roadmap
Hello fellow Arkadians,
Good to see so many of you slowly awaken from the deep slumber of the bear market. Activity, engagement, trading and minting volumes have gone exponential in the past weeks and signify the end of a tough and unexciting period for many of us.
Public markets were quite dull and boring, but behind the scenes, many improvements have been lined up. The saying that ‘bear markets are for building’ has never been more true.
Let’s do a short recap of 2023, analyse the good and the bad and look forward to 2024 to see what the future might hold for us.
2023 Recap
Admittedly, 2023 was a slow year. The entirety of the crypto space was still plagued by the fall-out of 2022’s excesses. The DeFi ecosystem on Stacks was no exception and in 2023 we saw falling volumes, lowered USDA supply and less usage of the Arkadiko protocol. Such times can be hard on a community and its contributors.
Since it wasn’t possible to acquire new users or new TVL in an efficient way, we decided to spent our efforts elsewhere and focus on the technical challenges ahead. Those did not rely on external factors and we were able to make progress on them regardless of what the market was doing.
One area where we did some experiments are DLCs on Bitcoin. DLCs stands for Discreet Log Contracts and enable a primitive form of conditional programming on the Bitcoin layer 1. Could we use that to create a BTC Vault on the layer 1 against which USDA could be minted? That’s the question we set out to answer.
After doing a bunch of research we have come to the conclusion that the tech currently is quite difficult to work with and that any solution is not perfect and makes compromises that are still unacceptable for us. It’s incredibly interesting though and perhaps a breakthrough happens in the near future.
Contributing to the DeFi ecosystem on Stacks has always been Arkadiko’s mission and our improvements to Arkadiko Keepers are a part of that. Keepers are piece of infrastructure on Stacks that has been developed by Arkadiko as a kind of public good. It should help application developers with running recurrent jobs on-chain to help with servicing and maintaining smart contracts. We are constantly fine-tuning the product and we’ve seen thankful adoption across the ecosystem.
We’ve also made significant improvements to our oracle setup, which is critical infrastructure not only for Arkadiko but for many other Stacks applications. Oracles can be the weak point of system, if they submit faulty data or become malicious, they can do a lot of damage. We’ve added multi-sig and redundancy to the equation and feel very confident in its operation and safety.
We’ve also overhauled our landing page thanks to our slick designer.
Looking back 2023 was actually quite action-packed from a technical point of view. We are hoping to reap the benefits of these structural improvements in the coming year.
2024 Roadmap
The new year is around the corner and it is shaping up to be massive. Narrative and sentiment around Stacks are great. 2024 may very well be the year of the DIKO.
Q1 2024 will bring the long-awaited Nakamoto upgrade to the Stacks blockchain, which should come with throughput improvements and 5 second block times. This will greatly improve the UX and usability of Stacks and make it competitive with other layer 1s. Later in the year, sBTC is coming. This will put native Bitcoin on Stacks in a way that no other chain has done before and should unlock a ton of liquidity flowing into Stacks.
So what are we planning in 2024 to capitalize on these catalysts?
We have been preparing a huge protocol upgrade, which we call Arkadiko 2.0. It’s been over 2.5 years since we first designed Arkadiko and much has happened in between. New insights have led to core architectural improvements that we are now implementing. Things that worked a few years ago are not feasible anymore. Our assumptions about chain adoption have had to be revised.
Much of these fixes have to do with our peg, which has been less than stable in the past year. Initially, we assumed a native stablecoin like USDC and USDT would be present on-chain while we’ve only seen wrapped version of them up until now. Our initial plan of building deep liquidity in a StableSwap pool and catching outflows with sufficient DIKO incentives has failed. Getting sufficient stablecoin liquidity on-chain did not materialize especially during a bear market where risk-free rates on dollars tradfi was booming. A robust, efficient StableSwap implementation that satisfied our needs took a long time to develop and by the time it arrived, the depth of the bear market was in full effect and sourcing liquidity for it was not sufficient. We’ve missed our chance at keeping things stable and need a stronger method to restore dips in USDA price.
Enter redemptions !
The solution we are putting forward is that of Vault redemptions. In short, it means anyone at any point in time can exchange USDA for STX gotten from Vaults at the 1 dollar price point (minus redemption fees). This enables arbitrage from below, which is what we were missing up until now and which is why our peg was unhealthy.
This means that if you are able to buy 1 USDA for less than 1 USD on the public market (such as the STX/USDA pool), you can go exchange that 1 USDA for 1 USD through the redemption mechanism. There will be a redemption fee involved which dynamically increases to prevent bank runs and place some cost on the activity.
This does mean that some Vault owners might have their collateral in STX reduced together with their USDA debt. What the redeemer is doing is paying off USDA debt for the Vault owner and taking collateral in exchange.
This does change how Vaults work in the sense that an owner could get his debt paid off and his STX sold even if his Vault is healthy. We’ll go over the exact mechanism more deeply in a separate post.
Together with redemptions, we’ll launch a new StableSwap initiative, this time powered by Bitflow. We’ve tested their implementation of the StableSwap invariant and really like what we saw. With our increased token price, we should be able to put forward a healthy APR for liquidity provision and build a couple of million of stablecoin liquidity.
We also think different about risk and will likely limit the amount of USDA that is mintable based on the StableSwap pool composition. Attracting USDT for farming purposes will be part of the challenge alongside new STX Vault deposits. Making sure that the two are in a healthy balance will be our recipe for sustainable growth.
Some Arkadiko core contributors have also been contributing heavily to StackingDAO who will put the first Liquid Stacking Token on the Stacks blockchain. stSTX will be an auto-compounding version of STX. This makes stSTX a perfect collateral type for Arkadiko Vaults and naturally we will be supporting it. This removes the need for our Vaults to do the stacking logic and simplifies the protocol a bit.
All these upgrades should create strong demand for USDA and establish it as a reliable and liquid over-collateralized stablecoin for the Stacks ecosystem. All our attention has been going towards this goal and once we reach peg stability, we can start growing the existing supply of USDA.
Later in the year, we’d like to explore methods to route fees from the protocol to DIKO holders. There are many approaches to do it and much discussion already took place. But we feel its an important step in establishing the value proposition of our token besides governance.
I’m sure that next year looking back many other things happened and will be reviewed. But right now we are focussed on the simple goal of fixing USDA stability so that it can grow and can be more easily adopted by ecosystem partners.
As always, we’d like you to join and participate actively in our community which can primarily be found on Discord.
Happy new year and thank you for your continued support.
