Arkadiko Products — USDA
In our 1st of 3-part multi-blog post series where we introduce various Arkadiko products to our community, we would like to introduce one of our core products, which is key to establishing DeFi on Bitcoin and also the Arkadiko ecosystem.
USDA (USD Arkadiko) is a stablecoin issued via Arkadiko Finance smart contract, which is collateralized by digital assets on the Stacks protocol. To mint USDA, a user will create and deposit his/her assets in an Arkadiko vault via smart contracts on the Stacks blockchain, and in return, the user can borrow a USDA value amount proportional to their deposited asset value. At this moment, users minting USDA would need to over-collateralize (to lock up more value in assets than they can mint USDA) their vault to a recommended ratio of at least 3:1. This is to ensure that all USDA minted are backed by assets in Arkadiko smart contracts which forms the basis of any USDA redemption made to the smart contract. The liquidation ratio of the vault is set at 150%, that is to say that users vault value needs to be at 150% above their debt at all times. E.g. Vault value of USD 3,000 (asset value deposited), Debt value should be at or below USD 2,000. Users would need to monitor the vault to debt ratio, especially in times of high volatility if users vault value drops below the 150% mark, liquidation would set in and users will incur a 10% liquidation penalty on their collateral. Therefore it is highly recommended that users 1) maintain a margin of safety from the liquidation ratio of 150%, 2) monitor the vault to debt ratio diligently, and 3) repays a portion of the debt or increase collateral when the vault to debt ratio is nearing 150%.
Overcollateralization is commonly used across various lending protocols and stablecoin issuers to ensure the DeFi ecosystem remains sound in times of huge drawdowns and high volatility. As DeFi matures, new collateralization mechanics may be introduced to the ecosystem to enable more efficient management of capital. We’re excited to introduce USDA to the Stacks community, as the first Stacks native stablecoin, and envision that many more use cases can and will be built on USDA, to provide greater financial access to the community.
A unique advantage that Arkadiko Finance inherits by building on the Stacks blockchain is the native yield (~10%) that STX tokens generate at every 2,100 Bitcoin block. Through the Proof-of-Transfer consensus mechanism, STX tokens are locked via Stacks protocol to signal support for the protocol and in return receives bitcoin payout after every “stacking” cycle. Arkadiko designed a unique combination where STX tokens that are deposited as collateral to mint USDA will also be participating in stacking and the yield generated will be automatically compounded into users’ vault. This creates a scenario whereby the yield generated by users’ collateral is higher than the interest users pay for their USDA loan, effectively making it a self-repaying loan.