Digging deeper: xUSD and DIKO

The Arkadiko protocol introduces two fungible tokens: xUSD and DIKO.

Applications that need stable value can start integrating xUSD to enable trading, lending, swapping, prediction markets, gaming, gambling, e-commerce, fiat-off ramps, borrowing against tokenized stock portfolios, paying authors, … The possibilities are endless.

But what is xUSD you may ask? xUSD is the first stablecoin to be launched on Stacks. It is a USD soft-pegged stablecoin. As with most stablecoins, it will be traded on markets with other stablecoins such as USDT and USDC when they become available on Stacks.

Currently the concept of a stable asset does not exist natively on Stacks. By introducing xUSD, users benefit from stability without having to worry about the volatility of STX or BTC. This will make usage of the Stacks blockchain and value exchange a lot more efficient.

If you’re a holder of STX, you will be able to use Arkadiko to mint xUSD. You simply deposit STX as collateral to open an Arkadiko vault and mint the desired amount of xUSD. Once minted, your STX tokens will be stacked in PoX, earning yield in bitcoin which will be automatically turned into STX and added to your vault. This will in turn increase the value of your vault’s collateral. Due to the fact that xUSD is backed by STX, an interest bearing token, your collateral value is always increasing.

So how do Arkadiko vaults work?

Vault creators follow the steps:

Step 1 — Collateral (initially only STX) is deposited on Arkadiko and a vault is created.

Step 2 — An xUSD amount, with stability fees (interest), is assigned to the borrower as debt and xUSD tokens are deposited into the borrower’s wallet.

Step 3— Users use their xUSD in whichever way they like… for instance through buying additional STX tokens or swapping it against USDT/USDC to spend in the real world.

Closing a vault

In order to get STX collateral back, a vault owner must revoke their STX being stacked in PoX first. Once a PoX cycle ends, the STX collateral will be unlocked. To regain the STX collateral, the owner will need to repay their xUSD debt plus their interest (called stability fees) incurred in order to withdraw.

How much xUSD can I mint?

The amount of xUSD you can mint depends on the amount of STX collateral you deposit into your vault, which follows a minimum collateralization ratio (200%) and maximum debt according to the following table:

In the above table, two collateral types STX-A and STX-B dictate the amount of xUSD that can be minted. They both accept STX tokens as collateral but have different risk profiles.

In the case of STX-A you will get liquidated sooner (at 150% collateralization) but your stability fee (interest on debt) is lower than in STX-B (4% vs 7%). Keep in mind that the above values are example values and not necessarily representative for mainnet parameters. All of the above will be governed and voted upon by the DAO as well.

Moving on to the DIKO

DIKO is the Arkadiko governance token, which represents the cashflows of the Arkadiko protocol, included but not limited to stability fees and borrowing/lending commission fees.

The main function of the DIKO token is to stake it in Arkadiko to obtain stDIKO tokens, which have several benefits.

  • First, stDIKO can be used to participate in governance voting to change collateral type parameters such as liquidation penalties, stability fees and debt ceilings.
  • Second, Arkadiko will buy up DIKO tokens from the open market using xUSD revenue from stability fees and burn the DIKO. We’re not saying DIKO has value… but there might an incentive to HODL ;)

Oh… and once Liquidity Provider (LP) tokens through Automated Market Makers (AMMs) hit on Stacks, you will be able to stake your DIKO/xUSD LP tokens as well, so no need to choose between one or the other.

DIKO will have a supply of 100 million tokens. The distribution of the DIKO tokens is as follows:

  • 29% — Foundation allocation. Will be used over time to cover expenses and emergency funds.
  • 50% — Ecosystem allocation
    - 1.5 million rewarded to early vault owners in first 6 weeks of mainnet
    - 23.5 million rewarded through staking over the first 12 months
    - leftover ~25 million rewarded through staking over 4 years after
  • 21% — Team allocation, locked & vested over 4 years

Risks of Using Arkadiko

Risk 1

Liquidations may occur when the value of STX drops to a predetermined price point. Basically, the collateral isn’t enough to cover your debt anymore. Your liquidation price will be shown before opening an Arkadiko vault. The price of STX will be fetched from the Arkadiko on-chain oracle.

When your vault gets liquidated, an auction will be started to sell off your STX collateral in exchange for the amount of xUSD that you minted, plus a penalty.

The above risk is mitigated by the fact that your STX are stacked in PoX and thus are interest bearing. This will help your collateralization level to stay stable through minor price changes.

Risk 2

Arkadiko uses smart contracts written in Clarity, so like with any other DeFi protocol there are chances of smart contract bugs and exploits. However, we have rigorous security audits pending before going live on mainnet so worry not!

TL;DR

  • xUSD is a USD soft-pegged crypto-collateralised stablecoin
  • Applications that need stable value can start integrating xUSD to enable trading, lending, swapping, prediction markets, gaming, gambling, e-commerce
  • STX tokens are the collateral in Arkadiko vaults
  • Your STX token is interest bearing through PoX and will automatically increase your vault’s collateral value
  • Each collateral type has an independent debt ceiling
  • DIKO is the Arkadiko governance token
  • DIKO is staked for stDIKO
  • stDIKO is for voting
  • Excess stability fees are used to buy & burn DIKO
  • We will reward early users with 1.5M DIKO in the first 6 weeks. In addition, up to 23.5M DIKO can be earned through staking in the first 12 months.
  • Arkadiko is the oldest bridge on earth, located in Greece. LFG! 🚀

Arkadiko Protocol is a stablecoin (USDA) built on Stacks to bring DeFi to Bitcoin.