The USDA Focus
Hello my fellow Arkadians
In a previous blog post, we explained our thoughts on the developments in the Stacks DeFi ecosystem and how Arkadiko should adapt its product offering to be better equipped to support the movement.
Given that other protocols like ALEX are focusing on the decentralized exchange of assets, it makes little sense to also support many pairs with DIKO emissions on our own exchange, Arkadiko Swap. Our stablecoin USDA is going to be our primary focus now on. In this blog post we’ll go over some possible adjustments we can make that would optimize Arkadiko’s operation.
First of all, we could remove incentives for any non-USDA pair on our Swap. Currently, this would mean that DIKO/STX and xBTC/STX would be discontinued. A requirement to do this is to implement multi-hop routing. This entails that for the user, they can just swap DIKO to STX by executing two swaps in one atomic transaction by first swapping DIKO to USDA and then USDA to STX. Downside of this approach is that you are paying the swap fee twice in such a situation.
Something we have been working towards for a while now is increased USDA utility. Lydian DAO is launching in the near future which will bank USDA in their treasury and use it for bonding. But what we really need is a single-sided USDA staking option that exists on other chains. For example, on Ethereum you can supply liquidity in stablecoins on curve.fi and farm the CRV token that way. We would implement a similar option on Stacks but there are no other stablecoins currently and there is no stableswap protocol available either.
What we need for our protocol to be fully functional and to increase the capital efficiency of minting USDA, is an efficient liquidation mechanism. Behind the scenes, our engineers have been prototyping a solution that would allow everyone to add USDA to a pool which could then be used to purchase liquidated assets in an auction. Arkadiko would run the scripts to call public functions on the contracts at the right moment in time to deploy the capital in this liquidation fund. This way, the whole community can benefit from the returns made from liquidating assets.
These returns should be significant when liquidations actually happen but we could use some DIKO emissions to bootstrap and incentivize the liquidation fund, creating that single-sided USDA staking option that we were after.
In order to improve Arkadiko’s peg and utility, we really want another stablecoin on Stacks. We have heard rumors of the bigger centralized stablecoins looking into Stacks but it is unclear when they would actually arrive. We’ve been talking to Frax Finance, one of the leading DeFi stablecoins on Ethereum with a multi-chain presence and mindset. Arkadiko would supply the technical knowledge to bring Frax to Stacks and we can do some joint marketing or incentive programs. Both founders have expressed interest in executing on this plan but it is still early days for this and likely more of a priority for Arkadiko than it is for Frax. But we are hopeful that a partnership or collaboration can materialize somewhere in the next few months.
In other very recent news, Tokensoft is bringing a wrapped version of USDC to Stacks. It is called xUSD, which ironically was going to be the original name for USDA. We decided to rename our stablecoin because of a naming collision with xUSD by Haven protocol.
Our engineers have also done preliminary analysis on stableswaps which is most likely going to be the future of our Swap to focus on these types of liquidity pools.
DIKO tokenomics redesign.
We also have some ideas on improving the fundamental value of DIKO’s governance token. We’ve seen extensive calls from the community to route Swap fees and stability fees to fund buybacks for DIKO. We are still deliberating the technicalities of the solution but long-term this is certainly the plan. Another dynamic we would like to introduce at some point is the usage of DIKO to boost staking yields. A paradigm which is making a further push in DeFi is the concept of veTokens, vote escrowed tokens that enable governance participation, receive protocol revenue and boost yield for stakers. Andre Cronje, one of DeFi’s brightest minds, is working on expanding this concept as we speak. We are analyzing how this paradigm could be applied to DIKO.
As you can see from the above roadmap items, we are not short on ideas to improve the Arkadiko protocol. Together with the community we will contemplate on the details and which ideas are worth pursuing. Keep in mind that our engineering capacity is limited and that we should be conservative with protocol updates as we do not want to break things.
Finally I wish to announce our first community call which is scheduled for Wednesday the 16th of March at 6 pm CET. It will happen in our discord so make sure you are in there.
As always, looking forward to community discussion on the thoughts put forward in this post.
