Whitepaper V4
The Permissionless Stablecoin Protocol

INTRODUCTION

OPEN is a fully permissionless protocol that enables the minting/borrowing of USDO stable coin against any token as collateral. There are no admin keys.
USDO is a multi collateral, fully decentralized, overcollateralized stable coin that can be borrowed against any asset in a permissionless manner.
OPEN DAO controls the creation of USDO and earns fees in the form of interest and minting fees via seeding various USDO lending markets.
OPEN token holders comprise the DAO.

USDO

USDO is a stable coin that traces USD. In the future we expect to have variants that are pegged to other currencies such as the EURO, AUD, INR etc. It is designed to be fully decentralized, overcollateralized and multi-collateral.

LIFE CYCLE

Creation

USDO is created via the minter contract however it does not enter circulation until it is minted against collateral. Tokens are created via the following contracts:
The creation will be controlled via the DAO, new USDO will be created via proposals passed via a vote. However, the newly created USDO does not enter circulation. It can only be supplied to the Minter/Borrower contracts from OPEN protocol.
A typical proposal would be along the lines of:
Create X USDO and supply it to the ABC token as collateral lending market so that it can be borrowed by ABC token holders.

Minting

The newly created USDO goes to ABC - USDO lending market as per the proposal once passed. At this stage it is uncollateralized and yet to enter circulation in the true sense.
Anyone may borrow USDO by supplying their ABC tokens as collateral. The lending markets are isolated and comprise only 2 tokens. The ABC token used as collateral and USDO which can be borrowed. More details of this can be found in the OPEN protocol section.
Once the USDO is borrowed for the first time, it officially enters circulation and can be used for any purpose. More details on USDO applications can be found in the use cases section.
Given that USDO is now borrowed against some collateral, it is now overcollateralized.

Borrowing

Anyone may create a token - USDO lending market using the USDO lending factory.
However though anyone can setup a lending pair it does not mean that they can automatically borrow USDO against their token. The USDO that can be borrowed must to be lent by someone else who has USDO. This effectively means that it is a market driven permissionless process and is described in detail in the protocol section.
Proposals may be presented to the DAO to seed the lending market with newly created USDO.
If such a proposal is passed, the newly created USDO becomes available for borrowing against that token.
However even if such a proposal does not pass, others who already have USDO can lend their USDO to this market making it into a permissionless process. These lenders would have acquired the USDO either from the market or via minting/borrowing against other assets.
Minting and Borrowing are technically similar processes. We use minting to describe the process when newly created USDO is borrowed for the first time to denote that it is now officially entering circulation.
In case of borrowing the USDO that is being borrowed was minted by someone else beforehand rather than being seeded freshly by the DAO.

Use Cases

As a stable coin USDO can be used for any purpose a user wants. The DAO is focused on building a range of native use cases for USDO. Primary are the synthetic long shorts markets built using the MCDEX protocol which can be found here.
There are various USDO token pairs on various AMMs which allow USDO to be natively swapped against various tokens including other stables such as BUSD, USDC and USDT.

Maintaining Peg

USDO peg is maintained via two key methods.
The first one is the balance between supply and demand. USDO supply comes from new USDO being created and minted/borrowed against other assets. This USDO can then be
Added to various USDO farming opportunities. This includes USDO - Other stable LPs, and USDO - Other asset LPs. Staked to mint other synthetic assets on the MCDEX platform to earn yield, or used to trade against other synthetic assets. Swapped for other assets on various AMMs. Swapped for other stable coins on various AMMs. Converted to fiat using offramps. Used for liquidations
If more USDO comes into circulation than the demand for its native use cases then it will lead to USDO trading at a discount. If there is more demand for USDO than the supply then it trades at a premium.
Arbitrageurs can take advantage of these opportunities and bring USDO back to peg while making a profit.
USDO has incentivized pairs against other stables on stableswaps such as Curve and Omnitrade. The greater stable price range on such AMMs ensures peg is maintained for longer despite short term fluctuations in demand and supply.

Liquidations

USDO is always priced at $1 on the various lending markets. If a particular borrower's token and the value of their collateral drops below the collateral thresholds they are at risk of liquidation. Anyone may liquidate an underwater collateral position by repaying the debt and thus seize the collateral that is underwater. These are typically done via bots and there is no need for a separate liquidations UI. However anyone may create a specific UI for it.

Other Currencies

Other currencies such as EURO, JPY, AUD etc are part of the roadmap to be implemented. The technology integration for these will be similar to that of USDO.

OPEN PROTOCOL

Architecture

The OPEN protocol uses Compound Money Market code as its lending engine. Very minor changes have been made to the ctoken contracts to enable integration of zaps.
A new factory has been setup that allows the creation of a new lending market instance based on the Compound code.
Each such instance has only two tokens in the market. The collateral token (input parameter) and USDO (default) which is allowed to be borrowed.
Anyone can supply the collateral token to the market and borrow USDO.
The collateral factor is defaulted to 50%. In future versions of the factory this will be made into an input parameter that can be supplied by the deployer.
0.5% fee on borrows, that goes to DAO.
The collateral factor is intentionally set to be static and not made a function of liquidity as the collateral may or may not have onchain liquidity. It is left up to those who supply USDO to the particular lending market to determine if the collateral factor is appropriate or not in line with the permissionless ideal.
The price of USDO is defaulted to $1.
The price of the token is set using an Oracle. The deployer may choose any Oracle as long as it meets the interface standards.
While both Collateral factor and price are effectively controlled by the delpoyer, any market that is whitelisted and seeded by the DAO will have to meet the standards set by the DAO.
The interest rate model is currently static and linear. In the future, deployers will be given a choice of interest rate models which try to optimize for liquidity.
The interest rates are determined by supply and demand which means that they will differ based on which collateral is being used to borrow USDO. Market participants will make a determination on the security of the underlying collateral to determine whether to lend USDO or not against it.
A fee is charged at the factory deployment stage to ensure that spammy, low quality markets are not set up.
A fee is charged at the borrow and repay stage. And borrowers pay interest on any USDO borrowed which they have to repay before they can unlock their collateral.
The design via segregation of lending market instances creates breakwaters which limit any exploits to that specific market.
The collateral token itself cannot be borrowed and the collateral factor of USDO is defaulted to 0 further making any recursive flash loan exploits difficult to execute.
There is no reserve factor between lend and borrow rates. There are no admin keys and a market once deployed cannot be changed. The contracts are not upgradeable giving it another layer of security.
New improvements to the protocol can be pushed as a new factory so that any users deployed previously make a conscious choice to switch rather than have any changes imposed on them.
The overall design is that of permission minimized governance.
Anyone can create any lending market they want and only when the wish the market to be whitelisted or pre-seeded with USDO do they have to present it for governance votes.
But this step is optional and anyone may use any token and create a market and present it for USDO borrowing. The decision to lend rests with the USDO holders.

OPENDAO

Mandate

The mandate of OPEN DAO is to -
  1. 1.
    Keep USDO healthy
    a. Ensure it is at peg
    b. Increase its liquidity
    c. Ensuring only suitable collateral is used to support USDO borrowing
  2. 2.
    Increase its circulation by bringing more USDO into the market via preseeding various lending markets.
  3. 3.
    Increase the adoption of USDO by encouraging native use cases such as onchain applications as well as off ramps and real world acceptance.
It is the responsibility of the DAO to ensure that only high quality collateral is whitelisted. OPEN token holders can stake OPEN to get veOPEN which gives the right to vote in governance matters such as minting more USDO and determining which collateral is accepted on the whitelist as well as seeding whitelisted markets.
veOPEN holders get fees generated by the OPEN protocol from mint and interest. In the event that a whitelisted collateral market suffers a black swan collapse treasury OPEN will have to be sold to cover any losses.
OPEN locked in to create veOPEN can only be unstaked after a 3 month lock. This is to ensure that only committed OPEN holders get the right to vote in governance and secure fees.

Incentive Programs

The objective of OPEN DAO is to grow adoption and liquidity of USDO. Hence USDO BUSD farms on various AMMs will be incentivized. Projects promoting USDO adoption will be given grants that have to be approved via DAO governance. veOPEN token holders will receive fee distributions via staking. OPEN LPs will be rewarded to ensure growth of OPEN liquidity.

Liquidity Buy Back Program

An Olympus style liquidity buy back program is in the works for OPEN.

ROADMAP

Milestones to Date

USDO has been established as a multicollateral backed stable coin on BSC.
Peg is established and has been holding steady for several months.
Several partners including Fetch.AI, Reef Finance, Linear Finance and more have been onboarded as partners.
USDO LP incentive programs have been rolled out on steaks.ocp.finance via a partnership and grant program with ocp.finance.
A USDO centric stable swap called omnitrade has been setup on BSC.
A multicollateral minter based on the Compound lending engine has been established and battle tested.
Various native token pairs with USDO are operational and incentivized.
OCP has also introduced a concept known as yield minting in which assets such as BTC, Stable coins, BNB, CAKE etc are deployed to high yield strategies and that deployed collateral is used to mint USDO.
Native use case of USDO include a synthetic Tesla Long Shorts market via a partnership with Metallex and several other synthetic long short markets via a partnership with MCDEX.
A grantee Peertc.io has secured a Digital Currency Exchange registration with the Australian regulator AUSTRAC. This will be used to make on and offramps possible for USDO.

Future

USDO minting is currently controlled by the core team. This will be handed over to the DAO as part of the arbitrum roll out.

Other Chains

The rollout roadmap order is -
BSC
Arbitrum
Avalanche
Polygon
FTM
CELO
Ethereum
Solana
Algorand
BSC implementation is well established and the Arbitrum implementation is currently in the process of being rolled out as of Q4 2021.

REAL WORLD ASSETS

Tokenized real world assets can be used as collateral for USDO. Given the permissionless nature of the protocol it makes it possible for anyone to create tokens representing their real world assets and establishing suitable legal structures to set up a lending market for USDO. OPEN token holders may vote via the governance to whitelist such collateral and pre-seed these markets with USDO to lend.
Examples include tokenised Real Estate, Receivables, Stocks, NFTs and more.
Last modified 17d ago