It was a matter of time until another stablecoin would come to market. The DefiDollar, as the name suggests, is an interesting initiative to make DeFi even more appealing. It is also one of the first stablecoins to be minted by using other popular stable currencies.
A Different Stablecoin, of Sorts
Contrary to what one may think, the DefiDollar is not directly backed by hard US Dollars. Instead, it is a stablecoin index backed asset. It derives value from the other stablecoins it is linked to. including DAI, USDC, USDT, and sUSD. Some other key stable currencies are not in the reserve basket right now, a situation that may change in the future.
Referred to as DUSD, the DefiDollar is built on top of the Curve protocol. Curve has become incredibly popular among DeFi users, and its ecosystem is now expanding. By providing liquidity through the supported stablecoins listed above, users can “mint” DUSD, and farm yields in CRV and SNX.
The main reason for creating the DefiDollar is creating a more diversified crypto-dollars segment. If any of the established stablecojns were to collapse or disappear, DUSD can provide a safety net of sorts. It seems unlikely that the likes of USDC and USDT will disappear, but it is sometimes better to prepare for the worst case scenario.
Peeking Under the Hood
What makes DUSD interesting is how it is collateralized by Curve Finance LP tokens. In most cases, these tokens are used to mint SNX rewards or REN on Curve itself. Using it to create a brand new stablecoin is an interesting option to explore. Finding use cases for DUSD outside of decentralized finance will be the next step.
Powering the DefiDollar stability mechanism are decentralized ChainLink price oracles. Combined with Curve’s ease of integration with lending protocols and swapping tokens,a versatile project has been established. There is also a staking mechanism for extra safety, as well as earning more rewards.
In terms of generating fees, the DefiDollar taps into various streams. First, it will earn trading fees from Curve’s LPs. Second, there is the CRV reward from Curve’s liquidity mining. Third, SNX rewards from the incentivized sUSD pool. Finally, there are redemption fees when converting DUSD to underlying assets.
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