Solution Objectives

StandX DUSD is a decentralized, yield-bearing stablecoin designed for omnichain functionality. Unlike traditional stablecoins, DUSD offers competitive passive income without requiring staking or additional user actions. The system’s architecture leverages smart contracts across multiple chains (currently Solana and BSC) and off-chain integrations to ensure stability, yield generation, and user convenience. Below are the core components:

Components

• DUSD Token: Chain-native token that represents the yield-bearing stablecoin (Solana Token 2022 Program on Solana, BEP-20 on BSC).
• StandX Gateway: Smart contract that handles minting and redemption requests for DUSD.
• StandX Vault: Smart contract that manages collateral assets, initiates hedging operations, and ensures delta-neutral positions to back DUSD.
• StandX Custodians: A secure list of custodian addresses where collateral assets are stored.
• StandX Reserve Fund: A multisig system that bridges assets between on-chain contracts and off-chain platforms (e.g., centralized exchanges).
• Hedging System: Operates across multiple centralized exchanges (CEXs) to maintain delta-neutral positions and generate funding fee revenue.

Key Features

• Smart Contract-Based Automation: Chain-specific contracts automate minting, redemption, hedging, revenue distribution, and reserve fund management.
• Yield Distribution: Rewards are automatically calculated and distributed based on user holdings, with no need for staking.
• Market-Neutral Backing: Collateral is hedged with short perpetual futures positions to ensure price stability, regardless of market fluctuations.
• Reserve Fund: Mitigates risks from temporary yield fluctuations and ensures funding fee payments during negative revenue periods.

Principles

The system generates revenue from two primary sources:

DUSD maintains its peg stability through automated delta-neutral hedging strategies applied to the underlying collateral assets.

By implementing precise hedging positions equal to the collateral value, the protocol minimizes price fluctuations as any change in collateral value is offset by corresponding changes in the hedge positions.

This mechanism ensures the synthetic USD value of the backing remains stable across various market conditions.

StandX employs conservative leverage practices, only utilizing the natural leverage provided by exchanges through their standard collateral valuation methods for margin and initial DUSD issuance.

Revenue Generation

The StandX protocol generates sustainable returns through two primary channels:

1. Staking Rewards:
   • Collateral assets such as ETH, BNB, or SOL are staked on their respective networks to earn rewards.
   • Yields fluctuate based on network conditions and are denominated in the native staked asset.
2. Funding Fee and Basis Spread Revenue:
   • The protocol earns funding fees and basis spreads by maintaining short perpetual futures positions on derivatives markets.
   • Positive funding rates, driven by high demand for leverage in crypto markets, provide consistent revenue streams.
   • Both deliverable and non-deliverable derivatives may be utilized, depending on market conditions.
3. Revenue Distribution
   • Daily revenue from staking and funding fees is settled in the hedging system.
   • Rewards are allocated based on the DUSD holdings of each user and distributed in 7-day cycles.

Resilience During Negative Funding Periods

In rare scenarios where funding rates turn negative and staking rewards are insufficient to offset costs, the protocol’s stability reserve is activated. This reserve ensures yield payouts remain unaffected and maintains user confidence in the system.

Mechanics Example

A step-by-step example of how DUSD operates:

1. Minting Process:
   • A user deposits $100 of USDT into the protocol.
   • The protocol mints 100 DUSD directly to the user’s wallet.
   • Simultaneously, the protocol establishes a $100 short perpetual futures position to hedge the collateral, ensuring delta neutrality.
2. Hedging Operations:
   • Collateral is securely held within the protocol’s custody layer while being delegated for hedging operations.
   • The protocol utilizes exchange-provided leverage with strict margin controls to minimize risk.
3. Revenue Generation:
   • The collateral is staked to earn rewards.
   • Funding fees from the short futures position generate additional revenue.
4. Redemption Process:
   • The user redeems 100 DUSD for $100 of USDT.
   • The protocol unwinds the short futures position and converts collateral back to USDT.
   • The user receives their USDT after the 7-day lock period.

Risk Management

The protocol acknowledges and actively mitigates several key risks:

1. Smart Contract Risk:
   • Comprehensive audits are conducted regularly to ensure the security of the protocol’s smart contracts across all supported chains.
2. Platform Integration Risk:
   • The protocol integrates only with vetted and secure exchanges, minimizing integration vulnerabilities.
3. Market Liquidity Risk:
   • Diversified hedging positions across multiple exchanges reduce dependency on a single source of liquidity.
4. Operational Security Risk:
   • A multi-provider architecture ensures redundancy for critical operations.
   • Continuous monitoring of operations and partners enhances security.
5. Counterparty Risk:
   • The protocol minimizes counterparty risk by using decentralized exchanges and on-chain custody for collateral.
6. Market Volatility Risk:
   • Conservative leverage policies and dynamic risk assessment ensure stability during periods of extreme market volatility.

The protocol’s design prioritizes security and stability at every level, from collateral management to hedging strategies.