White paper

an on-chain multi-currency stablecoins banking protocol based on multi-chain and multi-collateral

Abstract

Utopia is an on-chain banking protocol based on multi-chain and multi-collateral, and it permits multi-token and multi-LP token holders to generate Ustablecoins (e.g., UUSD, UEUR, and UAUD) at zero fee and lower collateralization ratio, and these Ustablecoins are pegged to a variety of legal currencies. Not only is UC the governance token of the protocol, but functions as transaction fee token for the protocol. And all underlying assets for collateral are selected by DAO Governance. If the user deposits the collateral assets into given vault, Ustablecoins will be made for liquidity, and all Ustablecoins holders are entitled to deregister their Ustablecoins, in exchange for collateral assets of the identical par value. It is worth saying that the protocol ensures the system robustness via 4 layers liquidation mechanism.

Background

With the development of blockchain and decentralized finance, the shortcomings of existing stablecoin and lending protocols have shown up.

  1. MakerDAO's 150% collateralization ratio and 13% liquidation fee make the fund not used efficiently in the Defi.

  2. MakerDAO's liquidation mechanism is semi-centralized, which is far less timely and efficient than on-chain liquidation which is instant.

  3. Compound currency is single and does not support LP Token, which reduces the number of funds that can participate in collateralization by more than 50%.

  4. In the Defi, stablecoin pegged by US dollar accounts for more than 90%, but in the real world, the euro, the British pound, the Japanese yen, and the Australian dollar also account for more than 40% of the circulation. The holders of these currencies desire a fully backed stablecoin corresponding to their legal currency.

The Utopia protocol, as a new multi-chain and multi-collateral on-chain banking protocol, try to solve the above problems.

Unique features

Utopia protocol accepts multi-token,multi-coin and multi-LP token as collateral asset.

Utopia protocol supports multi-stablecoin, it is scalable, such as UUSD, UEUR, UAUD, etc.

The collateralization ratio of the Utopia protocol is 110%, which means that a maximum of US$110 of funds can be minted in a stablecoin of US$100.

Utopia protocol designed an on-chain stability fee automatic adjustment algorithm. When collateralization ratio of the protocol is in the high area, the user only pay 0 stability fee; when collateralization ratio of the protocol is in the low area, the stability fee will automatically rise, pushing users to redeem the uStablecoin.

Utopia protocol designed an on-chain liquidation mechanism, which is fully decentralized.

The UC governance token is critical to the decentralization of the Utopia protocol, it is deflationary. Holding UC can participate in community governance, on-chain voting, accelerate incentives, and obtain income from liquidation fees generated by Utopia protocol itself.

Utopia protocol will support multiple chains, including ethereum, polkadot, heco, bsc, etc.

PROJECT/INDEX

MAKERDAO

TETHER

UTOPIA

Collateral asset

Multi-token/multi-coin

USD

Multi-token/multi-coin/multi-lp token

Borrowed asset

DAI

USDT

Multi-stablecoins,uUSD,uAUD,etc

Interest/stability fee

Variable,vote adjustment

0

Variable,from negative,algorithm adjustment

Collateralization ratio

130%/150%

-

110%

Liquidation fee

13%

-

8%

Price oracle

Centralized

-

Fully decentralized

Liquidation

Decentralized by auction

-

Fully decentralized,instantly

Liquidation mechanism

2 layers

-

4 layers

Custody

Decentralized

Centralized

Fully decentralized

Reinvest mechanism

NONE

NONE

YES

Token distribution

Decentralized but one-time emission

-

Decentralized;Deflation in 5 years

Incentive for user

NONE

NONE

Collateral asset gain,UC token

Incentive for liquidator

Liquidation fee

-

Liquidation fee,UC token

Incentive for liquidity provider

NONE

-

UC token

DAO token

MKR

-

UC

Cover

NONE

NONE

YES

Multi-chain

NO

YES

YES

1:1 Pegged

YES

YES

YES

Contracts

Utopia Vault

Users deposit collateral assets, such as ETH, ETH-USDT LP, and set them as collateral status, then user can get uStabioncoin that not exceed 110% collateralization ratio; when users withdraw collateral assets as repay 100% of Ustablecoins plus as low as 0 Stability fee, then vault closed.

Utopia Moat Pool

After the user deposits Ustablecoins into the Moat Pool, the protocol will destroy Ustablecoins in the Moat Pool during liquidation, and distribute the liquidation assets to Moat Pool providers。

Utopia DAO

Governance contracts have unique functions, such as time locks, up to 10 times acceleration incentives, etc. Time locks are divided into short-term locks and long-term locks. Short-term locks deploy fast protocol upgrades, and long-term locks gradually upgrade governance, which ensures the protocol can quickly adapt to changing market conditions and upgrade the core part of the protocol through the passage of time.

Governance parameters include them below.

Add or remove mortgageable assets

New or removable types of stablecoins that can be generated

Adjust the weight of the asset pool

Modulating stimulus factor

Adjust the fine ratio

Adjust the distribution ratio of program fees

Adjusting the stability cost factor

Adjust the reinvestment ratio

Adjust the proportion of reinvested income

Adjust price Oracle sensitivity factor

Utopia Price Oracle

Using third-party oracle services, such as chainlink, etc., in order to protect the oracles in the system from being controlled by attackers, Utopia protocol adds the oracle sensitivity factor as a global variable to control the maximum price change received by the system.

If the sensitivity factor is "5% in 10 minutes", then the price change in 10 minutes cannot exceed 5%, and a 15% change takes 30 minutes. This restriction can ensure sufficient time for global liquidation.

Technical architecture

图片

Redemption mechanism

When users redeems, the redemption process is as follows:

a.Redeems amount>=liquiditaion assets value of Moat pool

Moat pool receives Ustablecoins as users recevies liquiditaion assets captured before of Moat pool.

a.Redeems amount<liquiditaion assets value of Moat pool

Active liquidation process;

Moat pool receives Ustablecoins as users recevies liquiditaion assets captured before of Moat pool.

stability fee mechanism

The formula for calculating the stability fee is as follows(kink0>kink1>kink2)

protocol collateralization ratio> kink0:

StableRate = (baseRate + protocol collateralization ratiomultiplier)0

protocol collateralization ratio>= kink1:

StableRate = baseRate + protocol collateralization ratio*multiplier

protocol collateralization ratio>=kink2

StableRate = baseRate + protocol collateralization ratiomultiplier + (protocol collateralization ratio-kink2)jumpMultiplier

stablefee=redeem amountstableRatedΔtstablefactorstable fee=redeem\ amount \cdot stableRate \cdot d^{\Delta t}\cdot stable factor

Liquidation mechanism

Utopai protocol is liquidated instantly, with a four-layer liquidation mechanism, anyone can liquidate vaults that are lower than collateralization ratio at any time.

First layer-Moat pool

Moat pool repays vault's debts and obtains liquidation assets and 70% of the liquidation fee, and the other 30% is obtained by Reserve.

Second layer-Partial liquidation

If the Moat pool's liquidity is insufficient to repay the debt, the agreement will automatically redistribute the remaining debt and its related collateral to the valuts of same collateral assets for a debt redistribution. The distribution logic is that the higher the collateralization ratio vaults will be allocated to more debt and collateral assest, of which 70% of the liquidation fee is obtained by the vaults that assume the debt, and the other 30% is obtained by the Reserve.

Third layer-Reserve liquidation

Reserve is an important part of the Utopai protocol, and its main function is to liquidate and respond to extreme events. When the partial liquidation is still insufficient to repay the debt, Reserve will use the assets it holds to repurchase the corresponding collateral assets then redeem them to users.

Fourth layer-global liquidation

It is almost impossible to get here,but it is useful to keep security of protocol .

Protocol will be fully liquidated, starting from the most risky vault, one by one, until the debt is repaid.

Price stabilization mechanism

The target price of Ustablecoins has two important functions:

a.It is used to calculate the collateralization ratio of the collateral asset pool.

b.It determines the value of collateral assets that Ustablecoins holders will receive during liquidation.

Utopia protocol charges a stability fee to ensure the robustness of the protocol. It uses an algorithm to automatically anchor the target price. Ustablecoins alwasys can redeem 1:1 collateral assets at any time. For example, 1uUSD can be exchanged for ETH assets worth 1 U.S. When the market is unstable, if the transaction price of 1 uUSD is lower than 1 U.S. dollar, the holder or arbitrageur will be incentivized to redeem it, exchange it for 1 U.S. dollar worth of ETH, and get the agio; if 1 The uUSD transaction price is higher than 1 US dollar, it will incentivize holders or arbitrageurs to take collateral actions in exchange for more uUSD and sell them. When the price falls to 1 U.S dollar, uUSD will be repurchased to repay the debt and retrieve the collateral assets, and get the agio.

Reinvestment mechanism

To maximise profitability, Utopia protocol designed a reinvestment mechanism. The proportion of reinvestment is limited to the strategic contract of reinvestment, which can be integrated to save natural gas. Assets within the reinvestment ratio can be deployed to other yield-generating protocols, such as lending, automated market-making, automated portfolio management, and so on. Anyone is able to develop, test, and propose reinvest contracts for integration into Utopia, it will be approved and launched by the DAO governance mechanism. The goal is to minimize risks and maximize returns. 70% of the reinvestment income is claimable to users, and 30% is used to purchase UC and burn it.

The formula of reinvesting asset value is below.

reinvest asset value=(tatal underlying asset÷total uUSD1)tatal underlying assetreinvest factorreinvest\ asset\ value=(tatal\ underlying\ asset\div total\ uUSD -1) \cdot tatal\ underlying\ asset \cdot reinvest\ factor

COVER mechanism

Utopia will join the third-party cover protocol to maximize the security of the underlying assets, and the cost is supported by Reserve.

Incentive

Utopia protocol offers some rewards below to help community growth.

a.Governance token(UC) rewards

Users can get UC rewards by depositing collateral assets.

Liquidity providers can get UC rewards by adding liquidity.

DAO users.

b.Reinvestment income

Users can get Reinvestment income by depositing collateral assets.

DAO users.

c.Liquidation fee rewards

Users can get a liquidation fee by depositing Ustablecoins to Moat pool.

Liquidator.

DAO users.

d.Deposit fee rewards

The deposit fee is 0.5% and it will be rewarded to previous depositors, and this mechanism can encourage sticky liquidity.

e.stability fee

DAO users.

Supply

The total supply is 21,000,000UC, which is divide into two phases.

The emission of phase 1 is 8,400,000UC,40% in total supply, and it is released within 1 year linearly.

50% to community, for users, liquidity providers, liquidators

23% to seed round investors,

10% to team,for development,audit,etc.

15% to the reserve, for cover, global liquidation, etc.

2% to advisors.

图片

The emission of phase 2 is 12,600,000UC,60% in total supply, and it is released within 4 years linearly.

70% to community, for users, liquidity providers, liquidators

10% to team,for development,audit,etc.

15% to reserve, for cover, global liquidation, etc.

2% to advisors.

图片

UC rewards are distributed proportionally in each pool. The rewards of different pools will be different. The daily reward formula is as follows

daily_reward = block_reward daily_block_num pool weight

Roadmap

图片

Risk

Smart contract security

The security of the Utopia is our #1 priority, and we encourage users to research and understand the risks involved prior to engaging with the protocol. Utopia smart contracts have been designed to prioritize security, and have undergone 1 separate audit with third-party auditors and independent consultants. Prior to any upgrade to the protocol in the future, we will undergo security audits as well ahead of any new deployment. However, we can not guarantee that audits eliminate and highlight all potential risks involved. We encourage users to exercise their own discretion and recommend caution when considering suitability for participating in the protocol.

Admin key risk

Utopia is non-custodial and does not have access to user funds. However, we do hold an administrative key with strong privileges that allow us to pause and amend the contracts in case of an emergency. We plan on introducing a time-lock in order to give enough notice such that the community can monitor any changes before they happen. We are big fans of decentralized governance, but also realize the limitations of rushing towards decentralization too fast. Over time, we will be working towards gradually developing Utopia into a fully autonomous, self-iterating system.

Reference

[1] Satoshi Nakamoto. Bitcoin: A Peer-to-Peer Electronic Cash System.

https://bitcoin.org/bitcoin.pdf. Oct 2008

[2] Vitalik Buterin. Ethereum White Paper : A Next-Generation Smart Contract and

Decentralized Application Platform. https://github.com/ethereum/wiki/wiki/White-Paper.

[3] MakerDAO protocol.

[https://makerdao.com/whitepaper/White Paper -The Maker Protocol_ MakerDAO%E2%80%99s Multi-Collateral Dai (MCD) System-FINAL- 021720.pdf](https://makerdao.com/whitepaper/White Paper -The Maker Protocol_ MakerDAO%E2%80%99s Multi-Collateral Dai (MCD) System-FINAL- 021720.pdf?fileGuid=PsiKj0EskPklKwnQ)Dec 2017

[4] Compound protocol

https://compound.finance/documents/Compound.Whitepaper.pdfFeb 2019

[5] Market Risk Assessment

https://gauntlet.network/reports/CompoundMarketRiskAssessment.pd