One Ring to rule them all,
One Ring to find them,
One Ring to bring them all, and in the darkness bind them…
A native decentralized stablecoin has long been the crown jewels of the decentralized finance (Defi) world with many attempts. However, similar to the impossible trinity of a public blockchain, decentralization, scalability, and security have become the impossible trinity for stablecoins where most predecessors can only struggle to cover two. Here we propose Ring Protocol with its governance token RING, a decentralized pegged asset protocol that strikes a balance in the impossible trinity of stablecoin. The Ring Protocol proposes a decentralized solution that is also scalable, fair, and backed by existing stable assets. The first pegged asset is RUSD, a stablecoin backed by a basket of most liquid assets, including USDT, USDC, and DAI. RUSD introduces a unified stablecoin interface for the DeFi ecosystem, enables a flexible, cost-efficient way to swap between them. The Ring protocol will become the “One Ring to bring them all and bind them”. With the core mechanism that combines collateral with liquidity and market-making, RUSD addresses the pain points of most other stablecoins, providing compelling reasons to hold and use it.
The birth of Bitcoin has started a new era of human history and created a new world of Crypto. Although the original vision of bitcoin, as titled in the famous white paper, is “A Peer-to-Peer Electronic Cash System,”; it has grown from a toy of geeks to speculative asset with wild price action, and then to a store of value, and on its way becoming the hardest asset and collateral that carry values across time and space. Still growing strong with a bright future, bitcoin has deviated (or pivoted as we always say in SV) from its original idea of being a currency where you can buy a cup of coffee to become something more grand and heavy like Gold; the vacancy needs to be filled, many including us, believe it is a stable coin.
Stablecoin is the bridge between the world of Crypto created by bitcoin and our day-to-day world of fiat currency. Initially only used a trading pair currency(USDT), its idea of it is so intuitive and natural, it has explosively gained mass adoption. Along with it, an explosion of all different kinds of stable coins also started, which roughly falls into the three categories.
Centralized — Secure and Scalable but centralized risk
There is a centralized version like USDT by Tether, USDC by Circle, TUSD by Trust Token, where you send centralized entity money through a bank and in exchange of a token. You can also (hopefully) redeem the token for money. They try to be secure(solvent) and scalable (can keep printing if needed), but the centralized nature poses a significant risk of the regulation (USDC), or lack thereof (USDT). Also, enormous resources are wasted to maintain the burden of proof with expensive auditing or lawsuit (wink wink).
Over-collateralized — Secure and Decentralized but not scalable
Native blockchain stablecoin like DAI from MakerDao or sUSD from Synthetix, completely decoupled from the messiness of legacy financial system by using Crypto like ETH as collateral and issue stable coin as debt. However, they need a high collateral ratio to maintain value and a liquidation process that is both risky to the user and the protocol because it heavily depends on Price Oracle that is prone to manipulation through flash-loan. The protocol like DAI has suffered from such an attack multiple times. What’s more, the high collateral ratio is a headwind to capital efficiency, limiting the protocol’s scalability.
Algorithmic — Scalable and Decentralized but not secure, stable, or fair
In an attempt to scale, we have seen an emergency of algorithmic stablecoins that doesn’t require any collateral and can scale fast indefinitely with everything on-chain and fully distributed. They achieve this by either rebasing (e.g. AMPL) or Seigniorage (Basis Cash, ESD, FRAX). The rebasing model like AMPL dynamically adjusts the supply by directly altering user balance to respond to price change. Even though it can hold its peg relatively better than other models, its unintuitive nature becomes a usability issue and becomes more of a money game by itself. Seigniorage model like Basis Cash separates the pegged coin and shareholder token to provide a similar model like how fiat works. However, its zero collateral nature can spiral the downfall when below peg and destroy people’s confidence to hold and use it. More importantly, the expansion and newly issued tokens heavily favor the shareholder. The unfairness of distribution and non-collateral nature further discourage new users from adopting; Indeed, stablecoin adoption is the key to its success. FRAX tries to mimic the fractional reserve of the modern banking system to provide some valued support with collateral but still uses Seigniorage with the unfair distribution.
A recent protocol like Fei uses direct incentive/penalty as a core mechanism to stabilize the price and engage in market activity as a liquidity provider. However, they still missed the core issue: why would users hold and use such their stable token?
Introducing Ring Protocol and RUSD
Not only do their models have different drawbacks, but they also cause confusion and segmented liquidity. Aiming to become a universal pegged asset platform, Ring Protocol and its first product RUSD, strikes at the heart of the problem with the following value proposition:
- Low-cost, stable swap between other stable coins
- Simple, liquid, and unified, stablecoin — RUSD
- Yield aggregation with all collateral deposits.
Based on the first principle, we return to the original use case and soul of stablecoin: trading; Then, we designed a system starting from it. The core idea is that users can deposit stable assets (starting with USDC, USDT, and DAI) and get RUSD; the protocol will pair it with additional RUSD for each of them and add liquidity Uniswap trading pair. When below peg, the protocol will re-weight and burn excess RUSD; when above peg, arbitrageurs can mint more RUSD through depositing and sell it on the market to bring it back to peg.
The critical part is that the Ring Protocol leverage Uniswap V3 ‘s customized trading fee and price range to provide a low slippage swap. In turn, Ring Protocol becomes a path in Uniswap trading router, constantly providing liquidity that can facilitate trades that go through it and accrue values for our user and protocol.
Holding and using RUSD can capture the protocol value through staking; and more importantly, it is a perfect hub for stable coin conversion where users can jump to any stable coin of their choosing with only one hop. As liquidity grows with protocol, it will become more and convenient to trade with RUSD with its seamless experience, where the protocol well handles the confusion and complexity of different stable assets.
Governance and RING token
RING token represent the ownership and governance of Ring Protocol. Collectively they decide what new asset to add, system parameters, and project direction. Initially, the supply of RING will set to 1,000,000,000 with the following distribution. Note that the detailed token distribution will be announced as the project launch.
- 40% belongs to DAO governance
- 15% for strategic reserve and future investors
- 13% community development fund (e.g. Grant, Airdrop, and other incentives)
- 15% for teams with a 1-year lock cliff and back weighted vesting period.
- 10% provided for staking rewards
- 6% used for various grants
- 1% provided as Initial Dex Offering
The community reserves the right to its additional issuance by governance voting. We expect that after genesis allocation, RING will rebalance itself naturally over time with the organic growth of the community.
The protocol generates income through trading fees and potential other yield platforms like YFI, Compound, etc. Value accrued goes to RING holders through buyback and DAO governance.
Ring Protocol-powered RUSD strikes a balance between scalability, decentralization, and security through a combination of liquidity as collateral and active market making. With UniswapV3 ‘s capital efficiency and customized curve, Ring protocol will provide a multi-pair stablecoin market that creates a liquid market for RUSD to hold its peg and provides the great utility of yielding and trading.
Ring Protocol will be launching soon, subscribe to our medium account to stay tuned..