USDX Basics

USDX.Money manages the issuance and redemption of USDX, a synthetic USD stablecoin.

Peg Stability Mechanism

USDX achieves stability in value under all market conditions by implementing an automated delta-neutral hedging strategy on the target assets, thereby offsetting the risk of price fluctuations and ensuring the value stability of USDX.

Delta-neutral hedging is a strategy to reduce the impact of market volatility on the value of a portfolio, by establishing opposing investment positions to balance potential price movement risks. In the context of USDX, this means if the price of the collateral assets (such as Bitcoin) changes, the program automatically adjusts the hedging positions to maintain the stable value of USDX. This strategy is designed to ensure that, no matter how market conditions change, the value of USDX remains relatively stable, offering an attractive medium for value storage and exchange for users who wish to avoid the volatility of the cryptocurrency market.

Key Information

1. USDX can be acquired by users in permissionless external liquidity pools.

2. Only approved entities from eligible jurisdictions that have successfully passed KYC/KYB screenings can directly mint and redeem USDX on-demand using USDX.money contracts, limited to market-making entities.

3. The system operates independently of traditional banking infrastructure, with trustless collateral securely held within the cryptocurrency ecosystem. This ensures USDX is fully backed by user deposits at all times.

4. Users have the opportunity to engage in Cross Market Arbitrage by minting and redeeming USDX through USDX.money and trading it on external markets, such as Binance or Curve pools, to take advantage of price discrepancies.

Mechanic Example

1. A user deposits ~$100 of BTC and receives ~100 USDX atomically in return less any execution costs to execute the hedge.

2. Slippage & execution fees are included in the price when minting & redeeming. USDX.Money earns no profit from minting or redeeming USDX from users accessing the product.

3. USDX.Money opens a corresponding short perpetual position for the approximate same dollar value on a derivatives exchange.

4. The assets received are transferred to an "Off Exchange Settlement" provider. Backing assets remain onchain and off-exchange servers to minimize counterparty risk.

5. USDX.Money delegates, but never transfers custody of, backing assets to derivatives exchanges to margin the short perpetual hedging positions

Generated Yield

USDX.Money generates yield via the funding and basis spread from the delta hedging derivatives positions. The funding and basis spread yield can be floating or fixed depending upon if the protocol uses non-deliverable or deliverable derivatives positions to hedge the collateral's delta. The funding and basis spread has historically generated a positive yield given the mismatch in demand and supply for leverage in crypto as well as the existence of positive baseline funding. If funding rates are deeply negative for a sustained period of time, the USDX.Money insurance fund will bear the cost.

Risks

The protocol is exposed to various risks including but not limited to:

1. Smart Contract Risk

2. External Platform Risk

3. Liquidity Risk

4. Custodial Operational Risk

5. Exchange Counterparty Risk

6. Market Risk

Every element of the USDX.Money design has been formulated with risk mitigation in mind, including the use of custodians, absence of underlying leverage, and diversification constraints on hedging positions USDX.Money recognizes these risks and actively attempts to ameliorate & diversify these risks as much as possible. In practice, this means we use multiple providers for each step of the workflow and actively monitor all partners and market conditions. USDX.Money will also be as transparent as possible by providing onchain proof of backing assets in combination with proof of the derivatives positions in our public dashboards on the application.