V2
The Differences Between AUSD And USDT
Share With Your Network
16K Viewer
March 21st, 2024
UST’s infamous collapse in 2022 has significantly affected the stablecoin landscape, creating a suspicious outlook against new stablecoin models. As a result, new stablecoin models are without hesitation called algorithmic stablecoins that are destined to depeg. We saw that there are some questions regarding how aUSD is different than UST in our community.
In this article, we’ll explain why aUSD is completely different than UST. By doing so, we will prove that aUSD has a strong peg mechanism that is superior to all existing models while generating an organic yield.
a) aUSD is based on an optimized CDP model while UST is an algorithmic stablecoin
aUSD does not depend on any algorithm like UST to maintain its peg. The best comparison for aUSD is Liquity, not UST. In traditional CDP models, users are expected to deposit something around $150 in order to borrow $100 of stablecoin, LUSD in Liquity’s case. The $50 that is not borrowed will act as a buffer in case of liquidation. At Stable Jack, we wanted to make this buffer liquid and for this reason, we tokenize it as xAVAX. In this sense, the only difference that Stable Jack has with Liquity is that Stable Jack tokenizes the “over-collateralized” part of the Liquity so that we make the CDP model more scalable in terms of protocol perspective while making the protocol capital efficient in terms of user perspective.
b) No endogenous collateral like LUNA for UST
UST’s model requires users to put LUNA as collateral to mint and redeem UST. In this sense, LUNA was the endogenous collateral of UST, meaning it didn’t have any inherent value unlike being a collateral asset.
However, Stable Jack accepts AVAX LSTs as collateral to mint and redeem aUSD. AVAX has proven itself as a solid token throughout the previous bear markets, unlike LUNA. Also, AVAX’s utility does not depend on Stable Jack, which makes AVAX LSTs a reliable collateral asset.
c) No protocol token is involved in any burning or minting mechanism unlike Terra's LUNA
Stable Jack’s protocol token, JACK, does not have any relation with regards to minting or burning aUSD, unlike LUNA which was used to mint or burn against UST. This increases the stability and security of the stablecoin by not being backed by unproven assets.
Stable Jack only uses AVAX LSTs to back aUSD which increases the security and stability of the aUSD.
d) Stable Jack offers real yield unlike LUNA
At Stable Jack, there is no Anchor or any other protocol that uses VC-raised money to provide fixed APR to UST stakers. Stable Jack will provide significant real yield to aUSD depositors and the yield will be derived from the staking yields of Avalanche LSTs which represent real and solid yield. Given that the yield is neither artificial nor unsustainable, the yield mechanism will not put the protocol and the stablecoin in a distressed situation like Anchor’s case.
e) Protocol assumes delta risk for aUSD unlike Terra's UST
Terra has always assumed that 1 UST = $1 worth of LUNA. However, as a result of the death spiral that Terra has experienced, significant inflation of LUNA has caused investors to lose faith in both LUNA and UST. Although Stable Jack assumes that the delta of the aUSD is 0 and 1 aUSD = $1 worth of AVAX LSTs if the protocol becomes under-reserved for some reason so it is not possible to sustain the peg of aUSD, it starts to assume the delta risk of aUSD, meaning aUSD starts to float like sAVAX. This allows the protocol to prevent bank runs and socialize the possible losses. Unlike UST, since aUSD holdings are converted to AVAX, holders of aUSD aren’t at risk of losing all of their collateral.
Conclusion
UST was a marketing plan with an unsustainable incentive mechanism that was not meant to be this big. As the protocol mechanism was dependent on the users’ trust in the system, it could not maintain stability. However, aUSD is a different model that has no similarity with UST as its reserves always match the existing liability while also generating a real yield. There is no unsustainable incentive that can force the protocol to break apart. To learn more about Stable Jack and ask your questions, follow our socials!
In this article, we’ll explain why aUSD is completely different than UST. By doing so, we will prove that aUSD has a strong peg mechanism that is superior to all existing models while generating an organic yield.
a) aUSD is based on an optimized CDP model while UST is an algorithmic stablecoin
aUSD does not depend on any algorithm like UST to maintain its peg. The best comparison for aUSD is Liquity, not UST. In traditional CDP models, users are expected to deposit something around $150 in order to borrow $100 of stablecoin, LUSD in Liquity’s case. The $50 that is not borrowed will act as a buffer in case of liquidation. At Stable Jack, we wanted to make this buffer liquid and for this reason, we tokenize it as xAVAX. In this sense, the only difference that Stable Jack has with Liquity is that Stable Jack tokenizes the “over-collateralized” part of the Liquity so that we make the CDP model more scalable in terms of protocol perspective while making the protocol capital efficient in terms of user perspective.
b) No endogenous collateral like LUNA for UST
UST’s model requires users to put LUNA as collateral to mint and redeem UST. In this sense, LUNA was the endogenous collateral of UST, meaning it didn’t have any inherent value unlike being a collateral asset.
However, Stable Jack accepts AVAX LSTs as collateral to mint and redeem aUSD. AVAX has proven itself as a solid token throughout the previous bear markets, unlike LUNA. Also, AVAX’s utility does not depend on Stable Jack, which makes AVAX LSTs a reliable collateral asset.
c) No protocol token is involved in any burning or minting mechanism unlike Terra's LUNA
Stable Jack’s protocol token, JACK, does not have any relation with regards to minting or burning aUSD, unlike LUNA which was used to mint or burn against UST. This increases the stability and security of the stablecoin by not being backed by unproven assets.
Stable Jack only uses AVAX LSTs to back aUSD which increases the security and stability of the aUSD.
d) Stable Jack offers real yield unlike LUNA
At Stable Jack, there is no Anchor or any other protocol that uses VC-raised money to provide fixed APR to UST stakers. Stable Jack will provide significant real yield to aUSD depositors and the yield will be derived from the staking yields of Avalanche LSTs which represent real and solid yield. Given that the yield is neither artificial nor unsustainable, the yield mechanism will not put the protocol and the stablecoin in a distressed situation like Anchor’s case.
e) Protocol assumes delta risk for aUSD unlike Terra's UST
Terra has always assumed that 1 UST = $1 worth of LUNA. However, as a result of the death spiral that Terra has experienced, significant inflation of LUNA has caused investors to lose faith in both LUNA and UST. Although Stable Jack assumes that the delta of the aUSD is 0 and 1 aUSD = $1 worth of AVAX LSTs if the protocol becomes under-reserved for some reason so it is not possible to sustain the peg of aUSD, it starts to assume the delta risk of aUSD, meaning aUSD starts to float like sAVAX. This allows the protocol to prevent bank runs and socialize the possible losses. Unlike UST, since aUSD holdings are converted to AVAX, holders of aUSD aren’t at risk of losing all of their collateral.
Conclusion
UST was a marketing plan with an unsustainable incentive mechanism that was not meant to be this big. As the protocol mechanism was dependent on the users’ trust in the system, it could not maintain stability. However, aUSD is a different model that has no similarity with UST as its reserves always match the existing liability while also generating a real yield. There is no unsustainable incentive that can force the protocol to break apart. To learn more about Stable Jack and ask your questions, follow our socials!
