Stablecoins are a type of cryptocurrency that is designed to maintain a stable value. Decentralized finance presents one of the biggest opportunities to challenge the increasing dependence on centralized stablecoins like USDC and USDT. This is necessary in order to achieve true decentralization in the financial system.
USK is an over-collateralized decentralized stablecoin based on the Cosmos network, which is soft-pegged to the US Dollar. It is initially backed by ATOM, DOT, wBNB, wETH, and gPAXG. The Kujira team promises that nBTC and other cryptocurrencies will follow soon.
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Detailed functioning of the stablecoin
The Kujira team took its inspiration from MakerDao and DAI when it came up with USK. The team decided to write a codebase in Rust, which is a more robust and expressive language than Solidity.
The functioning mechanism of USK is straightforward. As mentioned previously, Kujira's USK is a native overcollateralized stablecoin based on the Cosmos network, which is soft-pegged to the US dollar. As it is an overcollateralized stablecoin, this means that it is backed at a minimum of 166%, which helps to ensure the stability of the stablecoin and reduce the risk of liquidation. It is backed by ATOM, DOT, wETH, and gPAXG (with the possibility of more in the future). Users can stake their collateral on BLUE platform (Mint section) to mint USK, while other users can burn USK to redeem their collateral. If the value of a user's collateral falls too low, it will be liquidated.
USK, being a native Cosmos stablecoin, has the potential to contribute to value accrual for ATOM and will be able to serve various functions in the future. It is seamlessly integrated into the ORCA platform, enabling transparent and hassle-free liquidations. The mechanism of USK is designed to be sovereign and uncensorable, which is why it will not be backed by other centralized fiat-backed stablecoins.
Pros and Cons
- Inspired by DAI, which has historically worked
- Fully integrated with the Kujira ecosystem
- Experienced team
- Integrated with WooCommerce
- Proper diversification per each collateral type
- New product - launched August 2022
The Kujira team is a committed group of individuals who are working to develop and expand the Kujira platform. Here is a brief introduction to some of the key members of the team:
Brett - Golden retriever, central front-end developer for Kujira
Dove - Dove, CEO and public face of Kujira
Hans - Hen, central back-end & smart contract developer for Kujira
Dan Tanaka - Growth lead and head biz dev at Kujira
Alex - Community manager and runs the Rorcual validator with a partner
Daniel Lux - Researches, strategizes, and innovates at Kujira / KujiDAO cofounder
Dave - CFA Charterholder, moderator, advisor, involved behind the scenes
Jan - Responsible for media and marketing at Kujira
KP - Creates high-quality written content for Kujira
Tnut - Biz dev involved in something special TBA later on
Reserves and Security
Kujira aims to make USK a top-quality decentralized stablecoin that is well-suited to real-world decentralized commerce. To achieve this, transparency is crucial to reassure both its partners and users. Users can find all about USK backing collateral and USK liquidation market analysis for all collateral types through two platforms.
The ‘Dashboard’ and ‘Mint’ tabs on BLUE platform provide a breakdown of all the collateral backing USK, as well as displaying the total amount of collateral actually backing the minted USK.
The ORCA provides information about each USK liquidation market, including the total amount of locked collateral for each collateral type and the current asset price. The corresponding ‘Analytics’ section summarizes this data at the top, making it easy to calculate the USK collateral backing ratio for each collateral type. This calculation can be performed by taking the amount of USK minted by a specific collateral type (found on BLUE) and dividing it by the product of the total amount of locked collateral for that specific collateral type, and the current asset price.
History of Stablecoin
Kujira originally began on the Terra blockchain with the development of ORCA, where it was aimed at providing high capital efficiency for Anchor liquidations. The team believed that an algorithmic stablecoin UST could be the answer to the industry's stability concerns. However, after witnessing the fallout of the Terra blockchain collapse, the Kujira team redoubled its efforts, leading to the launch of a sovereign blockchain on Cosmos just six weeks later.
The team recognized the need for a new, sustainable model to establish a strong foundation for DeFi and decentralized money - one that would prevent similar collapses from happening again. In response, Kujira put their heads together and decided to develop USK, an over-collateralized Cosmos stablecoin soft-pegged to the US Dollar, and initially backed by ATOM, DOT, and wETH. The testnet launch of USK occurred in August 2022, marking an exciting new chapter in Kujira's history.
Importance and Uniqueness
Kujira has a strong emphasis on payments and real-world applications for decentralized commerce, and USK is no exception. It is fully integrated with Kujira's wallet, Sonar, as well as all other Kujira products. Additionally, USK has been integrated with WooCommerce, which is one of the largest online merchant providers. To ensure proper diversification, there is an initial cap of 1 million USK per collateral type. Last but not least, the importance of USK is that DeFi needs functional decentralized stablecoins, and USK has got off to a really good start.
The USK stablecoin, like any other stablecoin, carries certain risks that investors should be aware of. Here are a few potential risks associated with USK:
Market Risk: The market price of USK can be volatile and subject to fluctuations due to a variety of factors, including supply and demand, changes in the value of the underlying collateral, and market sentiment.
Collateral Risk: USK is an over-collateralized stablecoin, meaning it is backed by a certain amount of collateral. However, if the value of the collateral decreases significantly, it may not be sufficient to cover the value of the USK in circulation, which could lead to a loss of value for USK holders.
Smart Contract Risk: USK is built on a blockchain, and the smart contract that underlies the stablecoin could be vulnerable to bugs or hacking, which could lead to the loss of funds.
Regulatory Risk: The regulatory environment around stablecoins is still developing, and there is a risk that new regulations could impact the value and utility of USK.
Liquidity Risk: The liquidity of USK could be impacted if there is a lack of demand for the stablecoin, or if the underlying collateral is difficult to liquidate.
The emergence of decentralized stablecoins presents a significant opportunity to challenge the current reliance on centralized stablecoins like USDC and USDT. Kujira's product, USK, is a promising over-collateralized decentralized stablecoin, which is soft-pegged to the US Dollar, and inspired by DAI. USK is backed by assets with strong fundamentals like ATOM, DOT, wBNB, wETH, and gPAXG, with the possibility of more in the future.
The mechanism of USK is designed to be sovereign and uncensorable, laying a reliable foundation for the new decentralized stablecoins of the future. While there are some risks associated with any cryptocurrencies, such as market volatility and liquidity risk, USK's over-collateralized nature provides a level of stability and security that makes it a compelling option for those looking to participate in decentralized finance. Overall, the Kujira team's efforts to create a new, sustainable model for decentralized money with USK could have a positive impact on the future of finance.