We at StableTech (Tezos Stable Technologies, Ltd.) propose the additional inclusion of USDtez (Symbol: USDtz) token contract to Liquidity Baker for the H upgrade.
USDtz is one of the first and longest running tokens on Tezos, debuting in May 2020, almost as early as tzBTC. When Dexter 1.0 launched on September 30th 2020, it launched with two pairings: XTZ/tzBTC and XTZ/USDtz. Being a ‘homegrown’ Tezos stablecoin without any goals or endeavors outside of Tezos DeFi, the project creators and USDtz users have worked hard to promote and educate others about the Tezos DeFi ecosystem from Day 1.
USDtz is part of the StableTez project which is dedicated to the expansion of hard-backed dapp-programmable liquid assets on Tezos. StableTez is part of StableTech (Tezos Stable Technologies, Ltd., which is backed by Draper Goren Holm LLC. Development of StableTech is conducted by contracted firms in the Tezos Ecosystem such as Cryptonomic, Bolt Labs, and Wealthchain. StableTech itself is governed by the Tezos Stablecoin Foundation, which is both a non-profit and a non-shareholder foundation.
According to daily market statistics compiled by Coinmarketcap, Coingecko, and Messari, the most traded item daily (majority) with tez (XTZ) is USD (and FIAT-backed USD stablecoins). So long as market participants measure (refer to) the value of their assets as “the price of Bitcoin” or “the price of Tez” with the implication that ‘price’ refers to the USD equivalent value, the USD will continue to be tez (XTZ) most traded-with asset.
Reflective of this pattern, the ratio of trading to liquidity pool size on Quipuswap has consistently been the strongest with the USDtz-XTZ. In fact, despite having 1/10th the liquidity pool size of some other pairs on Quipuswap, USDtz not only achieves higher volume relative to its liquidity, but generally achieves greater volume, period than its higher-supplied peers. This volume history for the USDtz-XTZ pair can be observed daily on analytics.quipuswap.com.
USDtz will prove to be not only popular as a liquidity mining vehicle for ‘stakers’ of Liquidity Baking, but will be highly traded on Liquidity Baker’s XTZ/USDtz swap pool as well.
Furthermore, a scaled USDtz (as a FIAT-backed/convertible stablecoin) will serve to help stabilize other FA-based USD stablecoins—those that are algorithmically backed (e.g. kUSD, uUSD). Historically, both on Quipuswap and on Dexter (1.0), USDtz has held the strongest peg to the USD of any USD stablecoin. This is because of the market confidence that USDtz is convertible and that its reserve is soluble. The mere presence of a convertible instrument for ‘algocoins’ will add to market confidence to those algocoins. That is, the confidence that one can convert to a FIAT-backed option if they choose to can bolster confidence in a 1-1 peg for those algocoins.
Even as other FIAT-backed USD stablecoins enter Tezos, the demand for USDtz will continue to increase. Stablecoin portfolios benefit from diversification just as any portfolio benefits from diversification. Moreover, USDtz is and will always be Tezos-first. Specializing in accommodating advances in the Tezos protocol (e.g. z-saplings), users can expect USDtz to have the best features of any FIAT-backed USD stablecoin, to which other FIAT-backed USD stablecoins will take their cues. As the rich tapestry of Tezos applications continue to expand, requiring new and greater needs from dapp-programmable financial assets, of all FIAT-backed USD stablecoins USDtez will continue to position itself as the Tezos developer-friendly option as well.
USDtz is hard-backed by a fully convertible collateral reserve (like tzBTC). The USDtez reserve is fully-backed by FIAT, using stablecoins that maintain full-reserves of assets convertible 1-1 to FIAT cash. The convertibility of USDtz tokens have been conducive to USDtz’ success in maintaining its parity to the United States Dollar.
Adding to market confidence in the convertibility of USDtz and the solubility of its reserve, Armanino LLP has been conducting monthly audit/attestation reports, which are made public on the USDtz website. Currently, the entire reserve itself can be observed in real-time via an etherscan link to the reserve wallet.
The reasoning cited for the choice of tzBTC for Liquidity Baker’s initial pool has been its deepness (i.e. the amount of liquid supply available).
“For liquidity pairs, we chose tzBTC since it’s the deepest token that we currently have to trade against and we’re confident it can handle this increase in supply. Tez is also fairly closely correlated with BTC. So, there’s nothing special about tzBTC, it’s just the best that we have right now in order to provide liquidity for tez.”
This is reasonable and a fair metric. Approximately 356.94 tzBTC were minted in March 2020 near the launch of tzBTC launched, for a Liquidity Provider firm (ostensibly, Woorton). This represents virtually the only time in which a minting operation was called for tzBTC and no minting operations had been called since then. To date the ‘burn’ operation has never been called, which technically means no convertibility has been demonstrated yet for tzBTC. Until very recently 350 (of 357) tzBTC remained securely in a single wallet.
USDtz is not only a ‘homegrown’ FIAT-backed USD stablecoin, but also its supply has grown organically through the activities of many individuals throughout the Tezos community. Whereas tzBTC has had (as of the time of writing this) exactly 2 minting operations (1 of which was the initial test amount for the contract), and has had 0 redemption (burn) operations, USDtz has had hundreds of minting operations and has had over a dozen redemption (burn) operations. The Tezos DeFi community has organically mobilized (among minters, arbitrageurs, liquidity miners, farmers) around the supply creation/redemption dynamic of USDtz. That organic mobilization has only been strengthening over time, with more participants and more participation.
Furthermore, USDtez is capable of rapid scale, deeper and faster than tzBTC. This has been demonstrated during the Tezos DeFi June boom of June 2021. At the time Liquidity Baker was first proposed USDtz peak supply was approximately 360,000. By early June, much USDtz had been converted back to its collateral by users, bringing supply down to 240,000. While this decreased ‘deepness’ momentarily, it grew trust and confidence in USDtz by the Tezos DeFi market.
In early June 2021, with the mere launch of a single non-interest offering equity-earning pool for USDtz on PlentyDeFi, a boom in demand for USDtz supply had grown to over $1,250,000 in less than a week (though this did not strain scaling capacity by any means, and USDtz could have scaled greater and faster had demand warranted it). USDtz is as scalable as its collateral. Millions of dollars can be converted to and from USDtz each day if demand warranted it.
Today, (as of the time of writing this) USDtz supply stands at over $3,300,000, which is a greater USD value than was the USD value of the entire 357 tzBTC supply as it was measured for most of 2020.
The process of minting USDtz requires 3 steps among 3 respective parties: minters, compliance, and administration. Minters (or minteries) initiate the request and submit the corresponding collateral. Compliance processes the validity of the request and processes the collateral submitted. Administration lastly confirms the success and validity of the first 2 steps and completes the mint.
Prospective minters may enroll at mint.usdtz.com. Qualifying for enrollment to become a minter or mintery is subject to compliance with jurisdictional and regulatory requirements. The acceptable jurisdictions which can enroll will likely be expanded to include more participants over time.
Compliance management is handled by TokenSoft. TokenSoft has been processed KYC/AML for the Tezos crowdsale allocations for years starting at the very beginning of verifications/activations in 2018.
Administration is handled by StableTech representatives, protecting the integrity of the project overall for the benefit of both the respective users and for the Tezos DeFi ecosystem. It is at this step and only at this step that the USDtz minting and burning process can complete. The pertaining signature verifications are also included in each monthly audit/attestation report by Armanino LLP.
Redemptions work similarly. The minter requests a redemption, which is confirmed by the latter 2 steps. After the USDtz is burned from the minter’s wallet, the corresponding collateral is sent to the minter’s wallet.
This entire process will be migrated to a sequential multi-sig process in August 2021.
There are four main ways of acquiring USDtz: AMM, Bridge, Minteries, Minting.
The most basic way is purchasing USDtz on an AMM like Quipuswap (Quipuswap XTZ to USDtz). This is a simple and familiar process, but is subject to liquidity constraints. Furthermore, frequent ‘correcting’ of the price on Quipuswap (as it is an AMM) by arbitrageurs, other sources for the acquisition of USDtz are necessary. Regardless, USDtz is so popular on Quipuswap that on most days its pairing (with XTZ) achieves the highest volume per liquidity of any pairing on the AMM.
If slippage on Quipuswap is too high for the depth in which one wishes to purchase USDtz, or if a market participant desires to purchase USDtz so to buy XTZ correct the price on Quipuswap (effectively removing Quipuswap as an option in this instance), TezEx cross-chain bridge provides decentralized cross-chain swaps between USDC and USDtz as well as USDT and USDtz to depths of $30,000-100,000 replenished 1or 2 times per day at minimum and growing in size and frequency of replenishment.
If there is not enough liquidity replenished yet on TezEx at a given moment, or if one wishes to acquire [enough] USDtz to supply TezEx itself, then using the services of a mintery is a great option. A mintery is an enrolled USDtz minter that offers minting and redemption as-a-service to market participants. Virtually all minteries started as Tezos public bakers. Bakers work hard building trusted reputations for their baking delegation services. Many bakers have been building these reputations for years. It makes sense that this trust and track record be leveraged to extend to new activities that further support the Tezos ecosystem, including minting and redemptions of USDtz.
USDtz minting is not exclusive to Minteries though. If a market participant does not want to go through a Mintery, or if they just don’t want to go through any intermediaries, then they may enroll as a minter themselves, pending qualification. One can enroll to become a minter either as an individual or as an institution (For liquidity provider firms, and for bakers wanting to establish minteries, the latter is a better option).