Understand What Is The SDAO Stablecoin

Before we learn what is SDAO stablecoin, let’s talk about what is a stablecoin and why there are such products as stablecoin?

The origin for the emergence of the stablecoin was on September 4, 2017. Seven departments such as the Central Bank, the Internet Telecommunications Office, the Ministry of Industry and Information, the General Administration of Industry and Commerce, the Banking Regulatory Commission, the Securities Regulatory Commission, and the Insurance Regulatory Commission officially called off ICO financing. The seven departments notified that no organization or individual may illegally engage in the financing activities of issuing tokens, and all kinds of financing activities of issuing tokens should be stopped immediately.

As soon as the announcement came out at 3 pm, the exchange token prices continuingly dropped down, with the most severe dropped in the issuance of ICO-financed tokens and several tokens that fell below the issuance price, with the highest drop exceeding 90%.

At this time Tether took the lead in solving the problem of user access to legal currency channels by anchoring a stablecoin mechanism of US$1 with USDT.

Therefore, the emergence of stablecoin is a bridge between cryptocurrency and legal currency, which is exactly a mechanism to link exchange rates. The relationship between the stablecoin and the US dollar is 1:1, but the ratio between the cryptocurrency and the stablecoin changes. No matter how the cryptocurrency rises or falls, users will have a unit-of-measure guarantee mechanism when they sell the virtual currency and hold the stablecoins when they want to change to the legal currency.

But as the Fed has been issuing more dollars in recent years, Tether has been issuing more and more USDT to keep the value of USDT equal to that of the US dollar. Its issuance is far from the official market value, and with the rapid development of the entire blockchain industry, especially with the birth of DEFI, more people are aware of Tether’s uncertainty. As a result, more and more stablecoins emerge.

SDAO stablecoin was generated under this background. SDAO’s stable currency was bred for the better development of cryptocurrency and adapting to the flexible Defi market.

There are 38 stablecoins in the market. What is the difference between SDAO and other stablecoins? What are the advantages and disadvantages?

According to the main situation of stablecoins issue in the current market, it can be roughly divided into the following two types:

1. Centralized institutions issue stablecoins

2. Decentralized excess mortgage stablecoins

1. Centralized institutions issue stablecoins

Stablecoins are mainly issued by centralized institutions/exchanges such as Tether, Coinbase, Huobi, and Binance, including USDT, USDC, HUSD, BUSD.

The stablecoin issued by the institution is endorsed by the transparency report of the institution, but the transparency of the official audit/transparency report is very poor. It is not possible to verify whether the institution has deposited the corresponding US dollars in the bank. When the Black Swan incident occurs, it is difficult to ensure that the institution can provide the corresponding value of the legal currency to meet the user’s demand for payment. As well as under the ever-surging inflation mechanism, users’ assets are also being diluted, which reduces the risk-aversion nature of virtual assets.

2. Decentralized excess mortgage stablecoins

After the birth of DEFI, in the face of the abuse of the centralized exchange’s stablecoin, the decentralized exchange uses digital assets as collateral to produce a very verifiable stablecoin, that is, the over-mortgaged stablecoin. It solves several problems of a centralized stablecoin, the first is regulatory uncertainty brought by centralization, the second is its highest verifiability, transparency, and the highest degree of decentralization.

First, what is over-collateralized?

This type of mortgage with a mortgage rate exceeding 100% is called over-collateralized.

For example, users provide $20,000 WDC to Seashell Network, which means they can borrow up to $10,000 worth of SDAO. With a mortgage rate of 200%, SDAO is more powerful in protecting users’ assets from fluctuations in the event of emergencies.

This is done to ensure that there is sufficient value behind SDAO, and when users want to redeem WDC, they only need to return the corresponding SDAO and 2% of the system stability fee.

Then what is the highest verifiability?

Because the mechanism of over-mortgage exists, each SDAO is backed up by more than $1 assets, and it does not require audit reports from any centralized company because all the mortgage data is transparent on the chain and is automatically completed by the code on SEASHELL, which has the highest verifiability, transparency, and decentralization.

Let’s simulate what happens to the SDAO generated by our over-mortgage when the market goes up or down.

Tom generated 10,000 SDAO by mortgaged 20,000 WDC.

Tom generated 10,000 SDAOs by mortgaged 20,000 WDC.

1. When the WDC rises above 200%, Tom can lend more SDAO (no less than 200%).

2. When the WDC drops by nearly 120% and is close to the liquidation line, Tom can reduce the liquidation price by adding collateral (WDC).

3. When the WDC falls by more than 120%, the WDC mortgaged by Tom will be liquidated, Tom will lose 20,000 WDC, and the 10,000 SDAO in his hand will remain unchanged.

Liquidation can cause user loss in some cases, but when an extreme situation comes, it becomes a stop-loss measure. All in all, we can borrow SDAO by mortgage WDC to make the capital more efficient.

In version 1, the Seashell Network only supports WDC as the only collateral. As the improvement of Seashell Network ecology in the future, it will support more and more digital currencies as collateral. SDAO stablecoins will bring more and wider uses. It will be one of your most trusted and secure digital currencies.