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Decentralized finance (DeFi) has shown a massive potential to transform the existing financial sector by introducing decentralization, security, and governance all within blockchain infrastructure.
Therefore, it is not surprising that many have taken to DeFi to leverage their capital in lending, borrowing, and yield farming protocols. As a result, there has been a gradual shift from saving in traditional banks to providing liquidity on DeFi protocols.
Liquidity providers earn more interest on their funds and have complete control over their capital without the added constraints of traditional banking systems. Recently, Wault Finance has emerged as a major DeFi player in this space, providing an all-in-one DeFi hub that allows users to maximize their earning potential.
Wault Finance is cross-chain and supports the Binance Smart Chain and Polygon ecosystems. In addition, the DeFi protocol recently launched a new stablecoin model, the world’s first commerce-backed stablecoin WUSD.
This stablecoin has already received significant traction, with users having minted over 20 million in only several days, and caused excitement within the crypto community because of its seemingly rock-solid peg. However, before we explore WUSD, let’s look at the role of stablecoins in DeFi.
Role of Stablecoins in DeFi
Decentralized finance would not be effective without the presence of stablecoins. These “stable” tokens pegged to low-volatility assets, such as fiat currencies like USD, play an essential role within DeFi, especially within lending protocols. This is because their stable natures make them more usable in many scenarios.
For example, stability is important for lending, since it better enables lenders and borrowers to manage their risks on DeFi protocols. At the moment, the U.S. dollar is the most common real-time asset tokenized and used within the crypto industry because it is relatively much more stable than crypto assets like Bitcoin.
There are three types of dollar stablecoins: fiat-backed dollar, crypto-backed dollar, and algorithmic-backed dollar. These three versions of stablecoin have their pros and cons.
Fiat-backed stablecoins are just extensions of fiat currencies and require real-world custody in banks or financial institutions, which can cause problems. For example, USDT (Tether) fell into legal trouble with financial regulators in the US for false claims about its dollar reserves.
Crypto-backed stablecoins, on the other hand, are not capital-efficient, often requiring depositing 1 dollar for minting 70 cents, a net loss in many scenarios.
Finally, algorithmic stablecoins are famous for having problems with stability, and normally lose their pegs during extreme market volatility.
Now, with a new model, Wault is attempting to solve these issues by deploying the first commerce-backed stablecoin–WUSD.
WUSD: the world’s first commerce-backed stablecoin
Building off successful modern stablecoin models like FRAX and OHM, WUSD is backed by several crypto assets. In WUSD’s case, that is both USDT and Wault Finance’s native token WEX at a ratio of 9:1. This means that 90% of WUSD collateral is based on USDT deposits and the remaining 10% from its native token WEX. This means that users could never lose more than 10% of their capital in the worst scenario of extreme market volatility.
To further simplify the process, when a liquidity provider deposits 100 USDT to purchase WUSD. Then, the smart contract deposits 90 USDT to the Wault treasury and uses the remaining 10 USDT to buy WEX tokens. Both sets of tokens are then held in a treasury, a portion of which is deployed to generate yields which also go to reinforce the treasury. This means that WUSD is a token that is always fully-backed.
When a user redeems their 100 WUSD for collateral, the 100 WUSD is burnt from circulation, and the user receives 100 USDT, with 10 USDT worth of WEX being bought back at the current market price. This mechanism ensures that WUSD maintains its peg, with a 90% price floor from the USDT collateral, while avoiding the additional risk associated with internal minting/burning of a governance token.
Furthermore, WUSD’s peg is reinforced by four different stability mechanisms to ensure it maintains its peg. These include treasury support, WSwap emissions support, WSwap trading fees support, and WUSD staking support.
The WUSD Treasury ensures collateralization, and the additional stability mechanisms reinforce the Treasury. 15% of the trading fees from WSwap, one of the top DEXs on BSC and Polygon goes towards the treasury.
If WUSD moves off-peg, a portion of WEX emissions goes towards the Treasury, supporting it so that arb bots can return WUSD to peg, a guaranteed outcome as long as the Treasury is full.
WUSD staking is also a major way that Wault intends to maintain the peg of the stablecoin. Wault intends to incentivize early holders of WUSD with WEX emissions. The emission rate will serve as a stability mechanism for WUSD peg. If the peg shifts from 1 USD, emissions will rise and fall to modulate the incentives for staking WUSD.
To drive the adoption of WUSD, Wault is working on integrating the stablecoin into its existing DeFi and farming pools. At the moment, WUSD-BUSD staking on Wault earns 34% APR, a very high yield for stablecoins in DeFi. The WUSD-BUSD pool has already amassed up to 40 million USD TVL since its recent launch. The team claims to be working on many partnerships to create additional pools and use-cases for the token. As a result of Wault’s support, WUSD holders are finding opportunities to stake their tokens for APYs higher than the market standard for stablecoins.
WUSD will also be cross-chain compatible. WUSD is launching on Polygon shortly, and a bridge linking the BSC and Polygon blockchains is already in the works. WEX and WEXpoly holders will be able to vote on new proposals and governance of the WUSD stablecoin.
About Wault Finance
Wault is a community-driven decentralized project that focuses on connecting all the primary DeFi use-cases within a single platform. The platform provides a user-friendly and straightforward interface with different dApps designed to offer various earning opportunities.
Users can easily begin their DeFi experience with the intuitive user experience offered by Wault’s platform. In addition, Wault is a cross-chain DeFi protocol that can be accessed on both Binance Smart Chain and Polygon.
This makes it one of the few DeFi protocols that’s a top platform on multiple blockchains. BSC and Polygon are two of the fastest and scalable blockchain networks. This means that users can take advantage of low transaction fees and shorter confirmation times for their trading activities.
To learn more about Wault Finance, visit its social networks below:
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