The Highly Anticipated Tezos Based Algorithmic Stablecoin Kolibri Has Just Launched

Kolibri (kUSD)

kUSD is a stablecoin that is pegged to USD value, 1 kUSD = 1 USD.

kUSD is a:

“…trustless, algorithmic stablecoin that is collateralized by XTZ and soft pegged to the US Dollar”.

The value collateral ratio for kUSD – XTZ is at least 1:2. This means that for every $1 kUSD there is $2 in XTZ value to back the value of the kUSD token.

kUSD testnet has been up since the 7th of January and has been tested with the help from the Tezos community. After some feedback, now they have launched on mainnet and the project is up and running for participants to use.

Obtaining kUSD

kUSD will be added on Dexter and Quipuswap (Quipuswap hasn’t launched yet though). So, you can obviously get kUSD on those exchanges by trading for the counter-pair.

You can also mint kUSD yourself. Minting means that you create new kUSD, by providing XTZ as collateral to a smart contract.

Once you have put up the XTZ as collateral, you will be able to mint kUSD. The XTZ that you put up as collateral is fixed in the smart contract until you burn the amount of kUSD that you have minted. This smart contract is called an “Oven”.

Collateral Ratio

The value of cryptocurrencies, and thus the value of XTZ, can be very volatile. And because the value of kUSD needs to be properly backed by real value collateral, the volatility of XTZ needs to be taken into account.

This is why the initial collateral ratio of XTZ (dollar value) – kUSD is set to 1:2. For every $100 kUSD, there is at least $200 value in XTZ as collateral to back up that value.

The collateral has to be at least twice the dollar value of the minted kUSD. This has to remain this way, even if the value of XTZ goes down.

To make sure the collateral ratio stays in a healthy ratio, kUSD that is backed by a collateral ratio that is dropping below the 2:1 ratio can be liquidated.

This means that you will have to provide an extra value as a safe margin. (So, more than 200% in dollar value of the amount of kUSD you intend to mint.) If you do not do this, you will be at risk of being under-collateralized if the price of XTZ drops.

It is important to prevent being under-collateralized, because once your collateral is dropping under the necessary dollar value, your Oven will be up for liquidation.

Liquidation

If you mint kUSD, you have the responsibility to make sure your collateral will be up to ratio at all times. The trust in kUSD depends on the value that backs the token.

To ensure that users take their responsibility seriously, “liquidation” is introduced. It’s not a new concept in these type of stablecoins.

Liquidation is possible once the collateral ratio of a certain kUSD Oven drops below the minimum value of 2:1. Once the ratio drops, the XTZ that is put up as collateral is open for liquidation.

This means that anyone with a kUSD Oven, can provide the kUSD and burn that in the under-collateralized Oven to seize the collateral. While doing so, they basically buy XTZ at a large discount.

Harbinger Oracle

For Kolibri to be able to activate a liquidation status, it has to be able to keep track of the correct dollar value ratio. This can only be done if they can keep track the current price of XTZ. For this, Kolibri uses the Tezos based oracle “Harbinger”.

The Harbinger design is a fantastic concept that fits into Tezos perfectly: oracles need transactions to work.

These transactions cost fees. In Harbinger, an amount of XTZ has been reserved and delegated. This way that XTZ earns staking rewards.

These staking rewards pay for the transaction costs of the oracle price feed automatically. Result: a free running oracle for life.

Stability Fee

It is stated on this Kolibri website:

“Created kUSD is charged a fee (“Stability Fee”) which is returned to the system in order to act as a liquidator of last resort, with a portion also going into a “Dev Fund” to help fund future development.”

When kUSD launches, the stability fee will be set at 2% per year. Interesting fact is that the XTZ that you have put up as collateral can still be delegated.

So you will still be able to earn staking rewards with the XTZ that you have put up as collateral. With Tezos staking rewards of about 6% per year, this means that you will be able to earn more than enough staking rewards to cover the Stability Fees that you will pay for the kUSD you have minted.

kUSD Is Non-Custodial

The kUSD smart contract is non-custodial, which means that you stay in control of your private key. It’s important to realize though, that the smart contract’s pre-set rules do apply to your XTZ.

You want to be able to move your XTZ? Then you have to burn kUSD first. And if you can not keep your collateral up to ratio, your XTZ is at risk to be liquidated.

DAO Governance

Kolibri is an upgradeable protocol which can tweak it’s behavior with new smart contracts and the adjustment of parameters. Initially the parameters like the stability fee, collateral ratio, Oven cap and debt ceiling, are controlled through a multi-sig key by the Kolibri team.

The Kolibri team aims to move from this model to a decentralized DAO model, where the community makes decisions about these factors.

On this Kolibri Gov Draft it was stated: 

“We intend to seal the door behind us so that no (single) entity can ever control Kolibri.” 

Use-Cases

Listing on Dexter https://dexter.exchange/ the decentralized exchange that is currently live on Tezos, will be the first use case for kUSD. Dexter will list several kUSD trading pairs.

Besides trading, this will obviously also mean that you can provide liquidity for these trading pairs.

“We expect that CamlCase will launch a liquidity pool on the same day we launch.” – Keefer Taylor (Co-founder of Kolibri)

– Quipuswap, the second decentralized exchange that is set to launch on Tezos soon, will also list kUSD.

– Then there is SEXP, which is a Tezos-Based Synthetic exchange that is expected to launch In Q1. You can read more about SEXP and the general concept of synthetics here. https://xtz.news/defi-news/tezos-based-synthetic-exchange-expected-to-launch-in-q1/. SEXP will also use kUSD for settlement.

“We will have day one support in Thanos and Kukai for token custody and transfers in those wallets. Galleon support may be there on day one; we’re actively collaborating. 

Past that I’ve spoken with a few other projects that are interested in us in the DEX / Atomic Swap / Lending protocol space, but I don’t think there are firm plans and those plans were shared confidentially and I wouldn’t want to out the teams.” – Keefer Taylor (Co-founder of Kolibri)

You Can Now Mint Your Own kUSD On Mainnet

If you are interested in minting kUSD you can visit https://kolibri.finance 

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