The USDJ Stablecoin System
I. About USDJ Stablecoin
USDJ is a new currency generated through decentralized smart contracts on the TRON network. Anyone can pledge TRX as collateral to generate USDJ. USDJ enters into free circulation as any other cryptocurrency does once generated. It is pegged to the US dollar through Collateralized Debt Positions (CDPs), and also has autonomous feedback mechanisms. USDJ will become an integral part of the TRON DeFi ecosystem.
II. USDJ Stablecoin System
USDJ mortgage lending system and decentralized autonomous incentive mechanism are the core parts of JUST. In the JUST system, USDJ Target Price serves two main functions:
1. To calculate the debt-to-collateral ratio of the CDPs.
2. To determine the value of collateral assets that USDJ holders will receive upon Global Settlement.
In the event of market instability, a Target Rate Feedback Mechanism (TRFM) will be triggered to maintain the same denomination of USDJ. The Target Rate Feedback Mechanism is a process in which the USDJ Stablecoin System helps to adjust the Target Rate, so as to mobilize market forces to maintain the stability of USDJ price.
III. Use Collateralized Debt Positions (CDPs) to Generate USDJ
USDJ is generated through depositing collateral assets into CDP. Here are the steps:
1. Obtaining the collateral assets
Exchange the TRX to be pledged for PTRX, which is the only collateral assets accepted by the system for the moment.
2. Creating CDPs to deposit collateral assets
Send a transaction to JUST to create a CDP, then send another transaction to deposit PTRX, the collateral asset, into the CDP to generate USDJ.
3. Generating USDJ through CDPs
The CDP holder sends a transaction to specify the amount of USDJ generated in the CDP. Meanwhile, the same amount of debt will be created, and the collateral asset is locked up and not available for redemption until the debt is repaid.
4. Redeeming the collateral
To redeem the collateral, the debt must be repaid with USDJ along with a stability fee paid with JUST platform token, JST. Finally, CDP holders can send a transaction to JUST to retrieve all collateral assets.
If a price slump of the collateral makes it at risk of being unable to cover the debt, the CDP liquidation will be triggered to auction the collateral for repayment. Any remaining value net of the debt and the penalty fee will be kept in the CDP for withdrawa.
IV. Risk Management
To effectively manage and control potential risks, USDJ stablecoin system is armed with a comprehensive risk-management system. To maintain the stability of the price of USDJ, the JUST system sets up multiple parameters for risk-control to regulate the Collateralized Debt Positions, all of which will be put up for vote and determined by JST holders.
1. Debt ceiling
Debt ceiling is the maximum amount of debt that can be created by CDP. Once the debt ceiling is reached, it becomes impossible for CDP to create new USDJ unless existing CDPs are closed.
2. Liquidation ratio
Liquidation ratio is a ratio of the collateral-to-debt when a CDP is liquidated. A low liquidation ratio means JST voters expect low price volatility of the collateral, while a high liquidation ratio means high volatility is expected.
3. Stability fee
A stability fee is the extra fee charged on users when they pay back the debt after borrowing USDJ from CDPs. The stability fee is priced by USDJ and repaid only in JST. Once repaid, the JST will be burned and removed from the supply. The price of stability fee regulates the incentive of borrowing, and therefore controls the risk from the supply-and-demand end.
4. Penalty ratio
Penalty ratio is used to determine the maximum amount of USDJ bought and destroyed in liquidation auctions. The remaining collateral assets after the CDP liquidation will be refunded to the CDP holders before the liquidation. Penalty ratio is used to improve the efficiency of the liquidation mechanism, and the liquidation penalty will be used to buy and burn PTRX, benefitting the PTRX to TRX ratio.