USDA Overview

What is USDA?

USDA is an interest-bearing stablecoin based on the CDP(Collateral Debt Position) model. USDA can be minted by depositing collateral on Agilely Protocol.In the following content, we will introduce the price stability and interest-bearing properties of USDA separately.

Price Stability

The first principle of a stablecoin is to maintain a price pegged with $1. In order to achieve this goal, we have adopted Liquity's price stabilization mechanisms, including hard peg and soft peg, to ensure that the price of 1 USDA always remains at $1.

Hard Peg

Hard price ceiling

USDA's Vaults' maximum LTV of 90% with WETH as a collateral creates a natural price ceiling at $1.10. When the exchange rate of USDA exceeds this level, borrowers can capitalize on an arbitrage opportunity. They can borrow the maximum amount against their collateral and sell USDA on the market for a price higher than its ceiling value. This dynamic creates an incentive for borrowers and helps maintain price stability.

Hard price floor

USDA has a hard price floor, ensuring that the token's value does not fall below a certain level. Users can redeem 1 USDA for $0.995 worth of collateral (a redemption fee of 0.5% is charged), creating a direct "hard peg mechanism." This mechanism enables users to benefit from arbitrage opportunities when the price of USDA falls below its floor value, helping to prevent consistent over-pegging and promoting a more sustainable implementation of USDA.

Soft Peg

By implementing a defined formula, the parity between USDA and USD is firmly established as the inherent equilibrium state within the system. Through its redemption mechanism, the presence of a hard price floor, and its clear identification as a stablecoin tied to the value of the US dollar, we anticipate that users will regard the 1:1 dollar peg as a significant reference point, towards which the system naturally gravitates following temporary deviations.

This collective belief, as long as it is widely held, will generate a self-reinforcing effect: when the price of USDA surpasses $1, borrowing becomes more appealing (as borrowers can anticipate repayment at a rate of $1 or less). Conversely, when the price falls below $1, it creates an incentive to repay existing debts (as this state is expected to be temporary). Over time, if more USDA is borrowed than repaid, the total supply of USDA will increase, causing the tokens to become relatively cheaper compared to the USD and other currencies. Conversely, if the amount repaid exceeds new borrowed amounts, the money supply will contract, resulting in an appreciation of USDA's value.

Interest-Bearing

After the Merge, LSTs (Liquid Restaking Token) carrying the proof-of-stake (POS) interest rate has introduced a benchmark rate to the Ethereum ecosystem. By collateralizing LST, such as wstETH, to mint USDA, the interest rates from LST are passed on to USDA, allowing users to earn higher yields and enjoy improved liquidity compared to directly holdingLST. The upcoming EigenLayer, through Re-Staking, will further enhance this benchmark interest rate. Agilely is also actively embracing changes and becoming the first to offer LRT derivative.