[PROPOSAL]: Integrating project USC/Spectral into Secret

Hey all,

We’ve been advising a team that’s been building a new fully-collateralized stablecoin for Cosmos, called USC, that’s built on Secret. We aren’t diverting dev resources for this, so this shouldn’t concern anyone from a focus perspective, but rather we’ve been helping out with ideas/connections/etc…

The stablecoin itself is built as a new module that ideally could be added to Secret in the upcoming Shockwave Delta upgrade. This approach was taken for several practical reasons, most important of which is to make this stablecoin an accessible asset for the entire Cosmos ecosystem (and beyond) and not just for Secret (very much like UST was). However, unlike UST, this stablecoin has a ‘safety-first’ mindset, and as such, is fully backed and balances out a portfolio of collaterals.

The benefits of having a stablecoin module on Secret should be clear to all:
a. Liquidity/volume/increased traffic and awareness
b. Easier to wrap and use in Secret Dapps/add privacy
c. A great complement for the upcoming ‘Defi Surge’ we expect in Secret, and a great candidate for stablecoin pools (e.g., SILK-USC) and non-stablecoin pools
d. All around this is a gap right now in Cosmos, and despite numerous announcements, the simplicity and safety of USC seems appealing

The main disadvantage is having a new module a part of the Secret codebase/network.

In light of this, we feel that this is the kind of decision that needs to be brought, discussed, and decided by the entire network as a whole. We urge everyone to make an informed decision on this, without any biases. Most importantly, we are truly interested to hear what everyone thinks about this and not to be biased by our support. If you vote in favor it should be because you believe the pros exceed the cons, and you’re willing to take a risk with this new endeavor as a member of the Secret community.

Some final details:

  • I’m attaching a draft litepaper. I also asked one of the team members to sign up and answer any questions.
  • The code (for v1 - this includes USC but not the governance token Spectral yet) is ready and has been audited by Halborn. No critical vuls were found.

Cheers,
Guy

4 Likes

To me, it is unclear why this has to be part of the Secret codebase, and can’t exist as a protocol on Secret Network like Shade Protocol.

The lite paper talks only of benefits and possibilities, not of risks. A project like this can’t be without risks. The omittance of such risks in the documentation doesn’t benefit the decision-making process.

5 Likes

While I would like to see greater growth of stablecoins within the Cosmos ecosystem, I feel like there are some fundamental problems here.

Risk of Censorship
The current composition of spectral is an even allocation of four stablecoins. USDC has already shown that it is more than happy to blacklist addresses. This has contributed to other “decentralised stablecoins” such as DAI already being placed in a predicament where they have to decide on how to mitigate against that risk so that their protocol doesn’t become entirely under-collateralised if the USDC gets blacklisted.

We’ve historically also seen the same actions taken by USDT and have no evidence to suggest whether BUSD would take the same actions.

That means at a minimum, 62.7% of USC’s collateral has fallen victim to censorship before. At a maximum, this is 87.7% (50.7% of DAI’s collateral is USDC).

That makes USC by proxy a centralised stablecoin with none of the benefits of a centralised stablecoin.

Competition in the Cosmos ecosystem
There are going to be dozens of collateralised stablecoins coming to the Cosmos ecosystem, all of which plan to basically copy and paste MakerDAO’s model.

I think it is fair to say that the MakerDAO model is safe and works effectively. That is including a Peg Stability Model that lets you mint 1:1 with centralised stablecoins such as USDC.

Therefore, the question then becomes, what is the key benefit that USC has over these “decentralised stablecoins” that makes it integral enough to become a core part of the Secret Network chain?

Then, I’d query if it is a proxy centralised stablecoin, what benefit is there over native USDC that offsets all the additional risk that comes with decentralised stablecoins? While there are discussions over what chain it deploys on, we do know that it is coming.

Dependencies on Bridges
While the Litepaper argues that USC aims to reduce dependencies on bridges, I’d argue it is totally the opposite.

All four of the assets that comprise its collateral, the entire 100% of it - are all assets that require bridging. We don’t have native withdrawals for any of them from centralised exchanges and therefore liquidity will only come in through Axelar. While Axelar looks secure at the moment, that doesn’t mean anything for the future.

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What does the team look like? Are they anonymous? What are their credentials? What happens if we add the module and then they abandon the project?

6 Likes

Will definitely need some more time to think about this some more and how it would integrate with / affect other aspects.

First thoughts though:

  • Could other tokens be added through governance? If so, with non-equal distributions? If so, also non-stable tokens?
  • Would it be possible to launch USC on a daughter chain instead of SCRT mainnet?

Would indeed also like to see more details on the team building this module.

1 Like

After discussing here Telegram: Contact @secretgovernance

I’m currently leaning towards yes on this plan.

There are risks but none that seem existential that i’ve heard and the potential reward of success could be impactful for us all.

Outstanding questions

  1. If a stable in the basket gets censored what happens?
  2. Will this be compliant or strive to be?

I’ll come back with more questions if I have anymore.

Hi, I am the CTO of the USC project.

As any software project and specially in crypto projects, there are chances of bugs and design flows, that’s why we are using the best code audit services in the market.

In any other aspect our solution reduce stable coins risks significantly.

The team behind the project are long-time crypto veterans, many of us started our journey in 2011-2013. We are supported by the Cosmos community at large, and by Secret in particular. We have developed top projects that have raised millions of dollars, currently used by hundreds of thousands of users.

More info will come soon via social channels.

Yes, tokens can be added through governance, and volatile assets are possible as collateral in the future.

Yes its possible, but we think that for now it’s better for USC to be on SCRT network.

I find this answer unsatisfying. This doesn’t read like a risk assessment

  • What happens if one of the underlying stable coins collapses?
  • What happens if the bridge that brings the four underlying stablecoins in is compromised?
  • What happens if the bridge contracts are blacklisted by the issuers of the underlying stable coins?

Three questions, that no doubt have risks associated with them, that I can come up with in a moment of thinking about it.

Please, provide more details

EDIT: translated from rough-blunt-Dutch-English to International-English

3 Likes

Good points, that exactly what USC solves, all the risks that you mentioned are significantly lower with USC.

Its true you have some collateral censorship risk but much less than if you hold only one stable coin - in that case you will lose all your funds.
With USC you will not lose any coins and it will continue to be usable all over the ecosystem.

There are some ways to reduce the bridges exposure and balance the collateral risk but we still working on choosing the best and cost effective path.
Also, more bridges to come to cosmos over time, we are building the future.

And last, competition is bless, let the best stable win.

We think there is a place for 2-3 native stable coins, and may I remind you that the peg stability model is based on one stable only as collateral, while USC provides a safety umbrella of few stable coins, and more coins can be added in the future through governance, plus user will get a reward token that integrated into most defi platform / dexes.

Too early for a drink in my time zone, thanks :slight_smile:

Please read my answer to orageux101

That is exactly the risks that USC reducing by using a group of stable coins as collateral.

I’m not asking for a relative risk assessment, I’m asking for a risk assessment.

You can’t expect us to embrace this proposal with a risk assessment of ‘less risk than others’.

You are making me first look up other projects’ risk assessments, and then guess how much less your project is compared to them(?)

I expect a list, by vulnerability, or scenario. With some assessment of chance and impact, and a description of the negative consequence if that scenario were to come true, with some sort of description on mitigation if present, leaving us with the list of net risks of the project and integration as module into Secret Network.

That list shouldn’t only compromise risks associated with hacks or third-party events, but also includes risks that your code can pose to the network. Your generic description of ‘bugs and design flaws are always possible in code’ is not enough for me to evaluate the impact of this proposal.

As a validator on the network it is my responsibility to protect investments and delegators on the network, please help me evaluate the risk by writing them out.

6 Likes

all the risks that you mentioned are significantly lower with USC.

USC would definitively have more censorship risk than DAI which is one of the components of USC because there would be a greater proportion of censorable stablecoins in USC.

With USC you will not lose any coins and it will continue to be usable all over the ecosystem.

Can you explain how this works? If one of the components of USC, say USDC blacklists the USC contract, how will I not lose any value?

I agree with your sentiment though, I would like to see more stablecoins and I think competition would be great.

2 Likes

The answers we have received so far are rather unsatisfying, if I may say so.

“The team behind the project are long-time crypto veterans, many of us started our journey in 2011-2013. We are supported by the Cosmos community at large, and by Secret in particular. We have developed top projects that have raised millions of dollars, currently used by hundreds of thousands of users.”

Could you at least name one of these projects, which your team developed and marketed succesfully?

And asked about the risks, you are only replying with “it’s much less risky than the rest”. I don’t really see any kind of serious risk assessment. Your stablecoin is basically a centralized stablecoin ETF, which implies a significant censorship risk. DAI, which uses partly USDC as collateral thinks about removing it as a collateral asset and on the other hand you create a stablecoin which uses mostly centralized stablecoins. If USC would be succesful and the major stablecoin on SN, it is relatively easy to destroy the economy of SN (you don’t even have to take down the network itself). After Tornado was destroyed, this is a scenario we have to think about.

Last but not least, I do not understand your argument regarding the use of bridges. Sure, USC will be natively minted on SN and therefore there is no bridge, which can be exploited. But the collateral itself has to be bridged. 100% of it. And therefore I am suprised by this statement as well:

“With USC you will not lose any coins and it will continue to be usable all over the ecosystem.”
How could this be possible? If collateral gets exploited in a bridge and/or collateral will be frozen, USC will depeg. Technically, I don’t lose coins, but the USC I have will fall in value.

The project itself doesn’t look very promising to me and I think you do not present risks and opportunities realisitically. Therefore, I am currently inclined to vote No to such a proposal as I would not want it to be added as a module. Please reconsider launching as a protocol like the other teams.

4 Likes

I am the tech guy, not social / marketing.
Team will be exposed soon, few more days, social, website etc.

Those are known risks for any stable coin, those are not special risk for USC.
The main advantage of USC is to provide a risk insurance for a of a stable coin collapse / de-peg and bridge hack/collapse.

  1. Working with a balanced pool of few stables instead of one significantly reduce those risks
  2. Working with few bridges instead of one reduce the risk of loosing all your funds

We are not hiding the major disaster market risks that EVERY stable is exposed to them, we just lower them to minimum.

If USDC + USDT + BUSD will collapse, then yes, you have a risk, but even then you will stay with 25% of your fund (just for the discussion lets assume DAI or any other collateral will survive)

If one bridge will fail, sure you will lose some value but not all your funds.
BTW that can be recoverable using over collateral, DAO treasury, still on work as pool is not implemented yet.

1 Like

You will lose value (temporary), but not all funds as in other stable coins.

Again as I wrote one comment above, that can be solved using over collateral, pool is not implemented yet.

We worked very close with Secret team;
We had an comprehensive audit;

Our code can not pose any risks to the network more than any other module and has been checked the best way possible.

Please read other comment about risks.

Why would the loss in value be temporary? If the stablecoin is 100% collateralised by existing stablecoins, then the collapse of one is a permanent loss in value to the stablecoin. For example, if BUSD entirely collapsed tomorrow, the stablecoin would have a fair value of $0.75 and no way to revert - unless you’re going to use the governance token to offset the loss. Is that so?

Also, am I right in understanding that at the point of integration into the Secret Network codebase:

  1. The Spectral Gov token will not be integrated into the module; and
  2. No other core features of USC are outstanding.

I ask this because I imagine that Secret Network will have to upgrade each time there are certain types of changes to Spectral.

While Guy has mentioned that Spectral could not be a dApp on Secret Network, could you please clarify why that is not possible for your team? Just to help us better understand the circumstances around the proposal.

6 Likes

For me the question is not on economics, though I agree with Adys this has less risk than holding one stablecoin. I am curious about the design to regain value if a collateral goes bad, but my main question is about the module. What was the benefit of module compared to smart contract? I lean toward yes on this if there are studies done to show what increased risk it brings to the chain by choosing this style of implementation.