Introduction to QIAN stablecoin protocol
1. The basis for the creation of QIAN
The core of Hong Kong dollar issuance is that banks can pledge foreign exchange assets to the Hong Kong government at zero cost after holding them, in exchange for the power of HKD issuance; there is no need to pay additional costs for the Hong Kong government to redeem the Hong Kong dollar from the banks, the two parties only need to stipulate a pre-agreed conversion ratio.
With this minimal friction mechanism in place, a seamless conversion between the Hong Kong Dollar and the US Dollar can be ensured, thereby stimulating the issuance of the Hong Kong Dollar and the continued economic prosperity of the entire Hong Kong region.
A truly successful cryptocurrency-backed stablecoin should be designed using a pegged exchange rate system with reference to the Hong Kong dollar issuance mechanism. Since cryptocurrencies have monetary properties but are subject to high price volatility, appropriate adjustments and risk control designs need to be made based on a pegged exchange rate system, design new stablecoins with the concept of token swaps.
QIAN Stablecoin governance committee developed the QIAN stablecoin protocol, a decentralized stablecoin framework supports the issuance of various non-custodial stablecoins. QIAN version 1.0 refers to the design concept of DAI, after analyzing its design deficiencies, The Force Protocol team redesigned the stablecoin QIAN.
2. Important concepts of the QIAN system
In the I Ching (the Book of Changes), QIAN represents the universe, the most sublime positive energy and spirit. With this important meaning in mind, we named QIAN as the platform of the first crypto-asset reserve stablecoin with a currency swap system.
KUN is the governance token of the QIAN stablecoin protocol, used to vote on QIAN ecological governance and to maintain QIAN price stability. The KUN symbolizes the earth, which bears all things, and people work and cultivate based on the land, so KUN also symbolizes the governance of mankind.
QUSD is the first stablecoin issued by QIAN system, which takes the exchange rate of the US dollar as its pricing standard and maintains its price stability through a series of stability adjustment mechanisms. In the future, QIAN will issue various stablecoins corresponding to the exchange rates of legal currencies of different countries and administrative regions, such as QEUR, QHKD, and so on, according to the needs of global users.
3. Design philosophy of QIAN V1
The right to issue QIAN stablecoins belongs to every cryptocurrency holder.
With reference to the pegged exchange rate system of the Hong Kong dollar, the QIAN stablecoins will be considered as the proof of currency swap between the smart contract and the cryptocurrency holder. A US dollar-holding Hong Kong bank is like a holder of cryptocurrencies such as ETH, while the Hong Kong dollar-issuing government is like the smart contract system that controls QIAN’s stablecoins issuance and recalls.
To get QIAN’s stablecoins, without paying any interest, users only need to lock the excess cryptocurrencies into QIAN's smart contract. This step is different from the CDP mechanism of stablecoins such as MakerDAO but is a currency swap. QIAN stablecoins are considered as a proof of currency swap between the smart contract and the cryptocurrency holder, and we name the smart contract under this mechanism CSA (i.e. Currency Swap Agreement). Unlike CDPs, there is no interest to be paid, so QIAN's CSA is likely to be held for a long time.
3.1 Fixed-exchange-rate mechanism
In order to maintain the value of QIAN and flatten the exchange rate fluctuation, we will build an exchange rate market for arbitrageurs to trade around QIAN, control its exchange rate stability through market behavior. QIAN will establish a set of perfect trading arbitrage mechanisms, and apply it in Uniswap, Curve and other decentralized trading platforms and some centralized exchanges, as well as linking it with external protocols to regulate the price of QIAN stablecoins through the market to maintain stability against fiat currency.
Under certain conditions, such as when the overall reserve assets of the QIAN system are below a certain level, the market price of QIAN stablecoins might fall below its face value and not recover for a sustained period. In this case, non-CSA holders can redeem the cryptocurrencies corresponding by the market price at par value from the system using QIAN stablecoins such as QUSD. There is a second arbitrage path in addition to secondary market arbitrage. Arbitrage operations around "QIAN stablecoins/fiat currencies" will allow for effective regulation of CSA opening/closing.
3.2 Negative interest rate incentive
When QIAN stablecoins increase in value against the fiat currencies, it means that the supply of QIAN stablecoins in the whole system is insufficient, and the unit QIAN stablecoins can be exchanged for more assets, at this time, it is necessary to promote CSA generation so that the supply of QIAN system can return to normal range, and then promote the return of the market price. To achieve this, we further facilitate the regulation of the QIAN stablecoins exchange rate by introducing a negative interest rate.
A negative interest rate is a mechanism to adjust the supply of QIAN stablecoins. In order to maintain the development and stability of the QIAN ecology, locking cryptocurrency to mint QIAN stablecoins will not generate interest by default. The system will pay interest to the newly created CSA when it is necessary to incentivize the minters to increase the circulation of QIAN stablecoins, and the interest will be paid in KUN, the governance and stabilization token of QIAN protocol, calculated on the value of KUN tokens.
3.3 No cost to hold CSA
As a liquidity provider, holding the CSA of QIAN does not need to pay any interest, on the contrary, it is possible to get the interest from the smart contract as additional income, which will stimulate users to hold QIAN's CSA for a long time so that QIAN stablecoins has the possibility to be used for cross-border payments, consumer payments, asset transactions, lending, and other economic activities. With 0 holding cost, QIAN stablecoins can really participate in and promote the development process of decentralized finance, and develop together with the fiat-guaranteed stablecoins, which also does not require holding cost, to serve users with different needs.
3.4 Promote the use of cryptocurrencies such as ETH
QIAN V1 system will support a variety of cryptocurrencies swap for QIAN, users holding ETH and other cryptocurrencies, locked their assets to the QIAN smart contract, can use QIAN for various transactions, investment activities. No collateral interest is required, reducing the financial burden on cryptocurrency holders.
Combined with the DeFi money market protocols such as Compound, AAVE as well as the increasingly mature decentralized trading products (Uniswap, Curve, Balancer, etc.), users will get excess investment returns through QIAN, but also strengthen the asset properties of cryptocurrencies like ETH, promoting more people to hold cryptocurrencies.
3.5 Further revenue generation with new technologies such as Flash Loans
Flash loans are currently known to be a secure technology where any smart contract with assets can choose to provide a flash loan service, and by charging a certain amount of interest on the loan, it can use its own assets to add more revenue. Aggregator tools for flash loans are already appearing in the DeFi ecosystem on Ethereum, allowing for a more robust flash loan service by aggregating traffic from smart contracts that support flash loans.
QIAN's smart contract will support flash loan functionality, as the cryptocurrencies locked in QIAN's smart contract can get additional income for the contract, QIAN stablecoin governance committee will regularly buy KUN tokens in the market with the flash loan income, KUN as the income value storage carrier of the QIAN smart contract, will be locked into the smart contract of QIAN system income deposit.
3.6 Self-cycling ecology, steadily expanding the market
Any stablecoin operation team needs to clearly answer these questions: who are the users of the stablecoin, what are the scenarios for stablecoin usage, and how can we expand the market share of the stablecoin?
QIAN V1, as a member of a cryptocurrency-backed stablecoin project, has a clear answer.
First, the users of existing cryptocurrency-backed stablecoins are available only to a small segment of the population willing to participate in mortgage lending at cost. QIAN's CSA has no interest cost and can cover all cryptocurrency users.
Secondly, since there is no long-term cost of holding, QIAN will really have the potential of the value scale, circulation means, storage means, payment means, with the possibility of extending to all scenarios of currency usage.
Third, QIAN V1 is owned by all KUN token holders. , after the launch of QIAN V1, it will actively cooperate with the participants of DeFi, and gradually expand the market share.
3.7 Risk control
In the design of QIAN, the following risk management rules are followed.
First, QIAN V1 upholds the principle of excess reserves, when the user using ETH and other cryptocurrencies generates QIAN stablecoins, a certain percentage of the start-up coverage rate, the ratio between the value of cryptocurrencies locked and the value of Stablecoin minted should be at least 120%.
Secondly, in order to increase the security of locked assets within the CSA, to avoid liquidation in extreme market conditions, meanwhile keep the utilization rate of cryptocurrencies, QIAN V1 will introduce volatility factor according to the speed of market price change of cryptocurrencies and regulate the ratio of locked asset value in CSA.
When prices go up or down unilaterally, volatility rises, and the system adjusts the CSA's start-up coverage rate upward. During periods of smoother markets, volatility decreases, and the system reduces the percentage of CSA start-up coverage rates. This design will effectively mitigate the impact of market volatility on lock-in assets of CSA, encourage users to perform CSA lock-in in a smooth market and increase the security of locked-in assets.
Thirdly, when the market price plummets, the customer's CSA adequacy rate decreases, the CSA has two kinds of status changes in the process of declining: alarm status and frozen status.
For example, a user holds CSA of ETH (the ), when its reserve asset adequacy ratio drops to 150% (alarm line of ), the QIAN system will remind the user to fill the locked asset. At this point, if the market continues to plummet and the user is too late to make up the supplement, the adequacy of the CSA continues to decline, and when it falls below 120%, the smart contract will freeze the user's CSA until the user replenishes the locked asset above the safe level before unfreezing. Users will not be able to initiate redemptions of locked assets through their own addresses until they have replenished them.
Since QIAN V1 supports a variety of crypto-asset locking, users may hold CSA of different assets in hand, and the inherent risk is different among various assets, so there will be different risk control lines, and the specific control criteria (specific ratio of alarm line, frozen line) will be determined by the community after full discussion.
Fourthly, a frozen CSA may be liquidated, allowing non-CSA holders to redeem assets in frozen contracts with QIAN stablecoins based on the values of all stablecoins generated by frozen CSAs, which will be detailed in the subsequent section on smooth arbitrage mechanisms.
In addition, QIAN version 2.0 will maintain the global debt auction mechanism designed in version 1.0. Under extreme conditions, the adequacy rate of certain or all reserve assets in the QIAN system may be less than 100%, resulting in insufficient support for the intrinsic value of the QIAN stablecoins. If there is a general lack of willingness on the CSA holders to replenish the lock-in at this point, and the market price of the underlying reserve asset does not recover for some time, this will create a reserve gap (debt) in the QIAN system. In this case, the system will initiate a global debt auction after the overall reserve adequacy has been consistently below a certain level, and after a certain observation period.
In the global debt auction, the system will unfreeze the governance tokens KUN provided by QIAN stablecoin protocol governance committee and auction them out to the public, with the proceeds of the auction being used to cover the system-wide reserve asset adequacy ratio. The QIAN stablecoin protocol governance committee, along with all KUN holders, will be the final guardian for the QIAN system.
3.8 Summary of QIAN V1 advantages
In summary, the design advantages of QIAN V1 are as follows.
QIAN V1 | MakerDAO, KAVA, etc | |
Issuing mechanism | Currency swaps | Collateralized lending |
Holding costs | No costs, potential positive benefits | Medium to high costs |
Holding risk | Medium or low risk | Medium or high risk |
Resistance to extremes | Strong, to be tested | Weak, exposed |
Is there a return on the collateral asset? | Positive return | Negative return |
Support for new technologies | Strong, i.e. Flash Loan | To be seen |
Ecological support | Improving | Good |
Is there a final guardian? | Yes | Yes |
Target market | DeFi, cross-border payments in the real economy, consumer payments, asset transactions, lending activities, and other types of economic activities | Mainly limited to DeFi |
The underlying fiat currency | USD and other fiat currencies | USD |
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