SORA is a decentralized protocol using blockchain technology to build an economic system focused on inclusion and productive growth. The SORA imperative envisions the SORA network as an economy that can scale to the needs of nation states while remaining truly decentralized and democratic.
Simply SORA is a series of explainer articles for all things SORA. Each article seeks to supplement your understanding of an aspect of SORA using easy to digest terms and infographics.
To learn more about SORA, please visit the SORA Medium or see the links provided at the end of this article.
SORA Stablecoins: TBCD (Token Bonding Curve Dollar) and XSTUSD
What is a stablecoin?
Stablecoins are a class of cryptocurrencies that attempt to offer price stability by either being backed by specific assets or using algorithms to adjust their supply based on demand. Most stablecoins are designed to maintain a stable value against a fiat currency, like the US Dollar, making them blockchain-based versions of that currency.
Stablecoins maintain their “stability” via a few basic mechanisms, including fiat backing, crypto backing, commodity backing, and algorithmic backing. Some common approaches to achieving price stability include:
- Backing the stablecoin with reserves of the asset it is pegged to.
- Implementing an algorithmic mechanism to adjust the supply of the stablecoin to maintain its peg.
- Using a combination of both reserve backing and algorithmic mechanisms.
SORA has two native stablecoins: TBCD (Token Bonding Curve Dollar) and XSTUSD. Both use a combination of reserve backing and algorithmic mechanisms to maintain peg to the US Dollar. However, rather than being backed by reserves of the asset they are pegged to (i.e., the US Dollar), TBCD and XSTUSD are backed by XOR and XST respectively.
TBCD (Token Bonding Curve Dollar)
TBCD is the production dollar of the SORA economy used to fund the many builders and partners that build out the SORA Network.
TBCD can only be minted and allocated by on-chain governance, which means that XOR token holders decide the supply. Thus, TBCD is minted for purposes deemed necessary and/or productive for the SORA economy.
The creation of TBCD offsets its inflation to SORA money supply by growing the SORA economy through its productive use.
TBCD’s effects on XOR inflation are also mitigated by its unique integration with the Token Bonding Curve (TBC).
TBCD and the TBC
The Token Bonding Curve Dollar and the Token Bonding Curve.
The TBC’s treatment of TBCD is unique in that:
- The TBC always treats TBCD as having a $1 value.
- In relation to TBCD, the TBC always values XOR at the current market price plus $1.
This causes TBCD to naturally peg to a value less than $1, that gets closer to $1 as the price of XOR goes up. This is because the $1 premium the TBC puts on the price of XOR as it relates to TBCD becomes less significant as the price of XOR goes up. TBCD’s narrowing peg to $1 can be expressed as: (XOR Market Price / (XOR Market Price + $1).
The following chart illustrates TBCD’s natural peg as the price of XOR goes up:
The dynamics of TBCD’s peg to $1 can also be expressed as the minted XOR market value as a percentage of the TBCD market value. This percentage will tend to drift towards 100%, which is where the market value of TBCD is at par with the minted value of XOR using the TBC.
If this percentage is greater than 100%, TBCD is undervalued vs. the XOR + $1 premium, and could be arbitraged up to its natural price.
For example, if the TBCD market price is $0.75 and XOR is $15, this percentage would be 125% (see below chart). A user could:
- Buy 100 TBCD on the open market for $75.
- Swap 100 TBCD for 6.25 XOR. ($100 / ($15 + $1)) = 6.25 XOR
- Sell 6.25 XOR on the market for 125 TBCD. ((6.25 * $15) / $0.75) = 125 TBCD
The opposite is true if this percentage is less than 100%. In this case TBCD is overvalued vs. the XOR + $1 premium, and could be arbitraged down to its natural price.
For example, if the TBCD market price is $0.94 and XOR is $3, this percentage would be 80% (see below chart). A user could:
- Buy 100 XOR on the open market for $300.
- Swap 100 XOR for 400 TBCD. ((100 * ($3 + $1)) / $1) = 400 TBCD
- Sell 400 TBCD on the market for 125 XOR. ((400 * $.94) / $3) = 125 XOR
The dynamics of the Token Bonding Curve (TBC) Buy-Price Function and Sell-Price Function for Token Bonding Curve Dollars (TBCDs) also differs from that of other SORA reserve tokens.
Note: For a detailed description of how the Token Bonding Curve (TBC) works in general (i.e., for all other reserve token), please see my linked article: Simply SORA 01: Token Bonding Curve.
Token Bonding Curve Buy-Price Function for TBCD
As illustrated above, the Token Bonding Curve Buy-Price Function for TBCD occurs on the Token Bonding Curve (TBC) when TBCD is undervalued vs. its natural peg, and a user swaps TBCD for XOR.
When this occurs, 20% of the user’s TBCD is swapped for XOR using the XOR-TBCD Liquidity Pool. (i.e, a market price swap for both tokens). This XOR is then sent to the margin account; reserved for different players in the SORA Network, as per the following diagram:
The other 80% of the user’s TBCD swapped for XOR goes to TBC Reserve Tokens in exchange for XOR tokens equal to a value based on 100% of the user’s TBCD tokens swapped dependent on the current market price of TBCD and XOR, as described above. This alternated flow of funds through the TBC helps mitigate the effects of XOR inflation by boosting the price of XOR through the LP purchase with 20% of the TBCD swapped.
Token Bonding Curve Sell-Price Function for TBCD
As illustrated above, the Token Bonding Curve Sell-Price Function for TBCD occurs on the Token Bonding Curve (TBC) when TBCD is overvalued vs. its natural peg, and a user swaps XOR for TBCD.
When this occurs (from a current market price perspective), a variable value percentage of XOR is burned for a variable value percentage of TBCD sent to the user from TBC Reserve Tokens.
As the market price of TBCD goes up, the XOR Sell-Price Function target price goes up.
XSTUSD is a synthetic stablecoin backed by a variable amount of XST and pegged to $1 USD with the following characteristics:
- XSTUSD is a claim of $1 USD worth of XST.
- XSTUSD is minted by burning XST.
- There are XSTUSD pooling pairs within Polkaswap.io.
- More XST-based synthetic assets coming soon.
XST is the base token for a soon to be launched SORA synthetic assets platform. XSTUSD is the first XST-based synthetic asset. We can expect more XST-based assets pegged to different “real world” assets in the future.
Stablecoins are an essential part of a robust decentralized protocol. Stablecoins like TBCD and XSTUSD offer a stable value, pegged to the most commonly denominated store of value in traditional markets, the US Dollar.
Although similar, SORA’s two native stablecoins serve different functions and are backed by different SORA tokens to maintain peg:
- TBCD is created through on-chain governance, is used for productive growth of SORA economy, and is pegged to a value slightly lower than $1 (dependent on the current market price of XOR).
- XSTUSD is the foundation XST-based synthetic and is the only true US Dollar stablecoin native to SORA. XSTUSD’s price floats above and below its $1 peg based on its demand and current market sentiment
Although different, both TBCD and XSTUSD are important building blocks to the SORA Economy.