Feb 20, 2022

5 min read

Introducing Orcus Finance: The Fractional-Algorithmic Stablecoin Protocol on Astar Network

Preface

Stablecoins are an integral part of DeFi. During the last 2 years, we saw different stablecoins implementation, like over-collateralized (DAI), centralized fiat-collateralized (USDC, USDT), Algorithmic non-collateralized (ESD, DSD), and partial (or fractional)-collateralized stablecoins (FRAX, IRON).

Every implementation has its pros and cons, but there is the problem that most of them failed, what can’t be said about the partially collateralized: FRAX and IRON. Their implementation works well even now and they don’t lose their peg to $1, but why?

Capital Efficient

At Orcus Finance, we deliver the improved version of our Fractional-Algorithmic Stablecoin - $oUSD, which uses Dual-Token collateralization, meaning that every oUSD is backed by USDC on the one side, and a part of a governance utility token - $ORU on the other. The oUSD token doesn’t have any hard cap or fixed total supply, the circulation supply of stablecoin depends on the current market supply and demand.

When DAI is over-collateralized at 150%, we can’t talk about capital efficiency. USDT and USDC are doing well because every unit is backed by $1. However, in Orcus Finance, we combine the $1 value backing with the floating collateralization level and open arbitrage opportunities.

Collateral Ratios

Target Collateral Ratio (the “TCR”) represents the ratio needed to reach the desired asset price ($1), while Effective Collateral Ratio (the “ECR”) represents the amount of USDC token stored as collateral for the oUSD.

Target Collateral Value (mint actions) and Effective Collateral Value (redeem actions) determine how much collateral and governance tokens will be used during users’ operations of minting and redeeming processes.

Minting oUSD

In order to mint 1 oUSD, the system requires TCR worth of USDC and (1 — TCR) worth of ORU:

When TCR = 80%, 100 oUSD can be minted with $80 worth of USDC and $20 worth of ORU

Redeeming oUSD

In order to redeem 1 oUSD, the system returns ECR worth of USDC and (1 — ECR) worth of ORU.

When ECR = 75%, if 100 oUSD is redeemed, the system returns $75 worth of USDC and $25 worth of ORU

When oUSD trades above the target price of $1, the protocol decreases the collateral ratio: > $1 (TWAP)
When oUSD trades under the target price of $1, the protocol increases the collateral ratio: < $1 (TWAP)

Off pegged conditions

`oUSD < $1`

If oUSD is under $1 peg, every user has a profitable and economically useful arbitrage opportunity: you can buy a cheaper dollar in order to sell/redeem it with the profit in the near future when the market maker will stabilize the price of the synthetic asset.

`oUSD > $1`

If oUSD is above $1 peg, every user has the possibility to make some profit on the price distinction: you are going to mint oUSD with the target price of $1, meaning that you are spending exact $1 of value, while the current true market price of oUSD is above $1. You are able to sell oUSD with profit and stabilize the synthetic dollar price.

Recollateralize

The recollateralize function verifies if the ECR is below the current TCR. If true, the protocol allows the caller to deposit the collateral amount needed to reach the TCR and receive back newly minted ORU tokens with the bonus rate of 0.5% in order to quickly incentivize arbitragers, close the gap and recollateralize the protocol to the target ratio. The bonus rate can be adjusted or changed through the protocol governance.

$ORU Utility and Value

Orcus Finance has a native ORU token which has a lot of use cases in the protocol:

uses in the oUSD minting
governance token: staking ORU to receive xORU and grant voting rights
profit-sharing token from mint/redeem fee, early exit penalty, arbitrage profits, interest from the collateral investment, seigniorage profits
reward token from yield farming

The initial supply amount of ORU is set to 1 billion, however, ORU plays a role of deflationary token in the long term.

The tokenomics:

Community (70%)

7,000,000 ORU tokens are scheduled for distribution for the liquidity providers and contributors of the protocol within the next 6 years. The emission of ORU is not fixed, it’s subject to change during adjusting new rates for boosting rewards to incentivize partners of Orcus Finance.

Team (25%)

250,000,000 ORU tokens are reserved for the core team of Orcus Finance and will be distributed within the next 6 years.

Treasury (5%)

50,000,000 ORU tokens are reserved for the Treasury and will be distributed within the next 6 years. The purpose of this allocation is targeted for:

Development
Marketing
Automatization
Treasury Swap

Protocol Owned Liquidity and Protocol Rented Liquidity

Protocol Owned Liquidity

The user who terminates the vesting terms for the farming rewards is charged with the early claim penalty.

What happens next:

Protocol Rented Liquidity

Minting oUSD requires both USDC and ORU. When the user has minted a new oUSD, the protocol doesn’t burn the received ORU immediately but instead creates ORU-USDC LP by selling 50% of ORU, while ensuring that the protocol remains stable.