This article was provided by Alex Adylshin, Blockchain engineer at PLATINUM ENGINEERING. Working together with highly experienced designers, front-end/back-end developers, auditors, and strategists, Alex is responsible for architecting reliable and scalable blockchain solutions. He always strives to gain a deep understanding of underlying business logic, so that the delivered DLT-driven systems help strengthen the overall customer’s strategy, effectively integrating with other facets. One of such projects is USDQ, a stablecoin, driven by smart mechanisms and decentralization, which brings crypto-collateralized lending to anybody who’s willing to try. Soon there will be even more fully backed stable coins: JPYQ, KRWQ, SGDQ, HKDQ, CNYQ, RUBQ under USDQ brand. That’s pretty disruptive. Learn more about how it works in this article.
Similar to many other successful projects, USDQ leverages a stack of highly complex technologies and concepts, which require an in-depth review.
Q DAO is a classic utility coin, but it has very important governance features. In order to understand how it works, it’s best to first grasp the interrelation between the two coins, operating within the ecosystem – USDQ and Q DAO.
How do stablecoins work?
In the nutshell, stablecoin’s value is pegged to the value of another asset.
With regard to this ecosystem, it includes a coin named USDQ. It’s pegged to 1USD in the soft format, i.e. its price can sometimes a little deviate from 1USD, but it ALWAYS returns to this level. Most of the other stablecoins don’t effectively institute the pegs, but they can be seen as just an “avatar” for fiat currency. The managing company takes fiat from users and transfers to them a coin, which in fact is a form of a “promissory note”, quite similar to how fiats work.
As a result, such systems need to have a central point of control – a company which receives the fiat and provides the stablecoins in return. Such a centralized approach goes against the very philosophy, based on which the crypto industry has been built.
In contrast, the USDQ system does not use any fiat as a collateral. Instead, USDQ acts as a stablecoin, while the internal governance token Q DAO is allowed to remain freely floating and volatile.
Why do we need stablecoins anyway?
Newcomers might have a problem with seeing how stablecoins bring value and why the crypto community needs them at all. But if you take a deeper dive, you’ll see why enthusiasts talk so much about them.
To better understand the stablecoins, let’s first analyze Bitcoin, serving as a perfect example of a classic cryptocurrency:
In spite of Bitcoin becoming so popular and many people thinking about it as a cardinally new form of money, it’s virtually impossible to use it for the original purpose. Purchasing things with Bitcoin makes very little sense. With extremely huge price growth in the past, nobody would want to spend Bitcoin on buying some things and missing out on the next big move.
In addition, financial companies can’t use Bitcoin to offer standard financial services to the general population, such as deposits, lending and others. The point is that with high volatility, they won’t be able to manage interest rates because Bitcoin can skyrocket by dozens of percentage points at any point in time.
And this is the perfect opening for stablecoins to bring out their value. Coins like USDQ will become (i hope) the trigger, required to push mass adoption and maybe even replace fiats in the years to come.
How is USDQ generated?
USDQ is created by a smart contract. The system accepts Bitcoin as a collateral and outputs the stablecoin in exchange. Other top 10 cryptocurrencies are planning to be implemented as a collateral in the future.
The procedure used is similar to obtaining a mortgage loan from a bank. Quite common practice, when a bank would provide a loan amount, equal to a maximum 70% of the net value of your collateral. In this way, the bank protects itself against a potential depreciation in the asset’s value.
The USDQ ecosystem operates in a similar manner. Whenever a user wishes to obtain a loan, they will be asked to collateralize an amount in Bitcoin that is higher than the loan’s value. As of now, this rate stands at 166%.
Let’s look at an example. If Bitcoin trades at $5,000 and a user wants to receive $5,000 in USDQ, they will have to collateralize around $8,300 in Bitcoins (i.e. 166% of the loan amount).
How are Q DAO Tokens used?
Q DAO ecosystem is a decentralized autonomous organization, in which USDQ and Q DAO tokens circulate, enabled by underlying smart contracts and blockchain solutions. This system is a great example of the power that blockchains bring to the wider economy and finance. Smart contracts, used to execute transactions, eliminate the need in the third party, while also helping cut costs and increase processing speed. In the nutshell, all of the mechanisms used within the system are focused on mitigating potential volatility of USDQ against its peg, USD.
When you generate $5,000 in USDQ by collateralizing around $8,300 in Bitcoin this means that the collateralized Bitcoin is being locked away in the system, which is known as a Collateralized Debt Contract (CDC). The locked value in Bitcoin is similar to “equity” in the house being mortgaged.
If you decide to exchange USDQ back into Bitcoins, the smart contract will automatically return you the amount in Bitcoins and destroy the respective amount of USDQ.
And now let’s take a deeper look into the processes that occur whenever the price of Bitcoin changes over time.
Bitcoin price increases
Should the Bitcoin grow in price, this won’t have any negative impact on your holdings of USDQ since the smart contract already holds 166% of the loan value. In a way, it’ll just result in your USDQ becoming “stronger”.
In the event of the continued growth in prices, the value of USDQ will continue to rise too. Thus, there’s a need to have algorithms that will prevent the increase in USDQ value. The ecosystem incorporates a mechanism which motivates the creation of additional USDQ units from the same CDC smart contract. This results in a dilution of the USDQ pool with the supply growing. And the growing supply always invariably results in a decrease in prices. Gradually, the collateralization proportion will get back to the original value of 166%.
Bitcoin price decreases
While it’s easy to tackle growing prices for the collateral, a falling price of collateral is activating margin call.
In case price of Bitcoin going down, CDCs will sell off some of the collateralized Bitcoins on the open market above the 100% collateralization level. Subsequently, the obtained funds are used to buy back USDQ, which will push the price back up, since the demand will grow and an increase in the demand always results in growing prices.
What are the use cases for Q DAO, the internal governance token?
Now that we’ve learned about USDQ, acting as a stablecoin within the ecosystem, we can dig deeper into how Q DAO, an internal governance token, functions.
Q DAO has three main use cases – acting as a utility token, enabling system governance and sustaining recapitalization mechanisms.
As a utility token, Q DAO is used to pay out fees, charged upon USDQ generation via CDCs. Thus, whenever a user pays out fees in Q DAO, this amount is received by the system and then automatically destroyed.
With this destruction process being performed consistently, the number of Q DAO units decreases and thus – due to reducing supply – the prices grow.
As a governance token, Q DAO is used to enable community members to participate in the votes. Importantly, within the USDQ system, all decisions are put on the ballot with Q DAO voters being able to vote against proposals, required for any changes within the system.
The community has votes on a regular basis, which helps to sustain effective methods for risk mitigation and security assurance. In order to prevent collusion seeking to push harmful proposals, there’s a time period between the voting process and actual implementation of the decisions. Thus, Q DAO is very similar to voting rights that national citizens have or voting priviligences, vested by shares in corporations.
And it’s this community that helps steer the ecosystem towards the most optimal course of development. The Q DAO holders are inherently incentivized to take an active part in the community activities and vote only for those proposals that they deem fit.
This procedure stipulates that in the event of irresponsible or non-compliant management within the ecosystem, the community members will be punished with their Q DAO holdings going down in value. Consequently, the only way to sustain high prices for Q DAO is to determine the best course of action for the ecosystem.
USDQ development team
USDQ ecosystem is being developed by PLATINUM ENGINEERING, a major blockchain tech outlet. The team brings together a broad-based talent pool with professionals specializing in blockchain architecture, usability, back-end and front-end solutions.
With extensive experience and in-depth understanding of the blockchain development, PLATINUM ENGINEERING will be able to deploy effective stabilization mechanics and predictive capabilities, driven by the neural network.
USDQ and Q DAO: major use cases
As compared to conventional cryptocurrencies, stablecoins bring stability, offering a much better deal to adopters. Without the rampant volatility, seen at crypto markets, they enable efficient transactions processing and records maintenance. Thus, they guarantee a fixed value and enable financial companies to start providing standard services, such as lending, borrowing and more.
In addition, online e-commerce and retailers at large would stand to win from using stablecoins to transact with their customers, avoiding high volatility of Bitcoin. Crypto enthusiasts are always hesitant about spending their Bitcoin holdings, justifiably expecting a stronger growth at any time, while stablecoins will always retain the same value since they are pegged to $1.
The early cryptocurrencies adopters are mostly enthusiasts who favor decentralization and de-linking from “legacy finance”. That why, USDQ and Q DAO, being fully decentralized, would be welcome among users who would find it appealing that the coins don’t depend on any other fiat currencies, securities or authorities.
The word of mouth would quickly popularize USDQ, making it a viable option for using as a store of value and unit of exchange.
In the future, with USDQ being adopted throughout the community, Q DAO is expected to grow in value due to wider usage for paying fees and governance.
Competing projects and challenges ahead Fiat-collateralized stablecoins
USDQ is just starting out as a project, which means that the crypto community might not feel confident with using it, preferring to continue utilizing better understood fiat-collateralized coins, in the short- and medium-term.
Overall, all stablecoins (especially backed by fiat like USDT) differ a lot from other crypto projects, since they aren’t exactly aligned with the decentralization philosophy. With a certain degree of centralization retained by all stablecoin projects, they might just be a beautiful dream that won’t take roots in the crypto industry.
As of now, it’s hard to forecast how fast USDQ will become a popular item in the enthusiasts’ portfolios and how fast users will be shifting from other stablecoins into USDQ.
The Global Resolution procedure stipulates the actions that will occur in the event that USDQ and Q DAO melt down.
This will happen if USDQ starts fluctuating outside of the normally seen deviation bounds or CDCs become too under-collateralized with the Bitcoin collateral losing its value by an extremely high degree.
In this event, USDQ amounts will be locked and the holders will receive the equivalent amounts in Bitcoin minus the fees payable for the use. USDQ will be terminated, but it’s possible that the Q DAO ecosystem will continue operating to create a new stablecoin.
Future potential for USDQ ecosystem
The USDQ ecosystem is being developed based on lengthy research and trials. Taking into account integrated predictive capabilities, this stablecoin will become a unique offering on the market.
In the future, crypto community will find it possible to use USDQ for any purposes, for which fiat has been traditionally utilized. It can serve for providing a down payment for a mortgage, placing a deposit with a company or storing reserves in a safe haven currency.
With the growing number of users, the development team at PLATINUM ENGINEERING will have to consider the rates at which the USDQ circulation grows, so that it’s not scaled prematurely.
In addition, USDQ is just a second try in fiat-pegged stablecoins (first is a Maker DAO) with more similar tokens to follow. Another vector for development is a multi-collateral stablecoin that will introduce a higher diversification and thus offer a better chance for a safe have use case. It remains to be seen how effective and appealing the multi-collateral token would be to the crypto community and users at large.
USDQ is a new iteration on the idea for a crypto-collateralized stablecoin. And stablecoins are essential for the crypto industry to move forward, winning mass adoption among individuals and businesses. High volatility, offered by cryptocurrencies like Bitcoin, is highly appealing to traders, but it prevents financial companies from using this new tech.
Meanwhile, the existing fiat-collateralized stablecoins are slowly losing their popularity because of the centralization issues and controversies surrounding these projects. Crypto-collateralized solutions seem a way forward.
USDQ and Q DAO coexist together while offering benefits to the two different target audiences. USDQ provides stability, while Q DAO opens a way to a deep-level involvement into the project’s governance and ability to reap profits.
With USDQ scaling and introducing multi-collateral offering, it’s possible that a multitude of versatile use cases will appear, bringing wider usage across the crypto community and population at large.
USDQ is decentralized stablecoin, which uses smart algorithms to offer higher stability and reliability. Fully on-chain and monitored by high-speed AI robots, ecosystem offers reliable defences against malicious acts and attacks. First run in line of fiat-pegs, USDQ is brought by PLATINUM ENGINEERING Team, looking to edge together innovative solutions in collateralization, using stabilizing mechanisms and neural networks for high-endurance stablecoins. Soon there will be even more fully backed stable coins: JPYQ, KRWQ, SGDQ, HKDQ, CNYQ, RUBQ under USDQ brand. Fully anonymous, USDQ breaks limits out of this legacy world.
PLATINUM ENGINEERING values your opinion and welcomes you to reach to Alex and his colleagues on Facebook, Telegram or LinkedIn. The team believes it’s vital for crypto-projects to talk, cross-pollinate and peer-review new solutions and ideas. The broad-based team is ready to deploy solutions for customers, delivering quick wins from business tokenization, process automation, and trustless transactions. Disrupting your own niche is slowly turning in vogue.
This overview may not be fully exhaustive and does not assess the viability of any project, nor its team legitimacy. Readers should conduct their own due diligence before using or investing in any of the listed Stablecoins. This article represents the author’s opinions only and should not be considered investment advice. All described functionality in the article is still under development, it can be changed/processed. Please follow the updates.