At present, it is generally believed in the industry that stablecoin has gone through five development stages based on technical architecture, which can be roughly divided into five generations:
The representatives of the first-generation of stablecoins are USDT, BUSD, etc., These stablecoins take fiat currency as backed assets, issuing tokenized fiat pegged stablecoins. These projects build an important bridge between physical value and crypto value. Its characteristic is centralized operation, which requires the issuing institution to be recognized by the industry.
The second-generation stablecoin tries to build a decentralized stablecoin from a technical point of view. Starting from bitUSD of project BitShares, which formed a huge category represented by MakerDAO's DAI and QIAN's QUSD after the iterative update. Taking QIAN V1 as an example, in order to obtain a larger circulation and a wider range of underlying assets, crypto assets other than ETH are introduced, such as BUSD and WBTC. However, while the underlying crypto assets expand, some decentralization characteristics are lost. The biggest drawback of the second-generation stablecoin is that the risks of the underlying crypto assets are easily transmitted to the whole stablecoin protocol, thus causing the inherent value fluctuation of the stablecoin. In addition, there are problems such as the low utilization rate of funds caused by over-mortgage.
The third-generation stablecoin tries to build original stablecoin of the cryptocurrency industry, represented by the elastic stablecoin AMPL and YAM. These stablecoins do not need to use collateral and are regulated mainly through algorithms. Through the test of the market, elastic stablecoin is insufficient in terms of price stability, and the rebase logic makes it difficult for the smart contract of elastic stablecoin to be combined with other DeFi protocols, which limits the development space of this kind of stablecoin.
The representatives of the fourth-generation stablecoin are algorithmic stablecoins such as ESD and BASIS CASH. This kind of algorithmic stablecoin refers to the previous design of Basecoin and combines the mode of liquidity mining and elastic offering, avoiding the direct rebase adjustment in the stablecoin contract, and having more possibility of ecological combination with DeFi.
The latest fifth-generation stablecoin is a fractional-algorithmic stablecoin represented by FRAX. By introducing a partial mortgage mechanism, the stablecoin is easier to launch, and accord with the concept of pure on-chain assets. With volatility lower than pure algorithm stablecoin, this stablecoin type will most likely get extensive applications in the future.
The fractional-algorithmic adjustment mechanism of the fifth-generation stablecoin is the most consistent with the technical evolution goal of Chemix Labs. As the first synthetic asset of Chemix Labs, the technical route which QSD chooses is based on fractional algorithmic.
QSD is a fractional-algorithmic synthetic assets protocol that is open-source, permissionless, and entirely on-chain. The goal of Chemix Labs is to establish a highly scalable, decentralized, algorithmic assets management system, consistently upgrade the technical basis for the development of Chemix Ecosystem.
The technical characteristics of QSD
Fractional-Algorithmic: QSD's supply mechanism is backed by collateral and parts of the supply algorithmic. The range of the collateral/algorithm ratio can fluctuate between 0-100%, and the specific mechanism will depend on the market's pricing of the QSD stablecoin. If QSD is trading at above $1, the protocol decreases the collateral ratio. If QSD is trading at under $1, the protocol increases the collateral ratio.
Community autonomy: Chemix Labs protocol will continue to practice the governance principle of community governance. Community developers will develop voluntarily and with no active management.
Fully on-chain oracles: QSD uses weighted average prices of Uniswap (ETH)，PancakeSwap (Binance Smart Chain) as the oracle source of collateral price, and the target price of $1 is from Chainlink.
Main tokens in Chemix Labs
QSD (QIAN Dollar V2) is the synthetic stablecoin issued by Chemix Labs and target a tight band around $1/coin.The actual price of QSD will fluctuate within a certain range and adjusted by the algorithm;
CEC (Chemix Ecosystem Coin) is the carrier of seigniorages revenue and algorithm proportion function.
CBT (CEC buffering token) will be used in the redemption and recollateralization to carry the value released by the algorithm and act as a buffer of CEC price fluctuation;
DBQ is a special stable bond token, which will serve as a supplementary mechanism for the algorithm to regulate QSD price stability.
Swap-based Monetary Policy
QSD uses principles from automated market makers like Uniswap to create swap-based price discovery and real-time stabilization incentives through arbitrage.
There are no predetermined timeframes for how quickly the amount of collateralization changes, however, it can be inferred from the partial mortgage mechanism, we believe that as QSD adoption increases, users will be more comfortable with a higher percentage of QSD supply being stabilized algorithmically rather than with collateral. The collateral ratio refresh function in the protocol can be called by any user once per 30 mins at the initial launch. The protocol can change the collateral ratio in steps of 0.2% if the price of QSD is above or below $1. When QSD is above $1, the function lowers the collateral ratio by one step and when the price of QSD is below $1, the function increases the collateral ratio by one step. Both refresh rate and step parameters can be adjusted through governance.
In order to suppress abnormal price fluctuations, the weighted average result is used to calculate the token price, which can easily lead to a large difference between the target price and the fair market price. Since the protocol's target price is obtained from Chainlink, Chainlink can provide the real market price of USD, which makes QSD has a credible data source for maintaining stability against the USD. It can also avoid malicious manipulation of prices of automatic market makers such as Uniswap and the accompanying distortion.
The QSD is minted with the appropriate amount of collateral and CEC. In the initial phase, the QSD is 99.8% collateral, minting the QSD requires putting in 99.8% collateral and burning 0.2% CEC. The protocol will accept stablecoins as collateral to reduce the risk caused by large fluctuations in the collateral in the initial stage. When the proportion of the algorithm and the issuance of QSD increase, and the system gradually stabilizes, mainstream cryptocurrencies such as BTC, ETH, and BNB will be absorbed as collateral to further expand the coverage of QSD and enhance the robustness of the system.
The name Chemix Labs is derived from "Chemical Reaction X Labs", which means users can synthesize diverse assets as chemists do in our on-chain labs. In the development plan of Chemix Ecosystem, we are seeking for maximum autonomy to create different synthetic assets for our users.
The CEC token
Our team had designed and operated an experimental stablecoin project named QIAN protocol in October 2020 with a governance token named KUN. The first stablecoin issued by QIAN protocol is the QUSD, which has similar product design with DAI, in QUSD, we find out a stablecoin with DAI's mechanism is nearly impossible to success again like DAI because of the separated managed vaults of user's debts brings low capital efficiency. We issued the upgraded stablecoin QSD in April 2021, QSD has advanced mechanism compared with FRAX stablecoin. KUN is still the governance token of QSD.
We packed the whole QSD function into Chemix Labs as an experimental component of Chemix Ecosystem. As the Chemix Ecosystem grows stronger, we would like to introduce QSD into some of Chemix Pad's auctions, which can expand the use case of QSD, QSD together with the whole KUN holder community can enjoy Chemix Ecosystem's development benefits, the KUN holders will also join Chemix Ecosystem's community and strengthen the basis of Chemix Eco, CEC will grow with CEP together.
However, the token name KUN will bring confusion to our users, thus we decide to rename the token KUN into CEC (Chemix Ecosystem Coin).
The migration from KUN token to CEC token has specific rules.
The exchange rules for KUN migration to the CEC
The total amount of CEC is 120 million
The exchange ratio between the released KUN and the CEC: originally 1 KUN = 10 CEC. From the date when KUN is locked into the contract, the CEC token has a 180 days linear release cycle.
Unreleased KUN will also be upgraded to the CEC token at a ratio of 1:10, and the distribution ratio of each part will be the same as KUN. These tokens have not yet been minted and circulated, so they will be directly released and used in the form of CEC tokens according to the corresponding release rules. For example: the remaining unreleased liquid mining KUN tokens will be directly converted into CEC tokens, which will be minted and released gradually in the liquidity mining activities of the CEC tokens.
The KBT circulating in the BSC network will be upgraded to CBT proportionally: 1 KBT=10 CBT, and will have the same release rules as the new governance token, 180 days linear release cycle.
The distribution of CEC token
CEC is now a pure community-driven token which is mainly hold by community members
Community Development: This part is composed of Community Development part CEC and CBT token, a total of 90,000,000 CEC
Protocol reserve: the Chemix Eco development team suggests moving part of the 600,000 CEC to be held by the team and part of the 2,400,000 CEC to be marketed into protocol reserves. This will make a total allocation of 30,000,000 CEC tokens, which will be determined by community discussion.
Roles of CEC token
In Chemix Labs, CEC is responsible for the algorithm regulation, which will be introduced in next sections.
If users want to participate in various auctions on the platform, they need to first obtain whitelist qualifications. Currently, the whitelist conditions include either providing BUSD/QSD LP tokens or directly holding a certain amount of KUN/CEC tokens.
CEC will also be introduced in the Chemix Pad user referral program.