BitZap is proud to introduce yUSD, a decentralized stablecoin designed to provide users with a crypto asset pegged to the US dollar, while maintaining decentralization and capital efficiency. As an innovative DeFi platform, BitZap focuses on delivering efficient stablecoin trading and asset management services, with yUSD serving as a core component of its ecosystem.

Explore yUSD 👇

https://yusd.bitzap.ai/#/bitlayer/markets/btc/create

As a core business of BitZap's next phase, yUSD boasts several key features:

• Decentralization: yUSD operates entirely on smart contracts, free from reliance on traditional financial institutions.

• Over-collateralization: Users generate yUSD by collateralizing crypto assets, ensuring its value remains stable.

• Capital efficiency: BitZap's algorithm optimizes collateral ratios, allowing users to maximize capital utilization while maintaining security.

• Low-slippage trading: yUSD enables low-slippage trading with other stablecoins on the BitZap platform, enhancing liquidity.

• Generate: Users deposit crypto assets into BitZap's smart contracts and generate yUSD based on the collateral ratio.

• Redeem: Users repay the yUSD along with interest to reclaim their collateralized assets.

• Liquidation Mechanism: If the value of the collateral falls below a specified threshold, the system automatically triggers liquidation to maintain the stability of yUSD.

BitZap employs a mechanism of soft liquidation and hard liquidation, further optimizing the system's stability while minimizing user losses due to liquidation. These two mechanisms work together to ensure the healthy operation of the system while providing users with greater flexibility and protection.

Hard Liquidation

Hard Liquidation is a common mechanism in traditional DeFi protocols. When the value of a user's collateral falls below a certain threshold (i.e., insufficient collateral ratio), the system automatically triggers liquidation to protect the protocol from bad debt risks.

• Trigger Condition: Hard liquidation is activated when the collateral value drops below the preset minimum collateral ratio.

• Liquidation Process:

  • The system sells part or all of the collateral to repay the borrowed yUSD.

  • Liquidation is typically conducted through auctions or direct sales to liquidators.

  • Liquidators may purchase the collateral at a discounted price, creating arbitrage opportunities.

• User Impact:

  • Users may lose part or all of their collateral.

  • Liquidation may incur additional penalties, further increasing the user's losses.

  This mechanism ensures the stability of the protocol while imposing significant consequences on users who fail to maintain adequate collateral.

Soft Liquidation

Soft Liquidation is an innovative mechanism, designed to minimize user losses during liquidation. Unlike hard liquidation, soft liquidation does not immediately sell the user's collateral. Instead, it gradually adjusts the debt and collateral, giving users more time to restore their collateral ratio.

• Trigger Condition: Soft liquidation may be activated when the collateral value approaches but has not yet fallen below the minimum collateral ratio.

• Liquidation Process:

  • The system gradually transfers the user's debt to a dedicated "soft liquidation pool."

  • Users retain control of their collateral but are required to pay additional interest or fees.

  • Users can restore a healthy collateral ratio by adding more collateral or repaying part of the debt, thereby avoiding hard liquidation.

• User Impact:

  • Users do not immediately lose their collateral and have more time to take corrective measures.

  • The fees associated with soft liquidation are typically lower than the penalties of hard liquidation, reducing user losses.

• Advantages of Soft Liquidation

  • Minimized User Losses: Soft liquidation provides users with more time and flexibility, preventing sudden liquidation due to market volatility.

  • Enhanced Capital Efficiency: Users can restore their collateral ratio without losing their collateral, enabling more efficient use of funds.

  • Reduced Systemic Risk: By gradually adjusting debt, soft liquidation mitigates the market impact of large-scale liquidations, enhancing system stability. This mechanism not only protects users but also contributes to a more resilient and sustainable DeFi ecosystem.

BitZap Will Continuously Improve Its Product Architecture to Deliver a Better DeFi Experience