# Real Yield Real Stability: What is UXD Protocol? By [Sooper](https://paragraph.com/@sooper) · 2022-10-11 --- Introduction ------------ [UXD Protocol](https://uxd.fi/) offers a fully-collateralized dollar-pegged stablecoin that passes strategically generated yield back to its holders. UXD tackles _all three_ parts of the [stablecoin trilemma](https://twitter.com/chainlinkgod/status/1557031836982726656?s=21&t=FxOZuSUTzoUo-gcf5mG8jQ) with its stable, fully decentralized, and capital efficient $UXD stablecoin. The protocol is currently live on Solana but also has a highly anticipated launch on Cosmos’s Sei network. As a whole, UXD aims to establish itself as a go-to stablecoin protocol not just for Solana but the broader Cosmos IBC ecosystem too (and even more chains soon). The Problem ----------- The general lack of decentralized stablecoins has been apparent since the collapse of Terra’s $UST. However, this collapse ignited a wave of new protocols iterating on the decentralized stablecoin design, many of which struggle to address all three pillars of the stablecoin trilemma. Although a large influx of developing protocols have come to light lately, the Cosmos IBC ecosystem still lacks a strong and decentralized dollar-pegged stablecoin. While some solutions do exist, the ecosystem would benefit from a broader market of decentralized stablecoin protocols for Cosmonauts. The Goal -------- The UXD Protocol introduces a stablecoin which satisfies _all_ facets of the stablecoin trilemma. With its launch on Sei, the $UXD stablecoin will also be interoperable with exciting potential in both Cosmos interchain accounts and the Sei Nitro layer 2 ecosystem. $UXD will be stable with a unique collateralization model powered by its [newly proposed](https://governance.uxd.fi/dao/UXP/proposal/HLt18XamrvTFGUKaaEVS6wRBL3eLNfzVZAaxFapNMdoy) “ALM”, and it will exist on several different chains. The stablecoin protocol will not rely on any centralized entity or collateral to operate, and $UXD will be backed 1:1 allowing users to get the most out of their collateral thanks to the protocol’s innovative infrastructure. How Does it Work? ----------------- The $UXD stablecoin is fully-collateralized with a basket of assets deposited by users. Currently all $UXD collateral is hedged with a derivatives short position when deposited, creating a [delta-neutral](https://docs.uxd.fi/uxdprotocol/overview/delta-neutral-position#stability-from-a-delta-neutral-position) backing and passing yield from the [funding rate](https://docs.uxd.fi/uxdprotocol/overview/delta-neutral-position#funding-rates-interest-generation) back to holders. Over [$14 million](https://dashboard.uxd.fi/) worth of $SOL collateral is currently deployed on Solana’s Mango Markets. Now, UXD is moving towards a more comprehensive collateralization model that uses multiple different automated yield [strategies](https://docs.uxd.fi/uxdprotocol/overview/uxd-basics/asset-liability-management-module-alm#alm-module-structure), rather than just a single strategy. The [Asset Liability Management Module](https://uxdprotocol.medium.com/asset-liability-management-module-the-endgame-of-stablecoins-20c1c095cc72) (ALM) will generate yield via delta-neutral derivatives positions, lending stablecoins, over-collateralized $UXD loans, investing in RWAs, and other miscellaneous strategies. ![A visual depicting the multiple strategies using $UXD collateral](https://storage.googleapis.com/papyrus_images/e53a16eb3029628659568baeeec8794839d251b428d49b805657931bcce7bf6a.png) A visual depicting the multiple strategies using $UXD collateral With UXD’s [delta-neutral strategy](https://docs.uxd.fi/uxdprotocol/overview/delta-neutral-position#uxd-a-delta-neutral-stablecoin), $UXD collateral is hedged with an onchain short position any time it is deposited by users. The protocol currently uses the Mango derivatives market on Solana to hedge collateral, and $UXD benefits from positive funding rates in the process. In the same way Maker DAO [deploys](https://forum.makerdao.com/t/discussion-direct-deposit-dai-module-d3m/7357) newly minted $DAI on Aave to earn interest, UXD will deploy stablecoins from the insurance fund to lending markets and earn more yield for $UXD holders. The protocol itself will also offer over-collateralized $UXD loans alongside its 1:1 mint and redeem model, which will effectively allow users to “leverage up” and the protocol to collect interest and/or fees from borrowers. UXD can even invest in and [lend against](https://twitter.com/UXDProtocol/status/1567896474398121985?s=20&t=QBEjsrbX1Y_RZEG5zZ8kAA) Real World Assets ([RWAs](https://blog.defactor.com/why-are-real-world-assets-important-to-defi-3de02edee252)) in order to add yet another source of yield for $UXD and $UXP. The protocol’s “equity” is its [insurance fund](https://docs.uxd.fi/uxdprotocol/overview/insurance-fund), which is currently valued at [$56,419,319](https://dashboard.uxd.fi/). This insurance fund grows by taking a portion of the cashflow earned from all yield strategies, and covers the protocol when necessary (e.g. negative funding rates or $UXD under-collateralization). With this design, $UXD remains completely decentralized and stable all while incredibly capital efficient, generating yield for $UXD holders who don’t have to constantly worry about liquidation thanks to its 1:1 collateralization. The protocol will leverage the Mercurial Vault for its stablecoin reserve, aggregating yield used to [buy back](https://docs.uxd.fi/uxdprotocol/overview/uxd-basics/asset-liability-management-module-alm#initial-plans) $UXP. ![Mint page on the UXD website for minting and redeeming $UXD](https://storage.googleapis.com/papyrus_images/c6bce6f42bf7e425b681df1296f0e724d16fed232864eeb2438f62d60d164a30.png) Mint page on the UXD website for minting and redeeming $UXD To [mint](https://docs.uxd.fi/uxdprotocol/tutorial/how-to-mint-uxd#steps-to-mint) $UXD, users can [collateralize](https://app.uxd.fi/) their stablecoins with any supported collateral. There is no mint fee collected by the protocol currently, but borrowers do incur slippage and external derivatives market trading fees on their collateral. Similarly, slippage and external trading fees also apply when redeeming $UXD for collateral. Partnerships ------------ ![UXD's notable investors from the protocol's homepage](https://storage.googleapis.com/papyrus_images/c159bf2b07b0cfa000bae797feb8d5eac78980d879538ea1b7cb52d31027a3d7.png) UXD's notable investors from the protocol's homepage UXD has several notable partnerships specifically on the Solana blockchain. The protocol has [worked](https://twitter.com/solendprotocol/status/1516930495300333568?s=20&t=QBEjsrbX1Y_RZEG5zZ8kAA) closely with Solend Protocol and [other](https://twitter.com/Zebec_HQ/status/1529449282213797889?s=20&t=QBEjsrbX1Y_RZEG5zZ8kAA) native protocols, mostly involving its $UXD stablecoin. UXD also has its exciting [launch](https://twitter.com/SeiNetwork/status/1572016755207245825?s=20&t=QBEjsrbX1Y_RZEG5zZ8kAA) anticipated on the Sei mainnet, joining an upcoming IBC-enabled ecosystem which could benefit from the $UXD stablecoin alongside the broader Cosmos network of app-chains. With exciting developments like interchain accounts, UXD has endless possibilities to integrate $UXD with other protocols and ecosystems. Tokenomics ---------- **_$UXP Price:_** $0.01 _Market Capitalization:_ $8,290,280 _Circulating Supply:_ 461,911,989 _Total Supply:_ 7,000,000,000 **_$UXD Price:_** $1.00 _Market Capitalization:_ $15,019,901 _Circulating Supply:_ 14,999,999 Read more about the token distribution [here](https://docs.uxd.fi/uxdprotocol/overview/uxp-token-economics). ![Visual of the $UXP token distribution](https://storage.googleapis.com/papyrus_images/1a70c0756c88ae53d4c954e2c53ffa7fd4f33c44f55e23e51120746ea85e07db.png) Visual of the $UXP token distribution Before the ALM is implemented, the protocol collects yield from the derivatives market(s) it uses to hedge collateral. $UXD holders are passed back yield when funding rates are positive, and they are covered by the insurance fund when funding rates are negative. Once the ALM is integrated, $UXD holders will earn from this _on top of_ several other strategies like deploying the insurance fund, over-collateralized loans, RWAs, and more. $UXP is the governance token of the protocol. Governance decides on [features](https://docs.uxd.fi/uxdprotocol/overview/governance-token-uxp) such as using new derivatives markets, new $UXD collateral, yield distribution, managing yield strategies for the insurance fund, and any other new additions to the protocol. $UXP [stakers](https://stake.uxd.fi/) also earn a portion of all the yield passed back to $UXD. In the event that the insurance fund runs dry and is needed for coverage, $UXP stakers will have their stake auctioned and liquidated. ![Stake page on the website for locking the $UXP governance token](https://storage.googleapis.com/papyrus_images/17934fe6d35c4abf6a9f49224e473ee29a86a01a136fbd0d7281ac4779ea77fe.png) Stake page on the website for locking the $UXP governance token Conclusion ---------- The UXD Protocol is yet another innovative approach to the decentralized stablecoin with its fully-collateralized $UXD. By offering a multitude of ecosystems its censorship-resistant money, $UXD positions itself to be a a new dominant and growing decentralized stablecoin protocol serving the broader DeFi ecosystem with its product. * * * _Come join the_ [_Galaxy Box_](https://discord.gg/az23MbRRfX) _Follow me on_ [_Twitter_](https://twitter.com/sooper__) _Join the UXD Protocol_ [_Discord_](http://discord.gg/kXwXQfu5kV) _Follow UXD Protocol on_ [_Twitter_](https://twitter.com/UXDProtocol) _DISCLOSURE: I have no exposure to UXD or $UXP. I was_ **_not_** _asked to write this article and have_ **_not been compensated_** _in any way. The information provided in this article is solely for educational purposes and should not be considered as financial advice. The views expressed in this article are my own and do not necessarily reflect the official policy or position of any company or organization. Readers should always conduct their own research before making any financial decisions._ --- *Originally published on [Sooper](https://paragraph.com/@sooper/real-yield-real-stability-what-is-uxd-protocol)*