Decentralized stablecoins backed by Lumens.

Stablecoins are key for blockchain adoption and are one of the reasons why the DeFi space has evolved so quickly, unfortunately current stablecoins providers across the blockchain ecosystem haven't been transparent enough and we see more and more red flags from stablecoins issuers. But decentralized solutions like DAI and others have proven there is value on decentralized stablecoins because transparency is built into it by default, for that reason and many more it seems reasonable to be inspired from their success and create a similar solution.

Enters FxDAO, a decentralized borrowing protocol that enables the issuance of stablecoins by backing them up with Lumens.

Who will use such type of protocol?

We might ask "why" and "who will use it?", there are multiple reasons for such type of protocol or its decentralized stablecoins, let's list some of them:

- People who want liquidity against their lumens but don't want to sell them

- People who prefer to diversify their funds between multiple stablecoins, currently on Stellar the only highly liquid and trusted stablecoin is USDC

- People who would like to participate in the protocol to earn its asset

- People who want to benefit from rewards given by the protocol

- And many more!

How will it work?

We get into more details in our first draft available at https://docs.fxdao.io but here is a quick view: A core contract takes care of the issuance and burn of the stablecoins: if a user deposits Lumens into the protocol, it will receive 85%* of the value in the stablecoin selected (the target is to have multiple stablecoins denominations IE USD, EUR, etc). Later that user can liquidate the position by depositing the stablecoin and getting its Lumens back.

*Percentage is from our first draft but it can change during development.

A truly decentralized protocol

We want to make the protocol as decentralized as the law allows it and to do so we have been in touch with multiple international advisors who have been explaining to us how everything should be done so the project can be a true DAO.

The process starts with the PoC of the protocol, after this is done the creation of a special entity that will issue the governance tokens and at the same time there needs to be a special type of foundation that will be controlled by the holders of the native token, the special entity who issued the tokens will donate these tokens to the foundation and then the foundation will lock the complete supply so the only way to earn the governance token is by using the protocol (not even the foundation itself can get it without participating). This design gives the most decentralized entity allowed by the law and at the same time it prevents the unfair distribution of the native token: No insider allocation, no marketing allocation, no foundation allocation, etc.

You can read more details about it in our first draft of the protocol at https://docs.fxdao.io, so far this is the structure defined by our advisors, this can change during the development but decentralization will always be the target in any possible change.

Fair distribution

Something we don't like about most DAOs is that most of them benefit insiders and those who enter early, we think this is unfair for most people and because of that, FxDAO won't do any type of pre-sale, private allocation, massive airdrop nor direct distributions; Instead, its native token will be only distributed to people who participate in the stability and growing of the protocol without discriminating between early and late adopters... Everybody receives the same opportunities without any kind of preference.

Transparency at its core

Another major issue with most DAOs is the lack of transparency, we want it to be different and that's why using an incorporated entity to govern the DAO is key in the process because with the entity there are defined bylaws that control how everything is done and the transparency requirements.

Plus, the entity is required by its rules to do a monthly report with expenses, grants, changes, etc so all its participants are aware of everything.

Revenue model

As a decentralized non-profit entity, the DAO itself does not seek gains but it needs to generate income to keep its legal expenses (regulations requirements), development expenses, and more. To accomplish that the protocol includes defined fees that you can check on our first draft at https://fxdao.io. Percentages and rules could change during the development but the target is to offer low and flat-interest collateral loans with simple minting/burning fees. From these fees, the DAO will meet its expenses and if there is an excess of funds, the DAO will distribute it based on its "governance constitution".

The DAO itself (both legal entities) will require a minimum of $USD 12,870.00 per year in legal expenses to comply and be in good standing with authorities. This doesn't include any other kind of expenses like advisors, development, exchanges fees, accounting and tech services (servers, domains, etc) but it's a good minimum target to consider to know the health of the DAO.

A public "governance constitution"

Most DAOs out there say they follow their rules but the truth is that with full anonymity and no legal requirements most DAOs use the funds in the way they want even if that means hurting their community, our strategy is different because by using legal entities there is a legal requirement from the DAO to actually follow the rules defined which can only be changed by the token holders.

The advantage of no competition

One of the main advantages of being early in the Soroban space is that our protocol doesn't have any similar competition, at the same time it gives something new to the network's users... But that doesn't mean there is no competition outside of the Stellar network, we can say DAI and any other decentralized stablecoin could be competitors, still, we don't see them as competition and instead more like options for users.

Do you want to know the main differences with similar protocols and why we might be better? you can check it on our first draft at https://docs.fxdao.io

Why us?

As the creators of https://xbull.app (non-custodial wallet) and currently working on https://bitguardians.io (decentralized solution to back up keys) we believe in non-custodial and decentralized solutions, we believe in the importance of the blockchain ecosystem and we have the same goal.

The first step is creating a proof of concept of the core smart contract of the protocol: being able to mint, burn and repay positions. With this, the initial use of the protocol can be tested in the Soroban futurenet/tesnet. This PoC doesn't provide the safeguards nor any other liquidations/limitations rules defined in the documentation which keep the stability of the system but still, it's an important first piece of the system so we start testing it.

This proof of concept needs to include these features:

- Allow users to open vaults and lock Lumens on it

- Mint a stablecoin based on values locked at the vault

- Allow users to repay the collateralized loan and get the Lumens back

- Burn the stablecoin once the user has repaid its loan

We will host a simple website at https://futurenet.fxdao.io which will make easier the interaction with this first smart contract easier. Here reviewers can connect their wallets (on the soroban testnet/futurenet) and interact with. The site will also include a simple explorer so reviewers can see how the futurenet/testnet ledger gets updated.

-- UPDATE:

In order to test the first deliverable you need to have a funded stellar account in the futurenet and have the browser extension Freighter with the experimental option enabled (otherwise you won't be able to sign Soroban transactions).

Go to https://futurenet.fxdao.io, connect your wallet, click on menu and go to the "vaults" page.

In this page you can create a vault and lock your XLMs in exchange of an stablecoin asset. The site will detect if you don't trust the asset and will add the trustline automatically. We suggest 3000 XLM and 100 STABLE but you can pick any values as long the collateral ratio is greater than 115% and the STABLE amount is greater than 100 (values and asset names are for test purposes and will be different once the protocol is ready).

Once the vault is created you will see in your wallet the STABLE amount you wanted and the XLM balance reduced. After that you will be able to do the following: Increase the debt, increase the collateral or pay the debt. If the debt is fully paid the vault will be removed and you will receive the collateral again.

This simple PoC webapp allows the interaction with the basic logic of the protocol and from here we can start adding the rest of the logics (liquidations, stability pools, etc)