Overview

Introducing the two tokens and the overall structure of the system

Structure and Purpose

The purpose of this page is to provide potential users of the OracleFreeDollar OFD system with everything they need to know to meaningfully intereact with it. For a deeper analysis of its economic properties, we refer to the research publication and for actually interacting with the system, there will be a standardised frontedn. The name OracleFreeDollar hints at its self-governing nature, but also the risks associated with releasing an artificial machinery intot the wild.

OracleFreeDollar (OFD) and OracleFreeDollar Pool Share (OFDPS)

The OFD system comes with two ERC-20 tokens, a stablecoin called OracleFreeDollar (OFD) and a governance token called OracleFreeDollar Pool Share (OFDPS) . Unlike other collateralized stablecoins, OFD does not depend on external oracles, making it less susceptible to certain attacks and also more versatile with regards to the used collateral. The disadvantage of that approach is its speed, performing liquidations over the course of days whereas oracle-based systems might react within minutes.

The OFD is a collateralized stablecoin that tracks the value of the USDT. There is no hard peg to the US Dollar, but a set of economic constraints that incentivizes the market to softly push it towards parity from two sides. Most importantly, the system is over-collateralized: for each OFD in circulation, there must be other tokens worth at least one OFD backing it. Furthermore, OFDPS holders have a number of ways to influence the long term price of the OF by making it more or less expensive to mint OFD, similarly to how a central bank keeps the exchange rate of its own currency in balance. The underlying assumption here is that the OFDPS holders recognize that the system (and therefore also their tokens) is the most valuable when the OFD tracks the USDT as reliably as possible, and that they use their power to govern the system accordingly.

Oracle Free Dollar Pool Shares are the governance token of the system. Anyone can obtain newly minted OFDPS by providing equity capital to the system (or later return them again to get their share of capital back). The OFDPS holders benefit from the earned fees and liquidation profits, but they are also the ones that carry the residual risk of liquidations, similar to the shareholders of a bank. Therefore, OFDPS holders have an incentive to grow the system and ensure its stability. The governance process is veto-based: anyone can propose new types of collateral or even completely new methods to bring OFD into circulation, but already 2% of the voting power suffices to veto such proposals.

Use Cases

Like other stablecoins, the Oracle Free Dollar primarily serves three use-cases. The only use-case described extensively in this documentation is that of borrowing as it is embedded in the system. To fully leverage the other use-cases, further tools and services such as exchanges and wallets are necessary that are not described herein.

Payments

The OFD can be used to make payments in US Dollar currency. Please consult the landing page for a list of apps and services that help in using the OFD as a means of payment, as well as a list of bridged OFD token on other networks than Binance Smat Chain. Payments typically concern small amounts and therefore a layer two instance of the token might be preferred over the mainnet instance.

Borrowing / Seignorage

Anyone can mint new OFD against a collateral using the built-in borrowing mechanism. All borrowing is based on what we refer to as positions. In Liquity, these are called troves and in the Maker system vaults. They all refer to the account of a user within the system that holds a positive balance of a collateral asset and a negative balane of OFD that must be repaid in order to get the collateral back. The OFD system charges a non-refundable interest rate up front when minting new OFD . Some of the minted OFD are also held back as a reserve in case the position has to be liquidated.

Technical Architecture

The OFD system consists of a set of smart contracts on the Binance Smart Chain mainnet. The two token contracts serves as a foundation for everything else. The OFD can have an arbitrary number of contracts that have the power to mint and burn OFD . Anyone can propose new such contracts and once they passed the governance process, they can start minting and burning OFD. The FPS token has built-in governance features and holds the equity capital of the system.