Stablecoin Series: USDJ

USDJ

We observe an increase in the number of blockchain platforms that want to take advantage of the stablecoins. Particularly, the increase in the number of stablecoin lending with crypto collateral has been one of the most significant factors that encourage the platforms in this issue.

In this article, we will study USDJ stablecoin. USDJ, which is a new stablecoin, has been launched by TRON, which is a well-known cryptocurrency network. TRON aims to offer credit opportunities using USDJ, to provide its users with fixed income yield, and to generate demand for TRX.

Before describing how the system operates, let’s examine the new tokens issued by USDJ.

PTRX and JST

We have been introduced to PTRX and JST tokens besides USDJ. These 2 tokens were also issued by the TRON network for the functionality of the lending system.

As can be estimated from its name, PTRX is a copy of the TRX coin, which we know from the crypto market. It was issued only for facilitating the lending mechanism of USDJ in order not to increase the transaction burden of TRX. The purpose of this token is to be used as collateral for loans received in USDJ.

On the other hand, JST token has been issued for commission fees of loans received in USDJ and for the proper operation of this credit system. Voting is required to make amendments and revisions on the system and only the JST token holders have the voting right.

How does the credit system work?

Currently, the system only accepts PTRX as collateral. Therefore, holding TRX is a prerequisite.

  1. You need to transfer your TRX coins to the JUST network (just.network) and exchange them to PTRX tokens to pledge as collateral. Since 1 PTRX = 1 TRX, the exchange transaction does not cause loss.
  2. After this transaction, a loan request needs to be sent to the JUST network.
  3. After sending the loan request, PTRX tokens in the balance need to be transferred as collateral for the loan transaction performed upon request.
  4. After the transaction of collateral transfer, USDJ tokens are issued and transferred to the account. The lending process is completed with this transaction.

Loan Repayment

  1. The loan amount received in USDJ must be paid in USDJ at the end of the loan period.
  2. In addition to the loan amount, the borrower must pay commission to the JUST network.
  3. The commission can be paid in JST or USDJ.
  4. The borrower can get back the PTRX tokens pledged as collateral after the repayment of the loan and paying the commission.
  5. The loan process is completed by exchanging PTRX coins back to TRX coins.

System Mechanisms

USDJ has mechanisms to be used both for its system regulations and for emergencies within the credit system. These mechanisms consist of important requirements and measures such as those for ensuring the stabilization of USDJ and withstanding sudden price changes.

  1. Unexpected Price Volatility

We may experience occasional unexpected steep fall in the crypto market. As described above, PTRX, which is pledged as collateral, is a copy of TRX coins in the market. Therefore, in case of a steep fall in the TRX coin, the pledged collateral may not be enough for the loan since the value of the collateral declines.

In this case, the JUST network tries to close the loan amount by auctioning the coins pledged as collateral. If the amount obtained after the auction exceeds the loan amount, the surplus is transferred to the borrower’s account.

  1. Price Stabilization

TRFM (Target Rate Feedback Mechanism) is the mechanism that changes the lending rates to keep USDJ stable.

For example, assume that 1 USDJ = 1.02 USD. TRFM will lower TRFM collateral rates to bring the price back to $ 1.00. Thus, it will facilitate getting a loan, as a result, the supply will be increased by generating new USDJ tokens. This will also reduce the demand for USDJ, thus, increase sales pressure and reduce the value.

Let’s consider the reverse of the above case and assume that 1 USDJ = 0.98 USD. TRFM will aggravate getting new loans by increasing collateral rates to ensure stabilization. Therefore, the supply shortage will be experienced due to not generating new USDJ tokens. At the same time, the supply shortage will increase the demand for USDJ and trigger the buying pressure in the market.

  1. Data Security

JUST network provides its data via Oracle. If data security is compromised in the event of a cyber-attack to the Oracle system serving the data, or a similar case, the Global Settlement Mechanism (hereinafter referred to as GSM) takes action.

As mentioned at the beginning of the article, JST owners, who have the authority to make systemic changes, can activate this mechanism.

After the mechanism is activated, the lending system is stopped, no new USDJ is generated, the price of USDJ is fixed at its current market price.

The collaterals and locked tokens in the JUST network are auctioned at the fixed USDJ price to provide liquidity.

After all these transactions, the borrowers who have USDJ tokens can exchange their USDJ tokens with TRX via the JUST network. There is no time limit for this clearing process.

  1. Risk Management

The decisions in the management of the USDJ system are taken by JST owners by the voting system. The proposal with the highest number of votes is considered valid and the proposed changes are made in the system. However, JST owners can appoint a manager/decision-maker to make critical decisions. The appointed person can make critical decisions by himself for unexpected sudden developments.

JST owners can change the following main features by voting:

A- They can make changes regarding the sensitivity of the TRFM mechanism that provides stabilization. They can fix the price of USDJ to a certain price level by increasing this sensitivity or offer a more volatile price compared to other stablecoins by lowering the sensitivity.

B- We said that the JUST network received the data required by the system via Oracle. JST owners can diversify the data sources or add specific data sources. This diversification can be increased so long as more than 50% of the data sources are active.

C- They can revise all regulations related to GSM such as how many approvers are required to activate the GSM mechanism.

D- Finally, JST owners can set new parameters on issues such as USDJ stabilization and risk management.

New terminology about the topic

Debt Ceiling: Maximum credit that can be generated on the system. Once this threshold is reached, no new credit can be generated. Therefore, the USDJ supply is stopped.

Liquidation Ratio: The liquidity rate of your collateral. That is, if the volatility of the cryptocurrency you pledged as collateral is low, you will have a low liquidity rate. Likewise, you will have a high liquidity rate for a high-volatility cryptocurrency. (Although only PTRX can be pledged as collateral, it is planned to diversify it in the future; therefore, it is more useful to read this article prospectively.)

Stability Fee: The amount of the commission to be paid by the borrower in addition to the loan amount. This commission can be paid in USDJ or JST.

Penalty Ratio: As mentioned above, if there is a surplus after the auction, the surplus of the collateral is transferred to the account of the borrower. Since the collaterals are in PTRX, Penalty Ratio is used by the users to refund the collaterals they hold in PTRX. The refunded PTRX tokens are burned to contribute to the TRX ecosystem. In this way, it is determined how much USDJ is sold at auctions and how much it is burned.

Finally, JST owners are responsible for the operation and security of the system. However, JST owners also have an income from the system due to the above-mentioned commissions. Therefore, it can be said that maximum efficiency is targeted by mutual interest relationship.

Since the collaterals are pledged in PTRX and thus TRX, it ensures the strength of the current reserve of the network. Also, we can say that it is aimed to create demand for TRX during the development phase of USDJ. It is because the collateral required for the loan can be provided only in TRX now. Therefore, we can project that the demand for TRX will increase as the demand for the loan given in USDJ increases. It should also be noted that PTRX tokens are locked up during the loan period. This will increase the number of TRX holders, albeit for a short time.

JST

JST tokens, one of the most important components for the system, will be launched by the Poloniex Exchange. Considering that one of the partners of Poloniex is Justin Sun (Founder of TRON), it is not an unexpected development. JST is also the first cryptocurrency to be offered to the public via Poloniex.

Requirements;

Poloniex stated that the JST sale will go public on May 5.

JST plans to earn $ 800,000 from this public offering.

JST tokens can only be purchased using TRX.

A person can buy JST tokens of the value of a minimum of 100 USD and a maximum of 5,000 USD.

The pre-sale will be made with a rate of 1 JST = 0.00202 USD.

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