Mhairi
March 2, 2022, 1:00pm
1
The DVM should support price requests for the STABLESPREAD price index, denonominated in ETH. STABLESPREAD is defined as: min(max(A - B + 1, 0), 2) , where A refers to an equally weighted basket of {UST, CUSD, BUSD}. B is an equally weighted basket of {USDC, USDT}. UST is TerraUSD, the interchain stablecoin connected by the Cosmos IBC. CUSD is Celo Dollar, the stablecoin on the Celo network. BUSD is Binance USD, a stablecoin issued by Paxos in partnership with Binance. USDC is a centralized stablecoin issued by Circle and Coinbase. USDT is a non-transparent centralized stablecoin issued by Tether, currently the most used stablecoin on Ethereum.
## Headers
| UMIP-28 | |
|------------|------------------------------------------------------------------------------------------------------------------------------------------|
| UMIP Title | Add STABLESPREAD as a price identifier |
| Authors | Bae (bae@youmychicfila.com), K (k@youmychicfila.com) |
| Status | Approved |
| Created | December 12, 2020 |
## Summary (2-5 sentences)
The DVM should support price requests for the STABLESPREAD price index, denonominated in ETH. STABLESPREAD is defined as: `min(max(A - B + 1, 0), 2)`, where `A` refers to an equally weighted basket of {UST, CUSD, BUSD}. B is an equally weighted basket of {USDC, USDT}. UST is TerraUSD, the interchain stablecoin connected by the Cosmos IBC. CUSD is Celo Dollar, the stablecoin on the Celo network. BUSD is Binance USD, a stablecoin issued by Paxos in partnership with Binance. `USDC` is a centralized stablecoin issued by Circle and Coinbase. `USDT` is a non-transparent centralized stablecoin issued by Tether, currently the most used stablecoin on Ethereum.
## Motivation
The DVM currently does not support the STABLESPREAD price index.
Supporting the STABLESPREAD price identifier would enable the creation of a linear combination of stablecoin baskets, both existing on Ethereum and other blockchains. Token minters could go short on the STABLESPREAD index, while token holders could go long or use synthetic STABLESPREAD for functional purposes.
There has been an increasing growth of non-Ethereum based stablecoins over the last few months, and especially over the last week in the case of UST, given the Mirror launch earlier this week. Each of these stablecoins have their own quirks and mechanisms in which they aim to target their peg. There appears to be somewhat of a growing dichotomy in terms of folks who believe that non-Ethereum based stable coins are able to retain their peg better. Currently, there does not exist a mechanism for users to express a view on the relative performance of which basket of stablecoins actually retains it peg better without actually acquiring the underlying constituents of the long basket and picking up a synthetic short position of the other basket.
Further, we also believe STABLESPREAD can act as a defi credit spread primitive where folks can build other products on top, such as an insurance based product where the premium of the insurance is tied to the divergence between the two baskets of stablecoins. Additionaly, one can view the probability of default of a stablecoin as `1 - min(price, 1)`. Given that each basket of stablecoins is a convex combination, then it is also a convex combination of default probabilities. STABLESPREAD is then a difference of convex combination of default probabilities. We also believe that a CDS (credit default swap) can be built on top of this since they are effectively a function of default probabilities, and once STABLESPREAD gets whitelisted as a price identifier, we will start development on such products.
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