Fluid Protocol Overview
An over-collateralized, decentralized borrowing platform for the Fuel ecosystem.
USDF is an over-collateralized, native stablecoin built on Fuel Network. Borrowers can draw 0% interest-free loans by depositing their collateral, whereby receiving USDF. Fuel Network is the fastest modular execution layer, delivering maximum security and highest flexible throughput.
Stablecoin Landscape
Decentralized stablecoins have flourished in the last several years, with various design models gaining traction. The protocol design is inspired by leading stablecoin protocols, primarily Liquity protocol. If you are not familiar with Liquity, you can read their docs here. These docs assume familiarity with Liquity's mechanism design, so please start there.
What we like about Liquity:
Liquity is fully immutable
Liquity's stablecoin cannot be shut down or frozen.
Other relevant protocols:
Hedge is an example of a liquity-inspired protocol that uses a liquid staked native token as an alternative collateral type.
MAI is an example of a stablecoin protocol charging 0% interest + fixed rate fee.
Vesta is a liquity-based protocol on Arbitrum. Vesta implements multiple collateral types, although with separate stability pools.
Currency Peg
Fluid Protocol is committed to meeting the needs of protocol users for a stable digital currency on Fuel. The U.S. Dollar (USD) is an important international reserve and is the most widely used fiat currency in the world.
USDF is a digital asset that is soft-pegged and serves as an equivalent to the USD on a 1-1 ratio. USDF is designed to maintain a price of approximately $1. Given that protocol design is dependent on assumptions about the future, USDF acts a soft peg and does not provide assurances for price stability.
Differences from Liquity
Of the various protocols that have been inspired by Liquity Protocol, Fluid Protocol is among the most differentiated in mechanism design, and therefore we will be testing and potentially adjusting all of these factors and parameters during testnet.
Advantages of Fluid Protocol
Interest- free Liquidity
Fixed Minimum Collateral Ratio (135%)
Protocol Incentives
Multi Collateral Types
Partial Liquidations
Governance- free Algorithmic Fiscal Policy
Censorship Resistant
Multiple Collateral Types
Fluid accepts a basket of collateral types, including:
ETH, wstETH, EzETH, PzETH, weETH, RsETH, mETH
Fixed CR instead of Recovery Mode
Fluid Protocol uses a Fixed Minimum CR (Collateral Ratio) of 135% (slightly less than 75% LTV), as the minimum safe ratio. For reference, Aave currently uses 82.50% LTV (Loan to Value) for ETH collateralized loans. During protocol design, we opted not to implement Recovery Mode. Recovery Mode can potentially catch users off guard during periods of high volatility.
Imagine the following situation: You open a trove with 170% CR. Another user opens a trove at 110% CR while Recovery Mode is disabled (because of your position). The price of the native collateral takes a steep dive. The other user is liquidated, the collateral is sold on the market further lowering the collateral price, and now your CR has dipped below 150% as a result of the collateral losing value, and Recovery Mode is activated. You are now subject to be liquidated, potentially near 150%.
Because of the high liquidation risk associated with low CR troves, only a small portion of users actually use such troves. At the time of writing, only 25 out of 630 troves in Liquity are below 135% CR. Liquity's docs also encourage users to maintain a CR above 150%. While Recovery Mode may slightly increase capital efficiency for a small subset of users during calm market conditions, we feel the simplicity and peace of mind of having a hard fixed minimum CR will benefit users in the long term.
Liquidation Mechanism and Penalty
Fluid Protocol is the first Liquity-inspired protocol to support partial liquidations. See Liquidation and Stability Pool for more info.
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