Gambit provides a capital efficient model for creating stablecoins while maintaining their pegged value.
An overview of how the protocol works:
  • Setup:
    • The price of BNB is 200 USD
    • BNB has been whitelisted in the protocol
  • Minting:
    • Alice can sell 1 BNB to the system
    • The system would mint 200 USDG to Alice
  • Longing:
    • Bob can open a 2X BNB long by depositing 1 BNB into the system
    • The system now has 2 BNB
  • Stability:
    • If the price of BNB increases to 210 USD, the system would have 420 USD worth of BNB, it can pay Bob 220 USD worth of BNB and still have 200 USD worth of BNB to back Alice's 200 USDG tokens
    • If the price of BNB decreases to 190 USD, the system would have 380 USD worth of BNB, it can pay Bob 180 USD worth of BNB and still have 200 USD worth of BNB to back Alice's 200 USDG tokens
    • If the price of BNB decreases to 100 USD, Bob would get liquidated, the system would not owe Bob any BNB, but it would still have 200 USD worth of BNB to back Alice’s 200 USDG tokens
  • Burning:
    • Alice can burn USDG at a rate of (collateral in system) / (supply of USDG)
    • Just based on the formula, the redemption rate can increase beyond 1 USD, to avoid this, the redemption price is capped at 1 USD
Maintaining the peg
USDG can be redeemed at a 1:1 ratio for any stablecoin (BUSD, USDC, USDT), so as long as there are stablecoins in the system USDG's price will be kept at 1 USD.
For non-stable assets, the redemption rate for USDG would be (Pool / USDG Debt) for the asset, these values are shown on the Dashboard.
Other mechanisms to maintain the peg:
  • Fees distributed as interest to USDG holders can help drive demand for USDG, the interest earned can make up for the shortfall over time
  • 50% of fees earned is sent back into the system as collateral, allowing the system to become over-collaterised over time
  • Unlike purely algorithmic stablecoins or overcollateralized stablecoins, supply can meet demand at a 1:1 ratio
  • The ability to mint USDG with no slippage and no spread using any whitelisted asset gives USDG an in-built utility
  • The system can have a very large amount of liquidity and range of assets for anyone to open a long position with no slippage and no spread
  • Assets in the system can also be used for Cross-asset Swaps. For example, if both BNB and ETH are whitelisted assets then a swap from BNB to ETH and vice versa could be done through Gambit with zero slippage
  • Fees are generated on minting USDG, burning USDG, cross-asset swaps, opening positions, closing positions and funding rates
Comparisons with MakerDAO
MakerDAO is a protocol to mint over-collaterised stablecoins with multiple whitelisted assets. Some trade-offs in comparing the two protocols:
  • With over-collaterisation MakerDAO has a safety net to help maintain the peg
  • Minters of stablecoins in MakerDAO must maintain their collateral or they risk being liquidated
  • By allowing USDG to be minted at a 1:1 ratio, Gambit trades off a safety net for capital efficiency
  • By allowing market demand and interest to help maintain the peg, Gambit trades off a hard peg for minters of USDG to have no risk of liquidation
  • Similar to MakerDAO, Gambit allows its stablecoins to be backed by a basket of whitelisted assets
  • When there is over-collaterisation, each collerisation is segregated and not interchangeable
  • By removing over-collaterisation, Gambit's pool of USDG collectively represents all collerisation, this allows the collateral and its benefits in the form of fees to be encapsulated in each USDG and be easily transferrable
Comparisons with Synthetix
Synthetix is a protocol for minting over-collaterised Synthetic assets.
  • In Synthetix's model, the SNX token is used as collateral to mint Synthetic assets that can be traded between each other with no slippage. The minters who stake SNX, collectively take on the debt of the system and act as counter-parties to trades within the system
  • In Gambit's model, this idea is flipped as USDG minters sell debt to the system, which is then taken up by traders who open long positions. With this model, minters do not have to over-collaterise or risk potential losses by acting as counter-parties
  • Synthetix's model has more flexibility as it allows any asset with a price feed to be supported, while Gambit requires actual tokens to be sold to the system. There is room for composability here, where a Synthetic asset could be whitelisted and used as collateral in Gambit.
  • Similar to Synthetix, Gambit allows for zero slippage trades between assets in the system
Last modified 11mo ago
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