Thala: A powerful universal dollar stablecoin in the Move ecosystem
Why do we need stablecoins on Move?Original Title: "A Robust Dominant Stablecoin Built on Move"
Original Authors: Henry Ang, Mustafa Yilham, Allen Zhao & Jermaine Wong, Bixin Ventures
Why Do We Need Stablecoins on Move?
As we mentioned in our Year-End Review, one of our core investment principles is to support decentralization and censorship resistance; a decentralized economy requires decentralized stablecoins. We are also confident in blockchain projects based on Move, such as Aptos and Sui, believing they will form the foundation of a robust and vibrant developer ecosystem that can build the next generation of Web3 applications and achieve the feat of attracting a billion users. Therefore, we align closely with the vision of Thala Labs to develop a more powerful decentralized stablecoin while supporting the growth of the entire Move ecosystem.
After the shocking collapse of Terra last year, we conducted an in-depth study of the stablecoin market and found that centralized fiat-backed fully collateralized tokens like USDT and USDC, or over-collateralized tokens like DAI, suffer from capital inefficiency and a lack of composability. Thus, we believe that decentralized stablecoins in the Move ecosystem can reduce liquidity risks while enhancing the autonomous development of their own ecosystem and optimizing the existing debt position model.
How Do Thala's Move Dollar (MOD) and Other Thala Products Work?
Move Dollar (MOD)
MOD is an over-collateralized stablecoin supported by a class of assets that includes native and multi-chain assets, such as liquid collateral derivatives, liquidity pool tokens, and deposit receipt tokens. In the future, RWAs will be added to the collateral list.
The basic design of MOD will be:
Users mint (or in other words, borrow) stablecoins worth less than the value of the collateral, ensuring that the value of collateral in the system always exceeds the value of stablecoins in circulation.
Users with an open vault will have the option to redeem collateral worth 1 dollar (minus redemption fees) for MOD, establishing an effective price floor of 1 dollar.
MOD holders can deposit MOD into the Stability Pool to earn rewards, which will be used to stabilize the value of MOD.
When the value of collateral in a user's vault falls below a level deemed safe for supporting MOD, a liquidation process will occur.
The liquidation process is as follows:
First, MOD in the Stability Pool will be used to buy back collateral and distribute it to MOD providers in the Stability Pool.
If the MOD in the Stability Pool is insufficient to buy back the collateral, the liquidated collateral will enter a Dutch auction.
Only a portion of the collateral will be liquidated when it is being liquidated, up to the point where the value of the user's collateral returns to a safe level, rather than liquidating all collateral at once.
For collateral pricing, Thala employs a layered oracle design, meaning that even if one oracle goes offline, other active oracles can still provide quotes. The price of the main oracle is always prioritized unless the price data reports outdated prices or detects abnormal price fluctuations. Currently, Thala has two main oracle options: one is Pyth, and the other is our invested Switchboard.
Thala Swap
Thala Swap primarily serves to help stabilize the value of MOD and enhance the avenues for acquiring MOD. Upon reviewing some stablecoin projects that failed to gain attention, it is clear that a key factor is the availability of the stablecoin. If a specific stablecoin lacks use cases and composability, users have no reason to hold it. Thala Swap allows for combinations with other crypto assets and tokens in the Move ecosystem, which helps to promote demand for MOD.
Currently, Thala Swap's design includes three types of liquidity pools:
Weighted Pools are pools that exchange tokens by enforcing a constant weighted product invariant, where the weighted product of tokens is set to a fixed number, helping the pool determine the price of the tokens.
Stable Pools are a type of pool that allows assets to converge in value relative to each other at "1" with low price impact and low fees.
ThalaLaunch introduces a special pool on ThalaSwap called Liquidity Bootstrapping Pools (LBP). LBP is a subset of weighted pools, where the weight range of assets in the pool and the time required to move weights can be set arbitrarily by the pool creator. Once permission is obtained, the liquidity pool will be established and automatically balanced by the LBP manager contract. It is expected that Thala will issue its own governance token, and as many projects on Aptos begin to issue tokens, ThalaLaunch can become the most robust cross-chain compatible platform from day one, allowing value to return to Thala.
Currently, Thala anticipates that the MOD Liquidity Yield will be 5~10%, while for LBP (typically for new, smaller tokens), it could be 50% or even up to 100%.
DAO
Thala has a native token, $THL, which serves as Thala's governance token. Holders can initiate proposals, vote on issues, and suggest possible changes to protocol parameters, playing a key role in shaping the direction of the protocol.
While the protocol will initially be governed by the core team, Thala will transition to a DAO model once the necessary governance framework is established. $THL will adopt a veModel, aligning the governance of the Protocol with value objectives. To better increase the liquidity and use cases of $THL, veTHL is essentially an LP token of 80% $THL and 20% $MOD, where LP token holders need to lock their tokens in the liquidity pool for up to a year to earn more benefits, such as:
Creating and voting on key liquidity pool parameters
Enjoying discounts on project usage fees
Access to exclusive Discord channels
What Makes Thala Unique?
The Huge Market Size of the Move Ecosystem
In addition to Aptos, there are now more blockchains built on Move, including Mysten Labs' Sui and Solana Move VM. The ease of deployment and development, along with its high performance, gives Move blockchains incredible scalability. Thala recognizes that the lack of a native Move stablecoin is a clear gap in the current market, and thus aims to leverage this by building a dominant robust stablecoin in this ecosystem, similar to what other stablecoins like DAI have done in the EVM ecosystem.
Diversified Collateral
The main advantage of MOD is the diversity of its collateral; they plan to accept RWAs as collateral for MOD and are committed to integrating credit, U.S. short-term government bonds, real estate debt, and blue-chip stocks as collateral. Compared to digital assets, physical assets have lower volatility and are more tangible, providing more residual value. This is crucial because we believe DeFi needs to bridge the gap with other parts of the global economy, including real-world assets.
Focus on Security and Risk Management
To ensure the security and stability of the entire system and the stablecoin's peg, Thala is conducting a comprehensive and transparent assessment of the proposed types of collateral, covering smart contracts, counterparties, market volatility, and liquidity risks. You can read more about their framework here.
Most notably, they have implemented an Emergency Redemption Model (ERM), which essentially prioritizes the safety of holders by allowing MOD holders to directly redeem MOD for collateral after an emergency handling period. ERM serves as a last resort to enforce target prices directly to MOD and treasury holders, protecting Thala from attacks on its infrastructure and extreme and prolonged market instability and irrational periods. It activates a systemic redemption mechanism that will settle all ongoing protocol procedures.
Combining with AMM
As mentioned, the relationship between Thala Swap and $MOD allows its AMM to continuously provide liquidity to $MOD, while under sufficient liquidity conditions, users can use important liquidity tokens like $MOD-USDC as collateral to further mint $MOD tokens, completing leveraged operations and increasing yields. This approach is similar to MakerDao's G-UNI DAI/USDC pool and demonstrates the potential for user leverage in the market. If the CDP is not attractive enough to users, they can still earn returns by staking in the main AMM pools.
Thala's Future Roadmap
At the time of writing, MOD and ThalaSwap are preparing to launch their mainnet application in Q1 2023. Subsequently, Thala will focus on diversifying its collateral and cross-chain deployment, including adding RWAs to the MOD collateral list and deploying on other Move-based chains, such as Sui, Solana Move VM, and Sei. Thala will continue to expand its business, which may include further development of stablecoins like the Euro and Canadian Dollar in the future. Thala will also launch its native token THL and Thala DAO, achieving greater decentralization through community governance.
We look forward to closely collaborating with Thala in the future to continue building fully decentralized stablecoins and collateral-diversified stablecoins in the Move ecosystem.
