Overview
Resolv is the protocol behind the $USR stablecoin, which is backed by $ETH and pegged to the U.S. Dollar. The protocol introduces a stablecoin architecture termed True Delta-Neutral (TDN), aimed at achieving market neutrality by tokenizing a blend of on-chain assets and fully hedged derivatives positions. The allocation of $ETH in this strategy is dynamic and depends on several factors (e.g. price). This design contrasts with the conventional pseudo-delta-neutral strategies and circumvents the liquidation risks typically associated with Collateralized Debt Position (CDP) mechanisms.
The architecture of $USR ensures that it remains decoupled from fluctuations in the crypto markets, enhancing capital efficiency and providing an additional layer of protection for stablecoin holders. This is facilitated by segregating CeFi and DeFi risks into a separate token, the $RLP (Resolv Liquidity Provider). This tokenization of risk exposure allows $USR to maintain a backing purely by on-chain assets, paving the way for a trustless stablecoin framework.
Moreover, the protocol is designed to generate a fiat-independent yield, distributing competitive returns to its holders and reinforcing the protocol economy. Resolv generates this yield from staking $ETH rewards and maintaining perpetual futures positions. Staking is performed entirely on-chain. Resolv uses both CEXs and DEXs for perpetual futures positions to get the best of both worlds.
Why the Project was Created
The creation of Resolv was motivated by the need to address significant limitations in the current stablecoin designs, which have slowed their broader adoption in global markets. Despite stablecoins being a foundational layer in DeFi with a combined market cap exceeding $100 billion, their integration into wider financial systems is impeded by structural vulnerabilities.
Stablecoins backed by real-world assets like fiat currencies and money market instruments provide essential liquidity bridges between fiat and crypto markets. However, they also subject holders to potential disruptions, censorship, and credit risks tied to traditional financial institutions. Moreover, fiat-backed stablecoin issuers do not offer any yield to their users and token holders. They take USD and put it into yield-bearing instruments such as treasury bills (T-Bills), generating substantial revenue that is kept entirely by them. For instance, Tether ($USDT) has over $70 billion in treasury bills and other assets that produce enormous profits every quarter, yet token holders do not receive any share of it.
On the other hand, crypto asset-backed stablecoins are predominantly managed through CDP mechanics, offer reduced dependency on external financial systems, and share a percentage of their profits with token holders. However, they suffer from capital inefficiencies. These inefficiencies shorten the potential for leveraged financial positions, reducing liquidity and price stability despite being fundamentally overcollateralized.
| Aspect | Fiat-backed Stablecoin | Crypto-backed Stablecoin |
| Liquidity Bridge | Provides essential liquidity bridges between fiat and crypto markets by representing fiat currencies on the blockchain. | Offers liquidity within the crypto ecosystem without direct fiat integration, relying solely on cryptocurrencies as collateral. |
| Exposure to Real-World Risks | Subject to potential disruptions, censorship, and credit risks tied to traditional financial institutions (banks) and regulatory bodies (SEC). | Reduced dependency on external financial systems; less exposure to real-world disruptions and censorship; and vulnerable to crypto market risks. |
| Yield to Token Holders | Does not offer yield to users; profits from underlying assets (e.g., treasury bills) are retained entirely by the issuers. | Most share a percentage of profits with token holders through mechanisms like staking or governance participation, allowing users to earn yield on their holdings. |
| Capital Efficiency | Generally capital-efficient, requiring a 1:1 backing with fiat currency, allowing users to mint stablecoins equal to their fiat deposits without overcollateralization. | Suffers from capital inefficiencies due to overcollateralization requirements (users must deposit more cryptocurrency collateral than the value of the stablecoins they receive), limiting liquidity and leverage potential. |
| Reliance on Central Authorities | Relies on central entities for issuance, redemption, and reserve management, introducing centralization risks and dependence on the trustworthiness of the issuing organization. | Operates in a decentralized manner using smart contracts and algorithmic mechanisms, reducing reliance on central authorities and enhancing transparency and trustlessness. |
| Price Stability | Maintains peg through direct fiat backing; stability is closely tied to the stability and availability of the underlying fiat currency in traditional financial systems. | Maintains peg using overcollateralization and automated mechanisms within smart contracts; may face challenges in extreme market volatility, potentially affecting price stability despite overcollateralization. |
| Risk of Overcollateralization | Not required; stablecoins are typically backed 1:1 with fiat reserves, making them capital-efficient from the user’s perspective. | Requires overcollateralization (sometimes significantly more than 100%) to account for cryptocurrency volatility, making them less capital-efficient and tying up more user assets than the stablecoin’s face value. |
| Transparency | May lack transparency regarding reserve holdings; audits and disclosures are often infrequent or not publicly available, leading to trust issues among users. | Offers greater transparency through on-chain collateralization; users can verify reserves and collateral ratios directly on the blockchain, increasing trust and accountability. |
| Regulatory Compliance | Subject to regulatory scrutiny and compliance requirements in multiple jurisdictions (see $USDT & $BUSD), changes in regulations can impact operations and user access. | Operates outside traditional regulatory frameworks, potentially facing regulatory uncertainty or future compliance challenges as regulations evolve to address decentralized financial instruments. |
| Dependence on External Systems | Highly dependent on traditional banking systems, financial infrastructure, and regulatory environments for reserve management and operations. | Independent of traditional financial systems; operates within the blockchain ecosystem, reducing exposure to external financial disruptions but potentially increasing exposure to blockchain-specific risks. |
Resolv introduces a dual-tranche architecture that aims to overcome the challenges related to crypto-backed stablecoins by segregating risks and ensuring full backing by on-chain assets independent of centralized financial systems. This architecture allows the senior tranche of the stablecoin to operate without reliance on central authorities like protocol contributors or third-party exchanges and custodians. The protocol architecture includes rule-based safeguards within its smart contracts to enhance trustlessness across all levels, from treasury management to decentralized governance. These measures ensure operational resilience and align with the broader goal of implementing a trustless, decentralized stablecoin ecosystem.
Advantages of Resolv
Resolv’s stablecoin architecture provides several compelling advantages that address prevalent issues in traditional and crypto-backed stablecoin designs:
- Market Neutrality: The protocol achieves stability in its net value through a mechanism where $ETH spot price changes are offset by corresponding perpetual futures positions of the same notional amount. This design ensures the value remains stable regardless of market volatility, achieving delta neutrality.
- Independence from Fiat Currencies: Resolv operates without directly linking to fiat currencies. There is no reliance on physical dollars; the connection to fiat is only through claims on exchanges, which are managed to minimize counterparty risks effectively.
- Capital Efficiency: The protocol allows for the minting of $USR or $RLP tokens by locking up an equivalent value of assets, net of minting costs. This system eliminates the need for over-collateralization typically r