Stablecoins occupy a vital position in transactions, payments, and savings in the crypto industry. As of now, the market value of stablecoins is approximately US$200 billion, accounting for the entire stablecoin leader Tether (USDT), which currently has a market value of US$138 billion. In the past year, a number of high-profile stablecoin protocols have emerged in the market, providing income to stablecoin holders through real-life U.S. Treasury bonds or hedging strategies.

Beosin has previously analyzed mainstream centralized stablecoins and launched Stablecoin Monitoring in August this year to help stablecoin issuers and regulators conduct Stablecoin ecological monitoring. This article will help users understand its operating mechanism, audit points, and compliance challenges through case studies of relevant stablecoin protocols.

Ethena - USDe

Ethena is currently the fastest growing stablecoin protocol. The market value of USDe reaches 5.5 billion, surpassing DAI to become the third largest stable currency. Currently, users holding sUSDe (placing USDe) can obtain an annualized return of approximately 30%, which has attracted much market attention.

Protocol Principle

Ethena provides stablecoins that represent the value of Delta-neutral positions. Mainstream assets such as ETH are tokenized for arbitrage trading on centralized exchanges.

Take ETH as an example. If Ethena holds 1 ETH spot, it will hedge by "shorting" on a perpetual contract with a position of 1 ETH. , obtain capital rate income through futures arbitrage. Additionally, Ethena actually uses stETH as margin for ETHUSD and ETHUSDT perpetual positions on centralized exchanges.

Therefore, the income of USDe comes from two parts: the pledge income of mainstream assets (such as ETH) and the capital rate income of futures and spot arbitrage. Every week Ethena pays sUSDe Yield Distributions (0x71E4f98e8f20C88112489de3DDEd4489802a3A87) to the StakingRewardsDistributor contract (0xf2fa332bD83149c66b09B45670bCe64746C6b439) Send proceeds:

https://etherscan.io/address/0x71e4f98e8f20c88112489de3dded4489802a3a87< /p>

StakingRewardsDistributor is the core contract of the Ethena protocol. There are two roles in the contract: Owner and Operator. The Owner has the authority to update the contract configuration and modify the Operator. The Operator is authorized by the Owner to mint USDe and send USDe income to the pledge contract. role.

Operator transfers USDe to the pledge contract

Currently, the owner address of this contract is 0x3B0AAf6e6fCd4a7cEEf8c92C32DFeA9E64dC1862, which is controlled by a 4/8 multi-signature wallet.

Security risk

1. Centralization risk

Ethena's main security issue stems from the custody method used by centralized exchanges for futures arbitrage and over-the-counter settlement. Ethena currently uses companies such as Cobo, Ceffu and Fireblocks as custody and OTC service providers, with approximately 98% of collateral concentrated on three major exchanges: Binance, OKX and Bybit. Once a custodian or exchange fails to operate properly (either due to operational issues or technical issues), the stability of USDe may be jeopardized.

Although Ethena has implemented a fund verification service (similar to Proof of Reserve) through which all collateral in the protocol can be verified, this service is not currently available to Open to ordinary users.

2. Market risk

USDe’s profit mechanism may encounter continued negative funding rates, which may result inThe return of futures arbitrage in Ethena's return design becomes negative. While historical data suggests that such periods of negative returns are relatively short-lived (less than two weeks), the potential for longer-term adverse conditions ahead must be considered. Therefore, Ethena should prepare sufficient reserve funds to cope with this difficult period.

In addition, since Ethena uses stETH as collateral, although stETH has sufficient liquidity, since the Ethereum Shanghai upgrade stETH can be queued to be withdrawn into ETH, stETH and ETH The price difference does not exceed 0.3%, but in extreme cases, the possible negative premium of stETH will cause the value of Ethena's collateral on the exchange to decrease, which may cause its futures hedging position to be liquidated.

In addition to Ethena, there are currently multiple similar stablecoin protocols in the market, such as BNB Chain’s USDX Money and Avalanche’s Avant Protocol. Their operating mechanisms The security risks are very similar to Ethena and will not be described in detail.

Usual Money - USD0

USD0 launched by Usual Money is a real-world asset (U.S. Treasury Bonds) 1:1 supported stablecoin, its innovation lies in the combination of RWA and token economy.

Principle of the agreement

Before Usual Money, there had been a number of U.S. Treasury bonds-based Collateral stablecoin protocols, the largest of which is Ondo Finance and its stablecoin USDY. The underlying assets of USDY are short-term U.S. Treasury bonds and bank deposits, managed by Ankura Trust Company, providing USDY holders with a yield of approximately 5%.

Different from protocols such as Ondo, Usual Money has three types of tokens. One is the stable currency USD0 issued with RWA assets as reserves at a ratio of 1:1. ; The second is USD0++, the liquid bond certificate designed by the protocol, and the third is its governance token $USUAL. Holding USD0 will not generate any income. Users can capture profits only after converting USD0 to USD0++. You can choose one of the following two ways to earn income:

1. $USUAL income per block: USD0++ holders pay $UReceive its income in the form of SUAL tokens per block.

2. Lock in 6-month returns: USD0++ holders are guaranteed to receive returns at least equivalent to the USD0 collateral, that is, treasury bonds (risk-free returns). Users must lock their USD0++ for a specified period of time (currently designed to be a period of 6 months). After 6 months, users can choose to receive their earnings in the form of $USUAL tokens or USD0.

All the treasury bond income earned by USD0++ will go into the protocol treasury, so that the token value of $USUAL is linked to the protocol income. From the above two ways of receiving income, we can also see that in fact the income received by USD0++ holders is related to the $USUAL token. In addition, the governance of the protocol needs to be decided through $USUAL token voting, and revenue-related proposals will attract more token holders, which provides room for gaming on the price of $USUAL tokens.

Usual Money has the following key contracts:

1.SwapperEngine

is used to convert USDC to USD0. Users deposit USDC to create orders, and the provider of USD0 matches these orders and converts the user's USDC to USD0.

https://etherscan.io/address/0x9a46646c3974aa0004f4844b5fcd9c41b2337a7f#code

2.Classical Oracle

Aggregating existing oracle machine quotes, the core function is _latestRoundData(), which is responsible for obtaining the latest token prices and verifying price data:

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https://etherscan.io/address/0xdec568b8b19ba18af4f48863ef096a383c0ed8fd#code

3. DaoCollateral

This contract is mainly responsible for USD0 and RWA Token (currently USYC, US-compliant treasury bonds as collateral) exchange of interest-bearing stablecoins, and has set up a Counter Bank Run (CBR) mechanism to deal with liquidity risks. The CBR mechanism is currently closed.

Convert RWA Token to USD0

Convert USD0 to RWA Token< /p>

Security risk

In the bond market, longer durations are usually compensated by higher yields. However, the potential yield of USD0++ is only at the level of short-term US Treasury bonds, and the levels of risk and return are not equal. Currently, the United States has entered During the interest rate cut cycle, the yield of USD0++ will only become lower and lower, and the capital efficiency of its holders is not high.

The current market has exceeded. 700 million USD0++, USD0-USD0++ on Curve The liquidity is only 140 million U.S. dollars, and the USD0++ available for withdrawal accounts for about 20%, which may lead to the de-anchoring of USD0++ in the event of a run.

Compliance supervision

Accompanying the rapid expansion of the stablecoin market is increasingly severe regulatory pressure around the world, especially in terms of anti-money laundering (AML) and counter-terrorism financing (CFT). The challenges faced by stablecoin issuers are becoming increasingly complex, how to ensure The flow of stablecoins is safe and meets compliance requirements around the world, which has become a key problem for the industry.

Take Hong Kong as an example. Hong Kong on December 6. The highly anticipated Stablecoin Bill was announced. This legislation provides a detailed regulatory framework for issuers of fiat-referenced stablecoins (FRS). The following are some of the key requirements for stablecoin issuers. ：

Reserve assets

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a. A separate reserve asset portfolio must be established for each stablecoin to ensure that its market value is equal to or exceeds the face value of the unredeemed stablecoin.

b. Reserve assets must be managed independently of other institutional assets.

c. Investment should give priority to high-quality, high-liquidity, and low-risk projects.

d. Sound risk management and audit procedures must be established.

e. Require public disclosure of reserve asset management, risk control and audit results.

Stablecoin redemption mechanism

a. Licensed institutions must ensure the unconditional security of stablecoins redemption, and no unreasonable restrictions shall be imposed.

b. Redemption requests must be processed promptly and paid in the form of agreed assets after deducting reasonable fees.

c. In the event of bankruptcy, stablecoin holders should have a proportional right to redemption.

Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT)

a. Licensing institutions must implement money laundering and terrorist financing prevention measures involving stablecoins.

b. Compliance with the Anti-Money Laundering and Terrorist Financing Regulations and related measures is mandatory.

No interest

a. Licensed institutions are prohibited from paying stablecoin interest or assisting in any form interest payments.

As for non-currency-linked interest-bearing stable currency agreements, there are currently no clear and specific regulatory regulations in Hong Kong.

The current regulatory framework in Hong Kong aims to ensure the stability, security and transparency of the fiat-linked stablecoin ecosystem, while protecting the rights and interests of relevant stakeholders. The Bill is scheduled to be reviewed for the first time in the Legislative Council on December 18.

In the United States, the stablecoins USDY and USYC supported by the U.S. Treasury Department are interest-bearing stablecoins that directly provide income to holders through tokenized U.S. Treasury bonds. USYC is regulated by the U.S. Commodity Futures Trading Commission, and the collateral of the Usual Money protocol in this article is USYC.

Interest-earning stablecoins based on DeFi or centralized exchange trading strategies face more complex market risks. How to protect the rights and interests of corresponding stablecoin holders? It remains a difficult problem faced by regulatory agencies in various regions.

Beosin has previously completed security audits on multiple stablecoin protocols, such as Aqua Protocol, the leading stablecoin project in the TON ecosystem, Hope Money in the Ethereum ecosystem, and the BTC ecosystem The audit content of the star stablecoin project BitSmiley covers the security of the smart contract code, the correctness of the business implementation logic, the gas optimization of the contract code, the discovery and repair of potential vulnerabilities, etc., to promote the safe development of the protocol.

Summary

In this article, we analyze the principles, core contract codes and risk points of the interest-bearing stablecoin protocol. The project party still needs to pay attention to the security of the project operation level and the contract business logic level, especially in terms of authority management. At the same time, stablecoin protocols need to handle extreme market conditions through good risk management and sufficient capital reserves to ensure that the value of their stablecoins is not affected.