FAQ
Why choose AquaUSD instead of jUSDT, jUSDC, jDAI, or even if an official USDT becomes available on TON?
Because Aqua Protocol is primarily a borrowing platform, offering greater capital efficiency. It creates AquaUSD independently, ensuring stablecoin availability without being constrained by the current low liquidity of other stablecoins in the TON ecosystem. Essentially, AquaUSD is optimized for borrowing, making it a unique and practical option in the DeFi space.
Why borrow money and receive only 50% of the funds in return?
Borrowing money within the Aqua Protocol and receiving just 50% of the funds in AquaUSD can be likened to a variant of Lombard lending. In this arrangement, you utilize a volatile asset, such as Toncoin, as collateral. This explains why, for the protocol's well-being and the support of AquaUSD, a lower level of liquidity is required than what you might expect.
Consider this scenario: You believe the current low price of Toncoin is temporary, but you need funds immediately. If you exchange your Toncoins for a stablecoin on market, you'd be locking in that loss at the low price. However, by using Aqua Protocol, you can lock in your Toncoins as collateral and receive liquidity without selling them. This way, you avoid crystallizing the loss while your Toncoins potentially appreciate in value.
Moreover, your collateral isn't idle; it continues to participate in staking, potentially increasing in value. When you decide to retrieve your collateral, it might be worth more than when you initially locked it in, providing an additional benefit beyond the liquidity you received.
Is AquaUSD an algorithmic stablecoin?
No, AquaUSD is not an algorithmic stablecoin because its value is backed by real assets, not algorithms. In general, there are three main types of stablecoins, each backed in its own way:
Fiat-Collateralized (1:1): These stablecoins are pegged to real-world currencies, such as the U.S. dollar, on a one-to-one basis. For every stablecoin in circulation, there is an equivalent amount in fiat currency held.
Over-Collateralized by Cryptocurrency (CDP): In this model, stablecoins are backed by other cryptocurrencies but in an amount exceeding the stablecoin's value. For example, for every dollar of stablecoin, there might be 2 dollars in cryptocurrency collateral. AquaUSD falls into this category, ensuring stability through excess crypto collateral.
Unsecured Algorithmic: These stablecoins use algorithms to manage their supply in the market, aiming to maintain price stability. They are not backed by any physical or digital assets and rely on complex mechanisms to support their value.
How can I use aquaUSD?
You can use AquaUSD in various ways:
Exchange on DEX: You can swap AquaUSD for TONcoin or jUSDT on decentralized exchanges (DEX).
Leverage Your Position: Purchase more Toncoins and use them as collateral within the Aqua Protocol to increase your position and potentially leverage it to double your holdings.
Trade on Storm Trade: Consider leverage trading AquaUSD on Storm Trade.
Short Position on Storm Trade: Use AquaUSD to take a short position on AquaUSD-Toncoin on the Storm Trade platform, which can help hedge your position against potential price decreases.
Exchange to Toncoin for CEX or Cash: Swap AquaUSD for Toncoin and send it to a centralized exchange (CEX) or withdraw it to cash via your card.
Explore TON Ecosystem: Utilize AquaUSD for various activities within the TON ecosystem, such as buying NFTs, other tokens, providing liquidity in liquidity pools, and farming tokens to earn rewards.
What mechanics does Aqua use against unpegs?
Aqua Protocol employs multiple strategies to ensure the stability of AquaUSD and its peg to the US Dollar:
Over-Collateralization: AquaUSD is backed by at least $1.5 worth of collateral (LST) with a minimum Collateral Ratio of 200%.
Hard Peg Mechanism: AquaUSD can be exchanged for Toncoins at a fixed $1 rate, ensuring value consistency.
Market Arbitrage: Market arbitrage corrects peg deviations, enhancing price stability.
Price Above $1: Users can mint AquaUSD when its price exceeds $1, sell it on DEX, and profit from price discrepancies.
Price Below $1: Users can buy discounted AquaUSD, redeem it for collateral assets, and benefit from potential price corrections.
Incentive Mechanisms: Interest fees and liquidation penalties encourage responsible use of AquaUSD.
Risk Management: Debt ceilings, a reserve fund, and an oracle system maintain protocol stability and accurate pricing.
User Protection: Partial liquidation and AquaUSD retention in full liquidation scenarios protect users' investments.
In summary, Aqua Protocol's mechanisms work together to ensure AquaUSD's stability, peg, and a secure environment for DeFi activities.
Why LST as collateral?
Using Liquid Staking Tokens (LSTs) as collateral in Aqua Protocol is beneficial because it allows users to earn staking rewards while accessing liquidity. This approach unlocks the value of staked assets without the need to unstake, providing both liquidity and continued participation in network security and reward generation.
I am afraid of liquidation
Liquidations within Aqua Protocol primarily focus on safeguarding the protocol against potential bad debt rather than penalizing users. The primary drawback for users undergoing liquidation is the associated penalty. However, due to the implementation of partial liquidations, users typically preserve a significant portion of their funds even during liquidation events.
Furthermore, it's essential to recognize that when you borrow funds in Aqua Protocol, you have already received the money, and it is entirely owned by you. To minimize the likelihood of liquidation, maintaining a vigilant eye on your Collateral Ratio and ensuring it remains above the prescribed minimum threshold is advisable.
What happens if there's a significant drop in Toncoin's value?
Oracle Systems: They provide timely and accurate market prices for Toncoin, crucial for informed decision-making and addressing abrupt price fluctuations.
Partial and Full Liquidations: Automatic liquidations are triggered if users' Collateral Ratios fall below set thresholds, helping to stabilize these ratios and protect the protocol.
Incentives for Repayment: The protocol may adjust borrowing fees or implement penalties to encourage users to maintain healthy Collateral Ratios and repay their AquaUSD debts.
Over-Collateralization Requirement: This acts as a safeguard against significant price drops, ensuring the collateral value surpasses the amount of AquaUSD issued.
Reserve Funds: To manage extreme market scenarios, Aqua Protocol has reserve funds that contribute to its solvency and safeguard user positions.
Overall, these strategies form a comprehensive approach to mitigate the risks associated with drastic market movements, ensuring Aqua Protocol remains robust and resilient.
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