KuCoin AMA with Sperax (SPA) — Building Modern Money With Blockchain Technology

2022/04/26 07:06:46

Dear KuCoin Users,

Time: April 19, 2022, 11:00-12:04 (UTC)

KuCoin hosted an AMA (Ask-Me-Anything) session with Nicolas Andreoulis and Alec Shaw, Researcher and Business Development of Sperax, respectively, in the KuCoin Exchange Group.

Project Introduction

Sperax is a software development team building open source financial software. They are dedicated to benefiting all financial lives with public blockchain technology.

Sperax is the open-source development team focused on building software products on the Sperax protocol. With the Sperax token ($SPA) at its core, Sperax has built the first-ever auto-yield stablecoin, $USDs!

Sperax's roadmap is to construct a full-stack DeFi ecosystem based on $USDs featuring new applications in investing, borrowing and lending, payments, and more.

Sperax USD (USDs) has a unique design that keeps the peg at $1 and generates yield in $USDs for holders. USDs are partially collateralized by other cryptos and partially backed by the protocol's ability to mint SPA when redeeming USDs. This allows USDs to operate like DAI during market contraction and UST during market expansion. All cryptos are invested into the DeFi protocol to earn yield. This yield is given to USDs holders without having to pay gas!

USDs are governed and upgraded by SPA token holders with the SPA token governance module. Together, these contracts allow the community to propose, vote and implement changes to the Sperax network.

Official Website: https://sperax.io/

Whitepaper: https://github.com/Sperax/USDs-Whitepaper/blob/main/USDs_Whitepaper.pdf

Follow SPA on Twitter and Telegram.


Nicolas Andreoulis — Researcher of Sperax

He is passionate about using data to answer challenging economic questions. He worked as a Core Researcher at Terra and was in charge of designing Terra's stablecoin mechanism. He was also a Senior Research Specialist at Princeton University, using empirical methods to assess the interplay between financial markets and the economy. Prior to that, he worked as a researcher at the London School of Economics and the Institute of Fiscal Studies. He holds a Master's in Economics from the University College London.

Alec Shaw — Business Development of Sperax

He is passionate about bridging the gap between the traditional financial system and the wild west of decentralized finance. As a Finance undergraduate at Marquette University, Alec founded Marquette's Blockchain Lab.

Q&A from KuCoin

Q: Please tell us about USDs, the stable coin of Sperax. What kind of methods do you use to keep the peg stable?

Nicolas: What is USDs?

USDs is a decentralized hybrid yield-bearing stablecoin. Hybrid means USDs is collateralized: explicitly by external cryptocurrencies (USDC, ETH, and BTC) and implicitly by the USDs protocol, an algorithmic strategy that allows users to burn and mint SPA to support the collateral, and peg, as needed. The USDs hybrid model will favor algorithmic stabilization and scalability during a bull market while promoting explicit collateralization and robustness during a bear market.

How does USDs keep its peg?

Arbitrage Price Discovery

If demand for USDs increases over time, the mechanism will lead to SPA deflation. Conversely, the mechanism will defend the peg in situations of low demand at the cost of SPA inflation. This is how it works.

If USDs trade on exchanges at above $1, arbitrageurs will send SPA and eligible collateral from exchanges, swap it for USDs on Sperax protocol, and sell it, receiving as profit the peg difference.

If USDs trade below the peg on exchanges, the protocol will still allow people to trade USDs for 1$. In this scenario, arbitrageurs will buy USDs from exchanges at a discount, send it to the protocol, receive 1$ (denominated in locked collateral and newly minted SPA), and sell it--pocketing the peg difference. The above process will keep happening until arbitrageurs bring the price of USDs back to one dollar.

The above mechanism ensures that any deviation from the peg will be short-lived while ensuring adequate liquidity based on profit-maximizing incentives. This mechanism is well understood and was first implemented by Terra.

The dynamic transition between algorithmic and collateralized mechanism

One of the key innovations of the Sperax protocol is the possibility of determining the fraction of the money supply that is algorithmically determined versus the collateralized fraction. The algorithm will favor algorithmic stabilization when USDs trade close to the peg and as USDs mature as an asset. Sperax started with a 95% collateralization ratio at the genesis and adjusted based on market conditions. During favorable market conditions, we will rely more on algorithmic components, while in unfavorable market conditions, we will rely more on other cryptocurrencies. This mechanism makes USDs resemble stablecoins like DAI more closely during bear markets while keeping the scalability and token-burning benefits of stablecoins like Terra during bull markets.

Yield Bearing Stablecoin

USDs is the first decentralized stablecoin that will generate passive income for its users just by holding it. USDs holders receive passive income by leveraging DeFi primitives. In the current implementation, APY is generated by automatically reinvesting USDs collateral on Curve. In the future, we plan to integrate more DeFi protocols such as Aave, Anchor, Compound, Yearn Finance, etc. USDs holders will receive a diversified yield source from multiple chains and multiple platforms just by holding their coins.

Q: What is Sperax's main roadmap for 2022?

Alec: In the 2022 roadmap, Sperax's first major milestone was to expand the token ecosystem by introducing the veSPA staking protocol, modeled on Curve Finance's veCRV. This went super well and featured an 800% APY for users who locked SPA for 4 years. Nico will share more on that later!

veSPA lays the foundation for Sperax expansion plans as we go cross-chain to major L1 ecosystems like Avalanche, Ethereum, Polygon, Fantom, and more.

As we expand the cross-chain, new incentives will be allocated to those who participate in minting and providing USDs liquidity, including traditional yield farming rewards (like our saddle. Exchange pool paying 50% on stables from SPA and SDL) plus new models like the internet bond allowing users to get a discount when minting USDs.

This is all in addition to basic infrastructures like Data Dashboards, Collateral Diversification, and trading pairs in Arbitrum, so USDs can easily swap for your favorite cryptos. We are working with partners to build a savings product like Anchor for users to earn passive income on their stablecoins with fiat on-ramps.

Q: What inspired you to design Sperax?

Nicolas: Sperax, at the moment, is centered around USDs and the broader adoption of decentralized stablecoins! Since I led the stablecoin design, I think I can better address it! As a side piece of information, we also have our own layer 1 infra on testnet, but since this is not the current focus of the project, I will limit my answer to the Sperax/ USDs relationship!

I was one of the early team members and a huge supporter of Terra (I even lived in Seoul for a year to work with the team). I was fascinated by the elegant design of algo stablecoins and wanted to preserve the scalability and economic benefits they offer. At the same time, though, algo stablecoins tend to suffer from reflexivity. The stablecoin is backed only by the governance token in a purely algorithmic system. However, the governance token is valuable only to the extent the system continues to operate and captures future profits. If heavy redemptions affect investors' belief in the system, the stablecoin will suffer, which will cause even more redemptions, creating a death spiral. The case of Iron/Titan was an example of that and the total failure of Basis Cash. This risk of purely endogenous collateral is something that even Terra has recognized, hence introducing a BTC reserve fund. Sperax design introduces that hybrid model explicitly in its design to minimize the probability of a belief-driven crisis while also utilizing that excess capital to generate yield for holders of the stablecoin and incentivize adoption!

Q: What are the uses of the $SPA token? What role does a token play in the Sperax ecosystem? What are the advantages for holders?

Alec: The SperaxUSD protocol has an elegant two token system. This system features two tokens.

1) Yield bearing stablecoin: $USDs - pegged to $1 and new $USDs is added directly to the user wallet.

2) Governance and economic buffer token: $SPA - fluctuates in market price and is used to govern the protocol and keep $USDs $1 peg.

$SPA plays a very important role in keeping $USDs pegged to $1 and the SepraxUSD open, decentralized and censorship resistant. Which we have been supporting from the beginning, and the awesome activities in collaboration with Multichain, Celer, Mesan, TurboStarter, and other great projects.

As $USDs grows, a small amount of $SPA is required to be burned. This means as $USDs grows, the protocol will control more value in the reserves, but there will be less units of $SPA in the market due to the burn.

Thanks to Nico's design, the protocol will adjust how much collateral is needed vs. $SPA to ensure $USDs is stable and generates high auto-yield for holders.

Finally, $SPA is used to govern the protocol. This is very important because SperaxUSD operates completely on-chain and will soon be managed completely by DAO and on-chain token votes. This means that no central party is able to upgrade or change the rules of the protocol without a public vote.

Q: How does the veSPA protocol work? Please tell us how SPA accrues value with USDs adoption?

Nicolas: That’s an excellent question because it highly complements the previous one! In a nutshell veSPA is the protocol that makes SPA a productive asset whose value is linked to USDs adoption!

veSPA is the governance model of Sperax. At the moment, it can be accessed from Arbitrum and Ethereum and last week’s yield was a bit over 800% APY the 4-year lockup. It’s a popular governance model that protocols like Curve, Frax and Anchor have chosen. Effectively the model asks users to temporarily lock their SPA in return for veSPA. The longer someone locks their SPA, the more veSPA they will receive. veSPA will be used:

1) To vote or propose governance proposals. People will be able to choose collateral that will be used to back USDs, suggest changes in the investment strategies of the collateral, as well as choose different yield generating strategies.

2) veSPA holders will get all the minting and redeeming fees associated with USDs proportional to their veSPA holdings.

3) veSPA holders will get 50% of the yield generated from the collateral generated by USDs (the number is subject to change by future governance decisions) proportional to their veSPA holdings.

Effectively veSPA will truly decentralize the Sperax model, generate a steady source of passive income and directly link the growth of the Sperax stablecoin ecosystem to the value of SPA.

As the protocol grows, the higher and higher share of the veSPA rewards will be given because of USDs revenue (fees and 50% of the yield on TVL). All rewards are denominated in SPA terms. This means that every week we use all the revenue generated from USDs to buyback spa from the open market and reward the stakers. As USDs grow, so will the buybacks and the staking APY! Effectively staking SPA will allow users to take a long position on USDs adoption! A risky bet with asymmetric upside, in my opinion!

Q: Why is this listing important for the growth of SperaxUSD?

Alec: We are all about passive income for our users! USDs AND SPA passive income. This is a critical piece of infrastructure for Sperax but for Arbitrum as well!

SperaxUSD is the first protocol to feature directly to Arbitrum withdraws and deposits. This is novel because users don’t have to bother with the process of bridging assets across the chain.

Due to technical constraints on Arbitrum, users normally have to wait 8 days for withdrawals from Arbitrum. We believe Arbitrum is going to be a great ecosystem, but not until users can directly withdraw their assets. The time for direct deposit and withdrawals to Arbitrum is TODAY!

Now users can use Ethereum with super cheap gas fees offered on Arbitrum without having to go through the annoying bridging parts.

Free-Ask from KuCoin Community

Q: Partnership is always an important factor for every project. So who is your partner? What are the benefits you get from those relationships?

Alec: Kucoin is now a major partner! With their help, Sperax is the first product where users can deposit and withdraw SPA from Arbitrum directly to Kucoin! No bridging to L1 is required.

Second, we have Transak, which allows novice users to buy USDs and SPA with a credit card or bank transfer.

Q: What are your top 3 things for priorities in 2022? Could you share some plans for the upcoming year?

Nicolas: USDs growth, deep liquidity for both SPA and USDs, multichain expansion! We have plans to deliver on these promises this year! We will be building a new DeFi bond-like primitive that will allow users to earn high APY on stablecoins while also seeding deep liquidity on USDs. We are also building some exciting savings products that will utilize USDs passive income in interesting ways (DCA into the crypto of your choice, or invest the yield on high leveraged options, effectively enabling taking leveraged bets but also protecting your principal). We will be posting many details on our medium and discord channel.

Q: Do the token holders have the right to participate in the governance of the project? What kind of decisions can they vote on about the project?

Nicolas: 100%. Our governance module will be live within this quarter. After that, all key decisions will be taken by SPA holders! More details will be released soon!

Q: Is this your project only for elite investors? How about others with small funds? Is it open to everyone?

Nicolas: That’s the beauty of not using Ethereum. Low fees mean that activities like staking or being a liquidity provider are attractive even for holders of little capital.

Q: Can you share with us your tokenomics? How much is the total and circulation supply of your tokens? Will there be a buyback system or token burning in the future?

Alec: So a buyback system and a burning system are already live!

Tokenomics can be found at https://app.sperax.io.

Burning: As USDs grow, SPA is burned. Thus far, there have been over 10 million SPA burned! This is over 1% of the circulating supply.

Buybacks: Massive SPA buybacks happen weekly, then are given to veSPA stakers.

More info about the buybacks here in this thread.

Q: Have you been audited? I did not hear you talk about that security of funds, as it is what every investor craves and plans to escape in case of insecurity of funds, scams, and rug-pulls? How strongly built is your security put in place?

Nicolas: Yes, we are! By Peckshield, Certik, and Slowmist. Part of our repo code is still private, but we plan to have everything public in the near future!

Q: Many projects have problems with UI/UX and this one turns off new users. How do you plan to improve the interaction with new users and with users outside the crypto space?

Alec: We are so passionate about user experience. The whole philosophy behind SperaxUSD is that it must be easy for the end-users.

We have done this in a few ways and will continue to do so:

1) Design: We build our own front ends on top of DeFi protocols to let users interact with DeFi directly through https://app.sperax.io/. Check out our yield farms built on top of Saddle and Uniswap.

2) On Ramping: We have secured partnerships with KuCoin and Transak to enable seamless direct to Arbitrum purchase of Sperax assets!

3) Automation: With USDs and SPA, we automate activity at the smart contract level to always produce passive income for holders.

Q: What strategy will you implement to bring non-crypto-natives into your ecosystem? How do you keep a balance between developing the technology and also improving the value of your token?

Nicolas: Make the UI of our dApps as easy as possible! Our stablecoin product is a good demonstration of that. It accrues value just by being parked in your wallet!

Q: What are plans for global expansion? Are you focusing on the market at this time or focus on building and developing or getting customers and users or partnerships?

Alec: Focusing first on infrastructures like exchange listing and decentralized exchange liquidity, fiat on-ramps, and DeFi partnerships to encourage USDs use cases. Then we focus on mass adoption once the infra is built out.

Q: Almost 4/5 of investors are focused purely on the price of a token in the short term instead of understanding the real value and health of the project. Could you tell us the motivations and benefits for investors to hold your token in the long term?

Nicolas: I already answered that above, but happy to be a bit more detailed! Holding SPA is a bet that USDs will succeed! SPA buybacks, staking APY, and SPA burning will increase as USDs grow. If you believe that decentralized stablecoins will keep growing and that the space is not zero-sum (the winner takes it all), then SPA is a bet on that take with asymmetric upside!

Q: Do you have a whitepaper? Please share with us to read more exciting information about your project.

Nicolas: We do! Whitepaper: https://github.com/Sperax/USDs-Whitepaper/blob/main/USDs_Whitepaper.pdf

Giveaway Section

KuCoin and Sperax have prepared a total of 13,000 SPA to give away to AMA participants.

1. Free-ask section: 425 SPA

2. AMA activity: 12, 575 SPA

Activity 1 — Quiz: 9,750 SPA

Activity 2 — Price Guess: 1,950 SPA

Participation Rewards: 875 SPA

. . .

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