A New Type of Stablecoin Based on Bitcoin: An Innovative Attempt at Hedging Mechanisms in Perpetual Futures

A new stablecoin concept is attracting attention in the industry. Unlike traditional fiat-backed or cryptocurrency-collateralized stablecoins, this new type of stablecoin utilizes an innovative mechanism based on Bitcoin.

The design concept of this stablecoin is quite innovative; it attempts to bypass the centralized structures relied upon by the traditional financial system, such as fiat custody, bank clearing, and regulatory constraints. Instead, it chooses to build the entire ecosystem around Bitcoin.

This stablecoin is named YUSD, and its main features include:

• Price pegged to 1 dollar
• Supported by Bitcoin as collateral
• Maintain price stability by shorting Perptual Futures.

It is worth noting that this mechanism does not require the use of an oracle, nor does it need fiat currency reserves or the participation of third-party intermediaries.

The minting process of YUSD is also very unique. YUSD will only be minted when certain mainstream stablecoins are deposited into a designated smart contract. Once the verification is complete, YUSD will be generated, and the corresponding collateral will be transferred to a secure custody vault. The entire process is completely controlled by smart contract logic, with no possibility of human intervention.

So, how does this stablecoin work? Its basic process is as follows:

1. Users can obtain YUSD through minting or trading.
2. The system uses these funds to purchase Bitcoin.
3. Open short Perptual Futures to hedge against price volatility risk
4. Generate funding fee income from short positions
5. Inject the profit portion into the insurance pool, and allocate part of it to YUSD holders.

The core of this mechanism lies in profiting from the funding rate of perpetual futures. When the system shorts Bitcoin perpetual futures, it can earn the funding rate from long traders. As long as there is demand for long positions in the market, this income can continue to be generated.

For YUSD holders, the process of earning rewards is very simple. The system automatically records the user's holdings and generates corresponding rewards, which users can easily claim through the relevant application.

The design of this stablecoin aims to avoid centralization risks and common single points of failure. It does not rely on fiat currency support, does not require centralized stablecoins like USDC as reserves, and does not depend on oracle services. The entire system operates solely based on Bitcoin, handling risks through collateralization and Hedging, while monitoring various indicators in real-time.

In order to cope with the potential negative funding rate situation, the system has also established an insurance fund. This fund is composed of a small portion of the profits and is activated when the negative funding rate leads to an increase in short selling costs. The management of the fund uses a multi-signature smart contract and will be controlled by a decentralized autonomous organization (DAO) in the future.

Transparency is another major feature of the system. Users can verify the custodial reserves, view the exchange positions, and even get real-time updates on the system status through a public read-only API.

In addition to the basic stablecoin functionality, the system has also designed a points incentive mechanism to drive growth. Users can earn points by holding YUSD, providing liquidity, participating in lending, and more. These points can ultimately be redeemed for the system's native token.

Currently, this innovation has been launched on Ethereum and BNB Chain. Although the project is still in its early stages and its performance in a real market environment remains to be seen, it undoubtedly represents a bold attempt to build a monetary system based on Bitcoin.