USDP in a reactor in a Ruby-branded engine room
DeFi and AMM

How Ruby Is Powered By Paxos' USDP Token—And Why


The catastrophic collapse of Terra (LUNA) and TerraUSD (UST) has underscored the need for the highest levels of reliability and trust in the stablecoin sector.

Stablecoins are a $150+ billion branch of the DeFi industry, and a critical element of Ruby.Exchange's architecture. Ruby's Intelligent Trade Router optimizes liquidity at the protocol level by pairing each crypto token (e.g. BTC, ETH, SKL) with one stablecoin, and linking every pair through the StableSwap 4Pool.

It will be possible to create pairs with USDT, USDC, USDP, or Dai (new pairs will be whitelisted by the Ruby DAO). However, by using the same stablecoin for every pair, users can trade with the lowest possible fees and slippage. Designating USDP as that default stablecoin ensures greater confidence for traders, while maintaining flexibility, growing USDP's market share, and benefiting the industry as a whole.

Stability: The Ultimate Scarce Resource?

While all stablecoins seek to maintain a peg to the dollar or another fiat currency, they take different approaches to doing so and not all stablecoins are created equal. The sudden and total failure of the Terra ecosystem in the second week of May 2022 has prompted fresh scrutiny of the stablecoin sector by regulators and traders alike.

The destruction of Terra's $60 billion combined LUNA and UST market cap catalyzed significant volatility in already bearish crypto markets as the Luna Foundation Guard sold almost its entire holdings of over 80,000 BTC in a desperate attempt to maintain UST's $1 peg. Even other stablecoins temporarily lost their pegs as traders rushed to find a safe haven: In this climate of extreme market uncertainty, truly safe stablecoins are hard to find.

Issued by US-based Trust company Paxos, USDP is one of very few fully-regulated stablecoins (the other two being BUSD and GUSD). As Dan Burstein, General Counsel and Chief Compliance Officer of Paxos writes, "The principal value of regulatory oversight is to ensure that the reserves consist of real, liquid, accessible dollars". USDP is 100% backed by cash held in FDIC-insured bank accounts and short-term US Treasuries—not by corporate bonds or illiquid debt obligations, as some other fiat-backed stablecoins are. Because Paxos' reserve assets are themselves stable, USDP stablecoin tokens can be redeemed for cash, in full, at any time.

Tweet from Paxos about UST and Paxos' USDP

Whatever the prospects for algorithmic stablecoins like UST, we are confident that Paxos' approach is the future of the fiat-backed stablecoin sector.

Driving USDP Growth Through Ruby's StableSwap

USDP is already widely used in the DeFi world, with almost $20 billion of capitalization across USDP itself and its white-labeled version, Binance USD (BUSD). Including USDP alongside USDT, USDC, and Dai in Ruby's StableSwap 4Pool was an easy decision. But we wanted to go beyond this, leveraging the benefits of USDP for Ruby's ecosystem and helping to increase adoption in the process.

Ruby aims to achieve this by designating USDP as the default stablecoin to pair with tokens in the AMM's XY=K pools. By using the same stablecoin as a "common denominator", fewer steps are necessary when trading any one token to any other. This both concentrates liquidity for each token in a single pool, and ensures the most efficient execution possible.

Liquidity in Ruby's XY=K pools will therefore typically take the form of 50% USDP. However, it is Ruby's StableSwap pool that will really drive an increase in overall USDP supply, because everyone who wants to deposit liquidity in those XY=K pools will need USDP. They will either acquire this from Ethereum L1 or—more conveniently—by using the StableSwap.

The StableSwap is at its most efficient when the 4Pool holds equal amounts of USDT, USDC, USDP, and Dai. If the 4Pool is ever unbalanced, any user who rebalances it will make a profit through "positive slippage". For example, if there is too little USDP in the 4Pool, depositing USDP to rebalance is equivalent to buying USDT, USDC, and Dai at a discount.

4Pool with less USDP than USDT, USDC, and Dai, with users adding liquidity
When the StableSwap 4Pool is unbalanced, users can profit by adding liquidity in the missing token.

The more liquidity resides on Ruby.Exchange—in the form of any token—the more USDP will be required to match it, and the larger the 4Pool becomes to support conversions from other stablecoins. Migrating liquidity to Ruby will have the effect of pulling USDP onto the Europa Chain, potentially requiring Paxos to mint significant new supply to accommodate this demand.

Having a common base pair optimizes liquidity, which is good for traders, and the prospect of profiting from positive slippage is attractive to liquidity providers. Using USDP as that shared base currency for tokens gives traders and LPs the greatest possible degree of confidence in the safety and stability of their funds.

A Stablecoin Fit For The SKALEVERSE

By using USDP as the default base token for every pair, and by providing easy access to USDP through the StableSwap 4Pool, Ruby.Exchange will both provide the highest level of safety and confidence for traders, and help to drive the adoption of USDP within the SKALEVERSE and DeFi world.

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