Many stablecoin protocols have entirely embraced one spectrum of design (entirely collateralized) or the other extreme (entirely algorithmic with no backing). Collateralized stablecoins either have custodial risk or require on-chain over-collateralization. These designs provide a stablecoin with a fairly tight peg with higher confidence than purely algorithmic designs. Purely algorithmic designs such as Basis, Empty Set Dollar, and Seigniorage Shares provide a highly trustless and scalable model that captures the early Bitcoin vision of decentralized money but with useful stability. The issue with algorithmic designs is that they are difficult to bootstrap, slow to grow (as of Q4 2021 none have significant traction), and exhibit extreme periods of volatility which erodes confidence in their usefulness as actual stablecoins. They are mainly seen as a game/experiment than a serious alternative to collateralized stablecoins. Using the foundations built by Frax protocol, Blindex attempts to be the first multi-currency stablecoin protocol to implement design principles of both to create a highly scalable, trustless, extremely stable, and ideologically pure on-chain money. The Blindex protocol is a multi-token system encompassing different currency stablecoins called BD-Stables (BDEU/BDAU/BDUK etc.) and BDX - a governance token.
The protocol also has pool contracts that hold BTC & ETH collateral. Pools can be added or removed with governance.
Although there are no predetermined timeframes for how quickly the amount of collateralization changes, we believe that as BD-Stables adoption increases, users will be more comfortable with a higher percentage of BDX supply being stabilized algorithmically rather than with collateral. After the initial ramp-up period, during which the collateral ratio will be locked at 100%, the collateral ratio refresh function in the protocol can be called by any user once per hour. The function can change the collateral ratio in steps of .25% if the price of a specific BD-Stable is above or below its designated peg. When the BD-Stable is above its peg, the function lowers the collateral ratio by one step and when the price of the BD-Stable is below the peg, the function increases the collateral ratio by one step. Both refresh rate and step parameters can be adjusted through governance. In a future update of the protocol, they can even be adjusted dynamically using a PID controller design to automatically calculate and update those parameters according to a predefined logic. The price of the different BD-Stables and collateral are all calculated with a time-weighted average of the appropriate pair price and by utilizing some FX oracles. We're aware of some limitations, such as unavailability of the Chainlink oracles on RSK network and are working on mitigating the potential risks associated with this.
Blindex stablecoins (BD-Stables) can be minted by placing the appropriate amount of its constituent parts into the system. At genesis, the BD-Stables are 100% collateralized, meaning that minting a BD-Stable only requires placing collateral into the minting contract. During the fractional phase, minting a BD-Stable requires placing the appropriate ratio of collateral and burning the ratio of BDX. While the protocol is designed to accept any type of cryptocurrency as collateral, this implementation of the Blindex Protocol will mainly accept BTC & ETH (represented by rBTC, wrBTC & ETHs on the RSK network) as collateral to smoothen out volatility in the "smaller" tokens so that BD-Stables can transition to more algorithmic ratios smoothly. As the velocity of the system increases, it becomes easier and safer to include more volatile cryptocurrency into future pools with governance.