Contents
What Is ADADAO?
ADADAO is a DeFi protocol on the Cardano blockchain that allows for the generation of fully collateralized stable currencies by utilizing Native Cardano Assets. It is still under development. We will begin with simply ADA tokens, but the governance may decide on the inclusion of other assets if and when they are necessary.
ADADAO performs the same duties as a DAO (Decentralized Autonomous Organization).
The stablecoin created by this system is designated as AUSD. In addition to providing users with the ability to select how the protocol runs, ADAO also provides users with an opportunity to partake in the fees earned via the protocol.
The ADADAO foundation is responsible for the initial development of the project, with the intention of eventually transferring its responsibilities to the governance.
In order to receive ADAO and AUSD, users must first have a Cardano wallet that is compatible with the cryptocurrency. Aside from that, they will be able to trade the token on a variety of markets.
In contrast to other cryptocurrencies, the AUSD stable coin is a soft-pegged cryptocurrency that is decentralized, impartial, and collateral-backed. It may be held in wallets or utilized on platforms. In addition, since ADADAO Vaults is a non-custodial and permissionless system, all stablecoins issued are backed on-chain by an excess of collateral.
What Is AUSD?
AUSD is a digital currency that is simple to produce, access, and utilize. AUSD is earned via the ADADAO Protocol by depositing collateral assets into ADADAO Vaults, which is how AUSD is circulated and users may access liquidity, while others get AUSD through the purchase of AUSD through brokers or cryptocurrency exchanges.
Once AUSD has been created, bought, or received, it may be used in the same way that any other cryptocurrency can: it can be transmitted to others, used to pay for goods and services, or used to purchase additional ADA in order to build a leveraged position in the market.
Every AUSD in circulation is directly backed by additional collateral, which implies that the collateral is worth more than the AUSD loan. Additionally, all AUSD transactions are public on the Cardano blockchain, allowing investors to track the value of their investments.
How can I Interact With ADADAO Vaults?
Create and Collateralize a Vault
A Vault is funded by a user with a certain kind and quantity of collateral, which is then utilized to create AUSD using the ADADAO online application. Once a Vault has been financed, it is considered to be collateralized.
Generate AUSD from the Collateralized Vault
It is necessary for the Vault owner to undertake a transaction in order to generate a certain quantity of AUSD as compensation for keeping her collateral locked in the Vault, and then confirm the transaction in her unhosted cryptocurrency wallet.
Pay down the Debt and the Stability Fee
An AUSD created by a Vault owner, as well as the Stability Fee on the AUSD still outstanding, must be paid down or completely paid back before a part or all of the collateral may be reclaimed by the owner. The Stability Fee may only be paid in AUSD, and no other currencies are accepted.
Withdraw Collateral
Once the AUSD has been restored to the Vault owner and the Stability Fee has been paid, the Vault owner will be able to withdraw all or part of her collateral back to her wallet. Until all AUSD has been refunded and all collateral has been recovered, the Vault will stay unoccupied until the owner decides to make another deposit into the account.
Each collateral asset must be housed in its own separate Vault. As a consequence, some clients will have a large number of Vaults, each with a different kind of collateral and different degrees of collateralization.
Liquidations in Adadao
Users communicate directly with Vaults and the ADADAO Protocol, and each user has complete and autonomous control over the collateral they deposit, as long as the value of the collateral does not fall below the necessary minimum level. Users may interact directly with Vaults and the ADADAO Protocol (the Liquidation Ratio).
If the collateral value (in US dollars) falls below a certain threshold, the vault is immediately closed. The Protocol then auctions off a piece of the collateral in order to pay off the existing debt plus the Liquidation penalty, and the Protocol also burns AUSD in order to decrease the quantity of AUSD available for sale(The vault owner receives the collateral that has been left over after the transaction).
Collateral Auctions
When price data for collateral is missing, the ADADAO Protocol’s auction mechanisms enable the system to liquidate Vaults even when the price data is unavailable. As soon as the Vault collateral is liquidated, the ADADAO Protocol sells it via an internal market-based auction procedure, which is conducted by the protocol itself. Collateral auction is the name given to this procedure.
The AUSD obtained via the Collateral Auction are used to pay off the Vault’s existing obligations, including the Liquidation Penalty charge imposed by ADAO voters for the precise Vault collateral type in which the AUSD was bought.
Reserve Auctions
A Reverse Collateral Auction is initiated when enough AUSD is bid in the Collateral Auction to completely satisfy all of the Vault obligations plus the Liquidation Penalty. The purpose of a Reverse Collateral Auction is to sell the least amount of collateral feasible. Any collateral that remains after the transaction is completed is returned to the Vault’s original owner.
If the auction fails to raise enough AUSD to cover the Vault liabilities plus the liquidation penalty, the deficit is transformed into Protocol debt. Similarly, if the Collateral Auction fails to raise enough AUSD to cover the Vault’s outstanding commitment, the deficit is transformed into Protocol debt. It is the AUSD in the ADADAO Buffer that is used to pay off the protocol debt.
In the event that there is insufficient AUSD in the Buffer, the Protocol will conduct an Emergency Auction. It is still in the early stages of developing a thorough methodology for Emergency Auction. To ensure system stability in this instance, ADAO coins will be utilized to fund the operation.
The AUSD profits generated by the Collateral Auction are deposited into the ADADAO Buffer, which serves as a safety net against future uncovered Collateral situations.
Reliance on External Factors
In addition to its smart contract architecture, the ADADAO Protocol is reliant on a variety of third-party actors to keep things operating smoothly and efficiently.
· Keepers
· Oracles
· Global Settlers (Emergency Oracles), as well as ADADAO community members.
Individuals and organizations that offer services to the ADADAO community are known as Keepers. Keepers profit from the Protocol’s economic incentives, while Oracles and Global Settlers are external participants who have been awarded specific rights in the system by ADAO voters.
Keepers
According to the ADADAO Protocol, keepers are market players that support AUSD in maintaining its Target Price ($1) by selling AUSD when the market price is above the Target Price and purchasing AUSD when the market price is below the Target Price. When ADADAO Vaults are liquidated, Keepers conduct Surplus Auctions, Debt Auctions, and Collateral Auctions to dispose of the remaining assets. Keepers may be either people attempting to make money via arbitrage or arbitrage bots doing the same work.
Price Oracles
It is necessary for the ADADAO Protocol to have access to real-time information on the market price of the collateral assets held inside ADADAO Vaults in order to decide when to commence Liquidations.
It is possible to obtain the internal collateral values of the Protocol using a decentralized Oracle infrastructure, which is comprised of a large number of distinct nodes known as Oracle Feeds. To deliver pricing data to the system, ADAO voters pick a set of dependable Feeds from which to draw data. They also have control over the amount of Feeds that are included in the collection.
When pricing inputs are received via the Oracle Verification Module (OVM) rather than directly from the Oracles, this helps to protect the system against an attacker who is seeking to seize control of a large number of Oracles. Whenever an Oracle is hacked, the OVM, which serves as a layer of protection between the Oracles and the Protocol, pauses the price for one hour, giving time for Emergency Oracles or an ADADAO Governance vote to intervene and freeze the price. Holders of ADAOs make judgments on Emergency Oracles and the period of the price deferment.
Emergency Oracles
Emergency Oracles are selected by ADAO voters and act as a last line of defense against assaults on the governance process or other Oracles, among other things.
Because they have the ability to initiate an Emergency Shutdown on their own, Emergency Oracles may freeze certain Oracles in order to limit the risk of a large number of customers seeking to withdraw their assets from the ADADAO Protocol in a short period of time.
Dao Teams
DAO teams are made up of individuals and service providers that have been engaged by ADADAO Governance to offer specific services to the organization.
As a result of ADADAO Governance’s flexibility, the ADADAO community may customize the DAO team architecture to meet the specific demands of the ecosystem based on real-world performance and emerging challenges.
Two major roles of the DAO team members includes:
- Providing assistance with financial risk analysis
- Draft ideas for onboarding new collateral and regulating existing collateral are currently being developed by the Federal Reserve
What Is The Governance of the ADADAO Protocol?
Holders of the ADAO token, which acts as the governance token for the ADADAO Protocol, have the ability to vote on modifications to the protocol. It should be emphasized that anybody, not only ADAO members, may submit proposals for consideration by the organization.
If voters opt to activate the Governance Security Module, any voter-approved modifications to the Protocol’s governance variables will most likely not take effect immediately; instead, they will be postponed by up to 24 hours (GSM). By initiating a Shutdown, ADAO holders would be able to protect the system from a potentially detrimental governance proposal, if one were to be implemented (e.g., a proposal that changes collateral parameters in contravention of established monetary rules or permits security systems to be disabled).
Holders of the ADAO have the chance to vote on the following issues:
- A new collateral asset type with a unique set of Risk Parameters should be added to the system.
- Change the Risk Parameters of one or more current collateral asset categories, or add new Risk Parameters to one or more existing collateral asset types, depending on the circumstances.
- Select the Oracle Feeds from the drop-down menu.
- Select the set of Emergency Oracles from the drop-down menu.
- Emergency shutdown should be triggered.
- Upgrade the software on your computer.
ADADAO Governance is in charge of a number of risk parameters
There is a specific set of Risk Parameters that must be followed for each Vault type (for example, an ADA vault). According to the risk profile of the collateral, the criteria are established and ADAO holders have direct influence over them via the exercise of their voting rights.
The following are the Critical Risk Parameters for ADADAO Vaults:
The debt limit refers to the maximum amount of debt that may be produced by a single collateral type, and it is determined by the Federal Reserve. The ADADAO Governance assigns a Debt Ceiling to each collateral type, with the goal of ensuring that the collateral portfolio of the ADADAO Protocol is suitably varied. As soon as a collateral type’s Debt Ceiling is reached, it is no longer possible to incur new debt until some current users pay off all or a portion of their existing Vault debt.
The Stability Cost is a one-time fee that is charged when a collateralized vault is established. A set proportion of the amount if AUSD is removed from the system is used as a basis for calculation. It is not reliant on the passage of time. Liquidation ratio: If the Liquidation Ratio is low, ADADAO Governance anticipates that the price volatility of the collateral will be minimal; if the Liquidation Ratio is high, ADADAO Governance anticipates that the price fluctuation of the collateral will be significant.
In the event of a Liquidation, a charge is applied to the Vault’s total outstanding produced AUSD, which is referred to as the liquidation penalty. Liquidation Penalty
The duration of a collateral auction is limited in ADADAO Vaults, and it is specified in the terms of the auction. The lengths of the debt and surplus auctions are system factors that affect the whole system.
Auction Bid Duration: The length of time that elapses between the expiration of a single bid and the conclusion of the auction.
Auction Step Size: This Risk Parameter was developed to promote early bidders in auctions while also deterring misuse by bidding a little amount more than the current bidder’s current bidder’s current bid.
Risk Assessment and Mitigation Governance Responsibilities and Duties
To ensure successful operation of the ADADAO Protocol, the Governance of the ADADAO Organization must take the necessary steps to reduce risks. Some of these dangers are given below, along with a technique for dealing with them.
One of the most serious threats to the ADADAO Protocol is a malicious attack on the smart contract infrastructure by a bad actor: for example, a programmer who discovers a flaw in the deployed smart contracts and then exploits it to break the Protocol or steal from it. This is one of the most serious threats to the ADADAO Protocol.
MITIGATION STRATEGY: The Foundation places the highest premium on the security of the ADADAO Protocol, and Formal Verification is the Protocol’s most effective protection. For the purpose of creating a smart contract that is free of faults, we will have the smart contract examined by the greatest auditing companies and from many sources.
When a black swan event occurs, it is a significant system-wide surprise attack on the ADADAO Protocol that is very unusual and dangerous. The following are examples of a black swan event:
- An assault on the forms of collateral that support the AUSD.
- A significant and unexpected drop in the value of one or more collateral kinds.
- Oracle was the target of a well-coordinated assault.
- A nefarious ADADAO Governance proposal has been submitted.
MITIGATION: While no single solution is foolproof, the ADADAO Protocol’s careful design (such as the Liquidation Ratio, Debt Ceilings, Governance Security Module, Oracle Security Module, Emergency Shutdown, and so on) combined with good governance (such as quick response in a crisis, thoughtful risk parameters, and so on) can help to prevent or mitigate the potentially severe consequences of a cyber attack.
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In addition to the amount of AUSD created against a Vault’s collateral, a predetermined percentage is computed on the remaining amount of AUSD earned against the collateral. The charge is paid in AUSD only, and the money is deposited to the ADADAO Buffer when it has been received. This is a one-time cost that does not change depending on how long the loan is outstanding.
Liquidation ratio: If the Liquidation Ratio is low, ADADAO Governance anticipates that the price volatility of the collateral will be minimal; if the Liquidation Ratio is high, ADADAO Governance anticipates that the price fluctuation of the collateral will be significant. Every asset will have a different Liquidation Ratio than the others. Given that we are just beginning with ADA collateral, the liquidation ratio will be established via a proposed governance structure.
Known as a liquidation penalty, this is a cost that is applied to a Vault’s total outstanding produced AUSD if a Liquidation takes place. In order to encourage customers to constantly have their positions over collateralized, this penalty is levied on their accounts.
The duration of a collateral auction is limited in ADADAO Vaults, and it is specified in the terms of the auction. The lengths of the debt and surplus auctions are system factors that affect the whole system.
