Skip to main content

Stablecoin

Early version

The contents of this page are based on the current protocol design but have not yet been reviewed for accuracy and can be incomplete or inaccurate.

The protocol stablecoin is a yield-bearing unit of account that transforms idle capital into productive assets while maintaining the stability and liquidity characteristics users expect from stablecoins. Every dollar in the protocol earns yield by default—not because users actively manage it, but because idle capital is wasted capital. This yield is then distributed to reward behaviors that improve market quality: providing tight liquidity, placing resting orders, and contributing to depth.

The design goal is straightforward: make every dollar work. Capital sitting in wallets, locked in limit orders, or providing liquidity shouldn't earn zero. It should earn base yield from treasury bills or lending markets, then earn participation multipliers based on how much it contributes to protocol health. The protocol effectively subsidizes market quality by reallocating yield from passive holders to active participants—creating tighter spreads, deeper order books, and more stable prices.

This isn't just about user experience. It's about creating better markets through economic incentives. When LPs can earn yield on their stablecoin allocation even during quiet periods, they can profitably provide tighter spreads. When limit order providers earn yield while waiting for fills, they're more willing to place large resting orders. When protocol participants earn more by contributing to liquidity than by holding passively, capital naturally flows where it's most useful.

The protocol's stablecoin—djinUSD—is backed by a diversified basket of yield-bearing stablecoins (initially 100% USDY, expanding to Aave, DSR, and other sources in V2+). It maintains a 1:1 peg with USD while continuously generating yield from the underlying basket. By V2+, djinUSD operates as a collection itself using the fund with variable issuance model, dogfooding the protocol's own infrastructure.

Terminology Note

Throughout this documentation, any reference to "stables," "USD," or monetary values means djinUSD unless explicitly stated otherwise. The specific risks associated with djinUSD will be disclosed through the protocol's frontend interface.

Mint/Burn fees: djinUSD maintains minimal minting and redemption fees (typically 0.01–0.05%, just enough to cover gas and prevent high-frequency arbitrage attacks). The protocol intentionally keeps these fees low to encourage djinUSD adoption as the primary stable unit across all products. Revenue comes from productive activities (trading, lending, minting surplus), not from taxing entry/exit.

Under normal conditions, minting and burning djinUSD carries no additional protocol fee beyond this minimal operational cost. In extreme stress scenarios (basket component depeg, liquidity crisis), the emergency liquidity facility may activate, providing instant liquidity at a temporary 1–2% fee to protect basket solvency and prevent bank runs (see Risks → Liquidity constraints below for details). This emergency mechanism is governance-gated and only activated under clearly defined stress conditions.

The problem with idle stables​

Traditional DeFi protocols treat stablecoins as inert. You deposit USDC to provide liquidity or place a limit order, and that's it—your capital sits there earning nothing beyond LP fees or waiting for fills. If you want yield, you have to manually move it to Aave, Compound, or some yield aggregator. This creates friction, forces active management, and means most capital in most protocols most of the time is earning zero.

Worse, it creates perverse incentives. Why provide liquidity at tight spreads if your capital earns nothing while waiting for trades? Why place limit orders that might not fill for days if you're foregoing yield elsewhere? The protocol wants deep markets and resting liquidity, but it's asking users to sacrifice opportunity cost with no compensation beyond LP fees.

The fix: Make every dollar in the protocol earn yield automatically. Stablecoin deposits aren't "idle USDC," they're shares in a yield-bearing basket that continuously compounds. Users still provide liquidity, still place limit orders, still get LP fees—but now the underlying capital is working even when markets are quiet.

Design: yield-bearing stablecoin basket​

djinUSD is backed by a basket of yield-bearing stablecoins. When you deposit $1M USDC into the protocol, it gets wrapped into $1M djinUSD, which is backed 1:1 by a basket of assets earning yield from lending markets, RWA protocols, or other DeFi primitives.

Initial composition (V1)​

100% USDY (or similar real-world yield-bearing stablecoin)

  • Backed by short-term US Treasury bills
  • Regulatory-compliant infrastructure
  • Audited, transparent reserves
  • Current yield: ~4-5% APY (varies with Fed rates)

Why start simple? Regulatory clarity, proven infrastructure, low volatility. Launch with the most boring, audited, compliant yield source possible. Once the protocol is live and the basket mechanics are proven, expand to more sophisticated strategies.

Future composition (V2+)​

As the protocol matures and governance becomes comfortable with additional risk, the basket may diversify:

Conservative yield (60-80% allocation):

  • USDY, OUSG (Ondo Finance tokenized treasuries): 4-5% APY
  • Aave USDC lending: 2-4% APY (varies with utilization)
  • Compound USDC lending: 2-4% APY

Moderate yield (10-30% allocation):

  • Maker DSR (DAI Savings Rate): 3-5% APY
  • Liquidity provision in stable/stable AMM pools: 2-6% APY + trading fees

Higher risk / higher yield (0-10% allocation, governance-approved only):

  • eUSD or similar over-collateralized synthetic stables: 6-10% APY
  • Lending to institutional borrowers with RWA collateral: 5-8% APY
  • Conservative leverage strategies: varies

Key principle: The basket should never jeopardize the 1:1 peg. All strategies must be over-collateralized, audited, and proven. Governance can adjust allocations based on risk/reward, but stability comes first.

Yield distribution: rewarding the right behaviors​

Here's where it gets interesting. The basket earns yield—say 4% APY. Who gets it? The naive answer is "split it evenly among all djinUSD holders." But that's leaving value on the table. The protocol can use yield distribution to incentivize behaviors that improve market quality: tight liquidity provision, resting limit orders, long-term holding.

Base yield vs. participation yield​

Not all djinUSD is created equal. Stables sitting in a wallet earn the base yield. Stables actively contributing to protocol health earn participation yield on top of that.

Example structure (illustrative targets, subject to calibration):

Assume basket base rate: 4.0% APY, and assume $100M djinUSD exists with the following distribution:

  • $40M in wallets (passive)
  • $30M in limit orders
  • $20M in tight LP positions (±100 bps)
  • $10M in wide LP positions (±200-500 bps)

In one possible calibration, target yields might look like this:

BehaviorAllocationIllustrative APYAnnual Yield
Passive holding (wallet)$40M0.75%$300k
Limit order provision$30M1.50%$450k
LP provision (tight ranges)$20M2.25%$450k
LP provision (wide ranges)$10M1.75%$175k
Subtotal to participants$100M—$1.375M

These numbers are illustrative bands, not an exact decomposition of the full 4.0% basket yield. In practice:

  • The stable pot takes raw basket yield (e.g. $4M gross on $100M at 4% APY)
  • A small slice (≈10–15% of gross) goes to protocol merit for basket management, and another slice (≈5%) to collection costs
  • The remainder is split between:
    • a base slice paid pro-rata to all djinUSD (what shows up as the ~0.75% "passive" yield), and
    • a variable slice concentrated on active behaviors (limit orders, tight LPs, etc.) according to merit formulas

Accounting intuition: With the capital mix above, tighter / more useful liquidity earns meaningfully more than idle wallets. If more capital piles into passive holding and fewer users provide tight liquidity, the protocol automatically resizes effective APYs so that:

  • Total yield distributed to users never exceeds "available yield minus protocol/cost take"
  • The marginal dollar of capital is pushed toward whichever behavior the protocol wants more of (usually tighter, deeper liquidity)

Yield rates in this table should be read as targets the system tries to hit for a "typical" capital distribution. The exact realized APY per behavior is determined by the pot system described in Yield Mechanisms and Fees & Yield Routing.

Cross-behavior yield sharing​

The really clever part: limit order providers can share yield with LP providers and vice versa. Why? Because they're complementary. Buy limit orders below market need sell-side liquidity above market to function properly. Tight LP ranges need resting orders to absorb flow spikes.

Mechanism: A portion of yield earned by buy limit orders (held in djinUSD) is shared with sell limit orders (held in RWA tokens), and vice versa. The sharing rate adjusts based on:

  1. Proximity to current price: Orders closer to spot price earn more shared yield
  2. Relative scarcity: If buy-side depth is thin relative to sell-side, buy orders earn higher share
  3. Fill probability: Orders more likely to fill (closer, larger notional) earn more

Example:

  • Market price: $5,000
  • Alice places buy limit order at $4,950 (1% below, $100k notional)
  • Bob places buy limit order at $4,750 (5% below, $100k notional)

Alice's order is closer, more likely to fill, more useful for market stability. She might earn 1.75% APY on her $100k djinUSD (base 1.50% + 0.25% proximity bonus). Bob earns 1.50% APY (base only, too far from spot to earn bonus).

Meanwhile, Carol has a sell limit order at $5,050 (1% above, 20 RWA tokens). Her tokens earn yield too—maybe 1.25% APY paid in additional RWA tokens (minted from the protocol's allocation) or in djinUSD if she opts for stable yield. This aligns incentives: everyone providing market depth earns yield, with the highest rewards going to the tightest, most useful liquidity.

See Limit Orders for how limit orders interact with liquidity provision, and Liquidity Management for LP yield stacking mechanics.

Protocol fee take​

The protocol retains a portion of base yield to fund operations:

Target: ~10-15% of gross yield goes to protocol (via protocol merits in the stable pot distribution)

On 4% gross yield, this means ~0.40-0.60% APY goes to protocol operations. This funds:

  • Smart contract audits and security monitoring for the basket infrastructure
  • Basket rebalancing and optimization (moving capital between USDY, Aave, DSR as yields shift)
  • Development of new yield sources and integrations
  • Legal/compliance for regulated stablecoin issuance
  • Emergency reserves for tail events (depeg scenarios, smart contract issues)

Why take a cut at all? Because yield distribution isn't free. Managing the basket, rebalancing allocations, monitoring risks, maintaining infrastructure—all of this costs money. Taking a small cut ensures the djinUSD infrastructure is sustainable without relying on external subsidies.

Governance control: Once governance is live, the community can vote to adjust the protocol fee take. Want to be more aggressive on user yield? Lower the take to 8%. Want to build bigger reserves? Increase it to 18%. The default target (10-15%) is chosen to balance sustainability with competitiveness.

Fee Details

For comprehensive information about how djinUSD yield distribution integrates with collection cost coverage and protocol-wide fee routing, see Fees & Yield Routing.

Why this creates better markets​

The yield distribution structure solves a subtle but critical problem: capital allocation in DeFi is inefficient because opportunity cost isn't priced properly.

Without yield-bearing stables​

Liquidity providers face a stark choice:

  • Provide liquidity → earn LP fees but forfeit yield on stables
  • Hold in Aave/Compound → earn yield but forfeit LP fees

Result: LPs only provide liquidity when LP fees are high enough to compensate for forgone yield. This means spreads need to be wider to attract liquidity, which means worse execution for traders, which means lower volume, which means even less LP revenue. Death spiral.

With yield-bearing stables​

LPs get both:

  • LP fees from trading activity (varies with volume)
  • Base yield on stablecoin allocation (constant, regardless of volume)

Now the decision is: "Do I earn 0.75% passive or 2.25% by providing tight liquidity?" The opportunity cost is much lower—only 1.5% instead of the full 4% base yield. This means LPs can profitably provide tighter spreads, which attracts more volume, which generates more LP fees, which attracts more LPs. Virtuous cycle.

The protocol effectively subsidizes liquidity provision using the yield that would otherwise go to passive holders. It's not creating value from nothing—it's reallocating value from idle capital to productive capital.

djinUSD as a collection (V2+ dogfooding)​

Here's where it gets meta. The djinUSD basket isn't just a basket—it's a collection in its own right, using the protocol's own infrastructure. Specifically, it maps perfectly to the fund with variable issuance model.

How it would work​

Assets: Positions in USDY, Aave USDC, Maker DSR, etc.
Token: djinUSD
Issuance: NAV-based minting when new stables are deposited
Pricing: 1:1 with USD (by design, backed by stablecoins)
Trading: Potentially allow djinUSD/USDC pools for entry/exit liquidity

This isn't just intellectual consistency—it's dogfooding at its finest. If the protocol's collection mechanics are robust enough to handle heterogeneous RWA portfolios (watches, cars, art), they should be robust enough to handle a basket of yield-bearing stablecoins. Using the same infrastructure means:

  1. Transparency: On-chain NAV tracking, verifiable composition
  2. Auditability: Same monitoring tools that track RWA collections track djinUSD
  3. Composability: djinUSD interacts with other collections using standard interfaces
  4. Trust minimization: Basket management follows the same rules as any fund-type collection

Implementation note: V1 will likely use a simpler wrapper contract for operational simplicity. V2+ transitions djinUSD to a full collection with variable issuance once the fund model is battle-tested with RWA assets. This phased approach ensures the stablecoin infrastructure is stable and reliable from day one, with the more sophisticated collection mechanics added once proven.

Why this matters: It means the protocol isn't building custom infrastructure for its stablecoin basket—it's using the same audited, tested, battle-hardened infrastructure that manages multi-million dollar RWA portfolios. If that infrastructure is good enough for fractional Patek Philippes, it's good enough for yield-bearing stables.

Integration across protocol products​

Every protocol feature uses djinUSD as its stable unit of account. This creates network effects where yield benefits compound across use cases:

Bootstrapping (RareDrop)​

  • Participants contribute djinUSD during initial offerings
  • Yield accrues during bootstrap period (could be weeks)
  • Early participants earn both token allocation and passive yield while waiting

Example: Alice commits $100k djinUSD to a bootstrap. If it takes 3 weeks to close, she earns ~$58 in yield (0.75% APY × $100k × 3/52) before even receiving her collection tokens. Small but not nothing.

Spot Trading (CL AMM)​

  • All RWA tokens trade against djinUSD pairs
  • LPs earn trading fees + djinUSD yield + participation bonuses
  • Triple yield stacking: base yield, LP fees, participation multiplier

See Liquidity Management for LP positioning strategies that maximize yield.

Limit Orders​

  • Buy orders deposit djinUSD, earn 1.50% + proximity bonuses
  • Sell orders deposit RWA tokens but can earn shared yield
  • Orders waiting days/weeks for fills still earn passive income

See Limit Orders for epoch batching and gas efficiency.

Minting​

  • Minters deposit djinUSD collateral
  • Collateral earns 0.75% base yield while locked
  • Reduces effective cost of minting / holding periods

Mark-to-Truth Auctions​

  • Bidders post djinUSD, earns yield during auction period
  • Winning bidders receive RWA tokens, losers get refunded djinUSD
  • Bond requirements less punishing since bonds earn yield while posted

Lending​

  • Lenders supply djinUSD, earn the lending rate on top of any base / participation yield allocated to their behavior (see note below)
  • Borrowers pay interest in djinUSD
  • Interest spread (borrow rate – lender rate) flows to the lending pot (see Fees & Yield Routing)
  • Collateral (RWA tokens) might earn separate yield if enabled

Note on lending yield: From the basket's perspective, djinUSD used in lending is still part of the outstanding supply and continues to earn its share of basket yield. Lenders are compensated primarily through the lending interest rate (e.g., 6.5% APY), while the spread between borrower and lender rates is routed to the lending pot to fund liquidation infrastructure, risk buffers, and collection costs—not back to lenders as extra "hidden" yield.

Futures​

  • Margin posted in djinUSD earns 0.75% base yield
  • Reduces carry cost for long-dated positions
  • Makes futures more capital-efficient vs. non-yielding margin

Risks: what could go wrong​

Full Disclosures via Frontend

Comprehensive risk disclosures, including stress scenarios and mitigation strategies, will be provided through the protocol's frontend. The below is a high-level overview, not exhaustive.

djinUSD isn't risk-free. It's a basket of stablecoins earning yield, which means exposure to multiple layers of counterparty risk, smart contract risk, and market risk. Here's what keeps you up at night:

1. Underlying stablecoin depeg​

The risk: USDY, USDC, DAI, or another basket component loses its peg to USD.

Severity: If a 20% allocation depegs to $0.90, djinUSD loses ~2% of value. If a 60% allocation depegs to $0.80, djinUSD loses ~12% of value. If multiple components depeg simultaneously (contagion), losses compound.

Mitigation:

  • Diversification: No single asset >60% of basket (V2+)
  • Quality filters: Only audited, proven stablecoins with transparent reserves
  • Dynamic rebalancing: Reduce exposure to assets showing stress
  • Circuit breakers: Halt redemptions if basket NAV drops >5% in 24 hours

What it means for you: djinUSD is only as stable as its underlying basket. If you're holding $1M djinUSD and a major component depegs 20%, you just lost $20k-$120k depending on allocation. This is the core risk of basket-backed stables.

2. Smart contract exploits​

The risk: Bug in djinUSD wrapper, basket management logic, or underlying yield protocols (Aave, Ondo, etc.) gets exploited. Attacker drains funds.

Severity: Could be total loss if wrapper contract is compromised. Partial loss if only one underlying protocol is hit.

Mitigation:

  • Multiple audits from top firms (Trail of Bits, OpenZeppelin, etc.)
  • Formal verification of critical paths
  • Bug bounties with $1M+ rewards for critical findings
  • Gradual rollout with TVL caps during early phases
  • Insurance coverage from Nexus Mutual or similar

What it means for you: Code is law, until the code is wrong. Even audited contracts have been exploited. Size your position accordingly.

3. Regulatory action​

The risk: Regulators classify djinUSD as a security, ban basket-backed stablecoins in certain jurisdictions, or force delisting of underlying components.

Severity: Could force shutdown of djinUSD in affected jurisdictions. Might require costly restructuring or migration.

Mitigation:

  • Start with regulated components (USDY from Ondo, which has US regulatory clarity)
  • Legal opinions from top crypto law firms
  • Compliance infrastructure for KYC/AML if required
  • Decentralized governance to avoid single point of regulatory pressure

What it means for you: Regulatory risk is existential. If your jurisdiction bans djinUSD, you might need to exit quickly (potentially at unfavorable prices) or migrate to another chain.

4. Yield variability​

The risk: Base yield drops from 4% to 1% due to Fed rate cuts, Aave utilization dropping, or other macro factors.

Severity: Economic, not catastrophic. You still have your principal, just earning less.

Mitigation:

  • Diversify yield sources (treasuries + lending + liquidity provision)
  • Dynamically reallocate to highest risk-adjusted yields
  • Set realistic expectations: yield will fluctuate with macro conditions

What it means for you: Don't count on 4% forever. If rates drop to 1%, your passive holding earns 0.19% APY, not 0.75%. Still better than 0%, but not transformative.

5. Liquidity constraints​

The risk: During stress, redemptions might face delays due to underlying protocol withdrawal queues or basket rebalancing needs.

Severity: Moderate. You can still trade djinUSD on secondary markets (might be at discount to NAV), but direct redemptions could take hours/days instead of being instant.

Mitigation:

  • Maintain 5-10% basket allocation in highly liquid assets (USDC on Aave, instant withdraw)
  • Staggered redemptions: process up to 10% of TVL per day without delays
  • Emergency liquidity facility: protocol treasury can provide instant liquidity at 1-2% fee during crises

What it means for you: Don't treat djinUSD like cash if you need instant access during market crashes. Build in time buffers or use secondary markets.

6. Basket management failures​

The risk: Whoever manages basket allocations makes poor decisions—allocates to risky protocol that gets exploited, fails to rebalance away from weakening stables, or takes excessive risk chasing yield.

Severity: Could lead to 5-20% loss if allocations go bad.

Mitigation:

  • Conservative allocation rules enforced on-chain
  • Multi-sig control with reputable parties
  • Transparent on-chain monitoring
  • Governance override for emergency situations
  • V2+ transition to full collection mechanics with on-chain auditability

What it means for you: You're trusting the basket management process. If that trust is misplaced, you pay the price. This is why V2+ transitions to full collection mechanics—to minimize discretionary trust.

Transparency and monitoring​

The protocol provides real-time, on-chain visibility into:

Basket composition: Exact allocation percentages, updated every rebalance
Yield generation: Current APY from each source, aggregate basket yield
NAV tracking: Real-time djinUSD NAV vs. 1:1 USD peg
Redemption queue: Current wait times for withdrawals by size
Historical performance: 30/90/365-day yield, maximum deviation from peg, stress scenarios

This data is available via dashboard and on-chain queries. Third parties can build monitoring tools using the same data.

Implementation roadmap​

V1: Simple wrapper with USDY​

Launch: Q4 2025 (tentative)

  • Single-asset basket (100% USDY or similar)
  • Basic yield distribution (passive 0.75%, LP 2.25%, limit orders 1.50%)
  • Manual basket management via multi-sig
  • Frontend risk disclosures
  • $10M TVL cap during initial phase

Goal: Prove the concept, validate yield distribution mechanics, gather feedback.

V2: Diversified basket​

Launch: 6-12 months post-V1

  • Multi-asset basket (60% USDY, 20% Aave USDC, 10% DSR, 10% buffer)
  • Dynamic yield allocation based on capital distribution
  • Proximity bonuses for limit orders
  • Cross-behavior yield sharing
  • Transition to collection mechanics (fund with variable issuance)

Goal: Scale to $100M+ TVL, demonstrate basket diversification, dogfood collection infrastructure.

V3: Full optimization​

Launch: 18-24 months post-V1

  • Algorithmic basket optimization (risk-adjusted yield maximization)
  • Cross-chain deployment (Base, Arbitrum, etc.)
  • Integration with external DeFi protocols
  • Governance control over allocation rules
  • Insurance integration

Goal: Become the default stablecoin for RWA protocols, scale to $500M+ TVL.

Why this matters​

Making stablecoins yield-bearing isn't novel—plenty of protocols do it. What's novel is using yield distribution to incentivize specific behaviors that improve market quality. Most yield-bearing stables just split yield evenly or give it all to holders. That's leaving value on the table.

By paying higher yields to tight liquidity providers, limit order participants, and other value-adding behaviors, djinUSD effectively subsidizes market quality. The result is tighter spreads, deeper order books, and more stable prices—all funded by reallocating yield from passive holders to active participants.

This creates a flywheel: better markets → more users → more volume → more LP fees → attracts more LPs → even better markets.

And by V2+, djinUSD dogfoods the protocol's collection mechanics, proving that the infrastructure is robust enough to handle both illiquid RWAs and yield-bearing stables using the same contracts. That's not just elegant—it's trust-minimizing. One codebase, multiple use cases, fully auditable.