USDi Basics
What is USDi?
SeaBlocks enables the creation and management of a us dollar delta-neutral synthetic asset designed to offer stability and yield within the crypto ecosystem. This asset combines advanced hedging strategies with exposure to multiple revenue sources, including funding rate yields in futures markets, staking, and liquidity provision in stablecoin pools on decentralized exchanges (DEXs).
The underlying mechanism allows for the issuance of a fully backed, on-chain, and censorship-resistant financial asset, designed to maximize capital efficiency while maintaining stability in its underlying value.
Peg Stability Mechanism
SeaBlocks’s synthetic asset maintains its relative stability through programmatic and automated delta-neutral hedging with respect to its underlying backing assets, as well as the use of stablecoins to further reinforce stability.
By hedging the price fluctuation risk of the backing assets in equal proportions, market volatility is minimized. This ensures that the synthetic USD value of the backing assets remains stable under most market conditions.
SeaBlock does not employ significant leverage beyond the natural adjustments applied by exchanges when valuing backing assets used as collateral in hedging strategies and asset issuance.
Key Information
Users can acquire the synthetic asset in decentralized liquidity pools without restrictions.
Approved entities from permitted jurisdictions that pass KYC/AML verification can mint and redeem the asset directly through SeaBlocks smart contracts upon whitelisting.
Dependence on traditional banking infrastructure is minimal, as backing assets remain within the crypto ecosystem and are stored in a trustless manner.
Mechanic Example
A verified user provides ~$100 in USDT or USDC and receives an amount of the synthetic asset equivalent to its net asset value (NAV), minus gas and execution costs for hedging.
Slippage and execution fees are included in the price when minting or redeeming. SeaBlocks earns no direct profit from these processes.
The protocol diversifies funds across multiple strategies, including opening short perpetual positions of equivalent notional value on derivatives exchanges.
The backing assets are primarily custodied on centralized exchanges (CEXs), with a small portion held in wallets managed by external service providers, all aimed at minimizing counterparty risk.
Revenue Generation
The protocol generates sustainable revenue from three primary sources:
Funding and basis spread from delta-hedging derivatives positions.
Rewards from liquid stable backing assets and Staking income from assets like ETH, earning rewards at both the consensus and execution layers.
Liquidity provision in decentralized exchanges (DEXs). The protocol earns fees by supplying liquidity to stablecoin pools on DEXs, capturing trading fees and potential yield opportunities. This enhances market efficiency while generating additional returns for the synthetic asset.
Staking yields are variable and denominated in the native asset. For example, liquid staked ETH tokens typically generate returns in ETH.
Funding and basis spreads can be fixed or floating, depending on whether non-deliverable or deliverable derivatives are used for hedging. Historically, these strategies have generated positive returns due to the imbalance in leverage demand within crypto markets and the presence of positive baseline funding rates.
Asset managers will strategically reallocate holdings across different strategies to optimize overall returns and enhance diversification.
Risks
The protocol is exposed to several risks, including:
Smart Contract Risk
External Platform Risk
Liquidity Risk
Custodial Operational Risk
Exchange Counterparty Risk
Market Risk
SeaBlocks acknowledges these risks and actively mitigates them by diversifying providers at every stage of the workflow, continuously monitoring partners and market conditions, and designing the system to minimize unnecessary exposure, such as excessive leverage or reliance on a single custodian or platform.
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