The Future is Now
With the first installment in this series, I introduced Agoric Systems, provided a high-level overview of the technology, presented its solution to capture the JavaScript developer community, and reviewed its progress. In this second part of the series, I will focus on two of the key building blocks of the chain: the Inter Protocol and the Kinetic Automated Market Maker (AMM). When Agoric launches these critical protocols, it will put in place the legos needed for dApps and marketplaces to operate within the Agoric ecosystem as well as interact with other (external) blockchains.
Built for Inter-chain Interoperability
Agoric has meticulously crafted a micro economy that will initially support the blockchain and the dApps and marketplaces that will launch within it. However, this economy is designed with a level of robustness, security, and scalability to expand beyond the borders of its own ecosystem. Built for inter-chain interoperability, the blockchain has all the necessary tools to interact with external protocols and ecosystems (see the picture below).
The components that Agoric is putting in place later this summer are designed to create an infrastructure for building an economic framework for every type of DeFi and NFT marketplace or dApp to incorporate in its functionality. See the picture below for an overview of the economic components that will be introduced by Agoric.
Inter Protocol
When Inter Protocol goes live, it will launch with a stable token designed from the ground up to be over-collateralized. See the pictures below as to how Inter will accomplish this.
Minting of IST is initially only possible in three ways:
- provide collateral to the Vaults and borrow IST up to the amount allowed set by the asset’s collateral ratio
- directly swap USDC for IST (Parity Stability Module)
- borrow against future staking rewards (BLD Boost).
Transactions processed to add collateral, perform swaps, and mint IST incur fees to support the local economy.
However, IST will function as more than just a local currency on the blockchain. Since Agoric is fully Inter-Blockchain Communication (IBC) enabled, inter-chain interoperability for IST extends to all other IBC enabled blockchains, dApps, and marketplaces, across the greater ecosystem of the Cosmos. The Inter Stable Token (IST) can work together with other digital assets in the Cosmos, transact on marketplaces and in dApps to drive wider adoption.
Contenders
Currently, e-Money has a suite of fully collateralized stablecoins that are minted on its blockchain, including: eEUR, eSEK, eNOK, eCHF, and eDKK. Kava also has a minting process that is fully operational and USDX, its fully collateralized stablecoin, is already in circulation. Additional entrants into this market segment are expected to launch in the coming months; specifically, Shade Protocol’s SILK, as well as Comdex’s USCX and Composite’s CMST will give the blockchains across Cosmos additional options for transactional efficiency with collateralized stable tokens.
Ultimately, by way of the connectivity available with the Gravity Bridge partnership previously announced by the Agoric Team, digital assets will also be able to flow back and forth in between the Ethereum and Agoric ecosystems. This will open up existing markets for the Inter Stable Token to work together with Ethereum’s giant and highest quality stablecoins.
The Parity Stability Module
Inter Protocol will include a Parity Stability Module, to facilitate easy IST acquisition, generate arbitrage opportunities for IST to maintain parity with the U.S. Dollar, and attract high quality stablecoins from Ethereum.
Specifically, users can bring USDC (for example) and swap their USDC directly for IST, without having to place their USDC in a collateral vault and mint IST against their vault holdings. A governance proposal process and subsequent voting will determine the stablecoins that are accepted at Inter for the Parity Stability Module.
Collateral Vaults and Liquidations
The initial collateral asset to be accepted into the new vaults is expected to be the Cosmos Hub’s ATOM, with additional assets to be decided upon via governance proposals and votes. In my charts above I indicated OSMO and SCRT as examples for inclusion into the collateral vaults; however, other high quality IBC assets are also prime candidates.
In addition to choosing which assets will be accepted as collateral, governance also plays a role in choosing the functional parameters for utilizing the collateral. A collateral ratio determines the amount of IST that can be minted, with different ratios for different assets possible (and likely). In addition, the amount of liquidation penalties charged in case of an asset’s decline in value and subsequent indebtedness are also set in this process. Ongoing stability fees are set for each asset accepted into the vaults. Finally, total debt limits are determined by governance, as well.
Through the use of a sophisticated Liquidation Module, liquidated assets are sold in the AMM to pay back the amount of IST minted against the collateral, in case of a collateral ratio’s threshold having been broken during adverse market conditions. Any left-over collateral is returned, after liquidated assets, penalties, and transaction fees are collected.
Depositors into the vaults do not just receive freshly minted Inter Stable Tokens, but also receive a vault object. This object controls the relationship of the collateral brought to the vault, specifying the terms of the asset.
The Reserve Pool
Fees collected by Inter Protocol are shared between the Reward Pool (to pay BLD staking rewards) and the Reserve Pool. Initially, these will include collections from:
- upfront IST Minting Fees
- daily IST Minting Stability Fees
- assets obtained from Liquidation Penalties
- Liquidation Fees
- Other execution fees from on-chain activity.
The Reserve Pool holds not just IST, but will also contain assets collected through liquidation penalties (ATOM initially, but will likely expand to include other IBC assets), and BLD. The pool provides the liquidity needed for the Liquidation Module to sell the liquidated assets on the Kinetic AMM. Most importantly, the Reserve Pool represents the Inter Protocol controlled value.
Kinetic AMM
Agoric will launch its own Automated Market Maker (AMM), designed to house the pools needed for the blockchain’s liquidity, efficiently conduct the transaction activity in the blockchain’s micro economy, and serve as the decentralized exchange for all participants in the Agoric ecosystem.
Inter Protocol will maintain pools of the collateral assets on the Kinetic AMM.
BLD Boost
Agoric will provide an opportunity for BLD owners that have staked and delegated their assets to validators to borrow a very small amount against their assets. The intention is to not use BLD as a collateral asset in the vaults, in order to clearly distinguish it as an asset to secure the blockchain and not over expose it to leverage activities.
However, up to a small percentage (likely to be set at 5% or 10%), BLD stakers can lock-up their assets and mint IST against it utilizing the ISTstake process in a BLD Boost contract. Future staking rewards pay-off the debt incurred by minting and receiving IST. Those participating in BLD Boost can not un-stake and can not withdraw their rewards until the IST debt has been repaid (including fees).
The powerful feature of the ISTstake process is that the underlying BLD asset can not be liquidated. Again, parameters for the ISTstake process will be determined by governance.
Meticulously Scripted Master Plan
The team of smart contract and blockchain veterans at Agoric have carefully designed and executed a multi-year plan, which is on the cusp of launching. They have developed a professional organization, obtained multiple rounds of funding, and fostered deep relationships with key founders, developers, and community leaders across the Cosmos ecosystem.
After many months of developer work on the test-net, the Agoric blockchain launched onto Main-net Phase 0. With it, the staking network has gone live and early investors are now able to delegate their BLD assets. The Team has ensured that the network is secured prior to the launch of the blockchain onto Main-net Phase 1.
Through a meticulously scripted master plan that consists of implementation phases spanning multiple years, Agoric has designed the infrastructure components developers need to launch their smart contracts on its blockchain. With a secure, distributed, and carefully crafted economic model, powered by its own automated market maker and stable token protocol, Agoric is perfectly positioned to flourish.
Tot ziens — Opa.
Sources, References, and Further Reading
Agoric — https://agoric.com/
Protocol Twitter — @agoric
Agoric Blog — https://agoric.com/blog/
Inter Protocol Whitepaper Draft — https://agoric.com/wp-content/uploads/2022/05/Draft-Inter-Protocol-Whitepaper-v0.9-1.pdf
My first article introducing Agoric: https://medium.com/coinmonks/the-future-is-built-on-javascript-with-agoric-systems-c7fdecb876b2
