hotUSD: Spicenet's Native Stable
Last updated
Last updated
hotUSD is Spicenet's native stablecoin -- sitting at the centre of Spicenet's DeFi ecosystem, unlocking increased yield, capital-efficiency and utility for holders of Yield Bearing Tokens(YBTs). hotUSD is also Spicenet's first strategy vault integrated with Network-Owned Liquidity, and therefore directly supplies the network with liquidity while creating pull from users via implementing oPEP incentives.
hotUSD will be the main catalysts of Spicenet's mainnet launch program -- attracting significant liquidity and TVL from select mainnet launch partners. Select mainnet launch partners will obtain incentivised access to Spicenet mainnet, allowing them to earn additional yield on their LSTs/LRTs, and unlock further utility in the form of money markets, spot and futures markets, and Network-Owned Liquidity strategy vaults.
hotUSD in simple terms aims to rake in the staking/restaking rate of various LSTs/LRTs, segregated into various "baskets". LSTs and now LRTs have been the major play of DeFi for a long time. Ethena, one of DeFi's hottest protocols uses stETH under the hood, illustrating the importance and demand for LSTs. LRTs are a new class of Yield Bearing Tokens that earn rewards from AVSes that they're delegated to. Popular LRT protocols include Etherfi, Renzo, Swell and more. Spicenet's key strengths lies in 10x'ing the utility of LSTs and LRTs, by providing unified margin access, integrated borrow lending markets, deep, hyper-scaled and global liquidity via solvers, and most importantly, an integrated stablecoin: hotUSD.
LRT and LST holders can deposit their assets and mint hotUSD in return, which passively earns yield by capturing the staking + restaking yield for deposited assets. By utilising Spicenet's atomic cross-book liquidity product, hotUSD creates positions on "baskets" of assets, wherein it accumulates LSTs/LRTs while creating a short position on the underlying token backing the LST/LRT, effectively creating synthetic exposure to the LST/LRT. hotUSD will initially only operate on the spot markets, due to ample spot LST/LRT liquidity, and as futures liquidity deepens, may look to move some exposure to futures, after accounting for any potential outflows due to futures funding rates.
Every base token has it's own basket, with LSTs and LRTs for that base token. For example, a basket for SOL would have the base token SOL, alongside Solana LSTs like mSOL, jitoSOL and Solana LRTs like fragSOL. Similarly, a basket for ETH would have the base token ETH, Ethereum LSTs like stETH, rETH, swETH and Ethereum LRTs like eETH, ezETH and rswETH. Likewise, baskets can exist for TIA, BTC and any base token that has sufficiently advanced staking (and/or) restaking infrastructure. Each basket is represented as a weightage between the base token, LSTs and LRTs. The hotUSD Network-Owned Liquidity-based strategy vault aims to achieve a 50% short position in the base token and a cumulative 50% long position in LSTs and LRTs combined. Meaning that for every $1 deposited in a basket, $0.5 would go toward establishing a cumulative long position in LSTs and LRTs for a base token, and $0.5 would go toward selling the base token itself. This is done in order to achieve near-perfect synthetic exposure to the staking + restaking rate. However, individual weightage for an LST/LRT varies on multiple factors -- such as liquidity and TVL for that LST/LRT in global markets, and so on.
New positions are accumulated only during an hourly cycle, allowing global liquidity to rebalance and re-adjust, ensuring trades are executed at minimal slippage. All active positions are wound down during the same hourly cycle, to minimise the impact of chaotic market movements. Weights for respective LSTs and LRTs are re-assessed every week, accounting for changes in available liquidity and TVL, such that the protocol can reduce exposure to low liquidity LSTs/LRTs. Similarly, proportionate weightage of positions in a basket are also re-assessed weekly, to potentially alter the ratio from 50:50, accounting for increase in bad fills/slippage, or liquidity imbalances in the base token, or the LSTs/LRTs, etc.
Transparency in stablecoin protocols is key. Which is why hotUSD is designed as a Spicenet DAO owned, controlled and operated stablecoin running as a Network-Owned Liquidity strategy vault under the hood. Meaning that the community can set, monitor and alter core parameters responsible for operating the hotUSD stablecoin, and maintaining the peg.
hotUSD is issued as a rehypothecated receipt token upon depositing into respective strategy vaults. Rehypothecation is a facility in Spicenet that allows passive vehicles like strategy vaults and money markets to issue a "receipt token" that can then be used across Spicenet DeFi. This unlocks capital efficiency and utility, as capital is no longer left idle and locked up in LP pools. Hence, hotUSD is a "representation" of the underlying position accumulated in the strategy vaults that the capital is deposited into. That also makes it accountable for some basic rules of rehypothecation, such as collateral valuation and liquidation, which will be discussed later in a separate section in this documentation.
Despite being a rehypothecated token, hotUSD inherits all the benefits of being a "token" on Spicenet -- such as the ability of being used as collateral to trade futures, deposit in the money market and borrow against it, ability to swap to other tokens, etc. Holders can use hotUSD in Spicenet DeFi permissionlessly and without restriction, while earning passive yield from the staking + restaking rate.
Moreover, hotUSD gives exposure to "stacked yield" which encompasses the base staking + restaking yield, the money market, and oPEP incentives accumulated by being a depositor into hotUSD vaults.
