hotUSD: the first Bitcoin dollar
Last updated
Last updated
hotUSD is the first Bitcoin dollar, allowing holders to retain exposure to their Bitcoin while reducing risks in DeFi, such as liquidation risks, by providing a dollar-backed synthetic token. hotUSD unlocks increased yield, capital-efficiency and reduced risks for holders. It is also the first strategy vault integrated with Spicenet Network-Owned Liquidity, and therefore directly supplies the network with liquidity while creating pull from users by implementing oPEP incentives.
hotUSD will be the main catalyst of Spicenet's Mainnet Phase I -- 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.
Bitcoin is a $2T asset, and has a dire need of yield. Babylon, the bitcoin staking protocol, alongside LSTs and LRTs allow institutions and individuals to earn yield on their bitcoin. However, one key piece remains unsolved — stability in DeFi. Directly using Bitcoin LSTs and LRTs that are yet to carve out their place in crypto opens risks for liquidation, margin calls, and more. Only if we had a synthetic dollar that retains the benefits of liquid staking/restaking while enhances usability in DeFi!
hotUSD is collateralized against a basket of Bitcoin Liquid Staking Tokens(LSTs) and Liquid Restaking Tokens(LRTs), and hence creates exposure to the staking and restaking rate of various LSTs and LRTs. Price exposure to Bitcoin is offset by opening short positions on Bitcoin spot and Bitcoin futures, execution of which is handled by the Spicenet Execution Network, ensuring deep liquidity, and low-slippage fills for short positions accumulated by the hotUSD strategy vault.
hotUSD is designed to act as a volatility-hedge for Bitcoin, Bitcoin LST and Bitcoin LRT holders, by allowing them to use a Bitcoin-backed dollar-pegged token in DeFi, reducing liquidation risks, while retaining exposure to the underlying staking and restaking rates of various LSTs and LRTs. Yield accumulated from price appreciation of LSTs and LRTs accounting to the staking and restaking rate is passed back to depositors during redemption, at 0 carry, ensuring users benefit from 100% of the staking and restaking yield.
The basket that collateralizes hotUSD is listed below:
Lombard LBTC
Solv Protocol SolvBTC
Lorenzo stBTC
Bedrock brBTC
PumpBTC
pSTAKE yBTC
Acorn aBTC
hotUSD benefits from the Spicenet Executor Network, a collection of highly efficient liquidity orchestrators and executors, supported by instant capital unlocks on destination chains and capital rebalancing. Orders submitted to the Spicenet Execution Network are routed through numerous liquidity routes laid across the cryptoeconomy, aggregating liquidity and ensuring low-slippage fills for trades placed by hotUSD strategy vaults.
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 in the basket 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.
Note: More information with regards to parameters, peg stability, scenarios, and weightage of various LSTs will be updated in this document as we finalize various details.
hotUSD is issued as a rehypothecated receipt token upon depositing into the respective strategy vault. 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.
