Whitepaper

Orbit: XLM backed Decentralized Stablecoin Zenith Protocols

Abstract: OrbitCDP is a decentralized finance (DeFi) platform built on the Stellar blockchain, designed to provide stablecoins through a Collateralized Debt Position (CDP) system. Users can overcollateralize their cryptocurrency to borrow stablecoins in an array of currencies.

Introduction: Starting in 2014, Stellar was designed to connect individuals to the global financial system through an open and decentralized protocol. Anchors, trusted entities within this network, hold deposits and issue backed tokens, serving as crucial bridges between various currencies and Stellar. Traditional financial systems often operate on a fractional reserve basis, Stellar’s anchors and other stablecoin issuers, due to their centralized structure, may also adopt similar practices. They have the flexibility to either hold full fiat reserves for all issued tokens or operate with fractional reserves, underscoring the balance between trust, transparency, and regulatory compliance.

OrbitCDP enhances this ecosystem by introducing collateral-backed stablecoins for various fiat currencies through collateralized debt position (CDP) based smart contracts. This innovation provides access to global currencies, allowing users to engage in transactions with enhanced stability, security, and auditability. By offering stablecoins not only for the dollar but also for the euro, yen, peso, and other major currencies, OrbitCDP expands the Stellar ecosystem beyond centrally backed stablecoins. This advancement aims to unlock global economic potential by making money more fluid, markets more open, and people more empowered. CDP Stablecoins: A Collateralized Debt Position (CDP), known as a Vault in MakerDAO, is a DeFi smart contract used to generate the stablecoin DAI. Users deposit volatile cryptocurrencies like ETH as collateral, allowing them to mint DAI based on a Collateralization Ratio (CR). The DAI represents a debt accruing interest (Stability Fee). To unlock collateral, users repay DAI plus fees. If collateral value drops too low, it’s liquidated to cover the debt. External price feeds and governance by MKR token holders ensure system stability and solvency.

Orbit Architecture:

• Treasury Contract: All stablecoins are managed by one Orbit Treasury smart contract, authorized to mint the stablecoins to supply to the Blend lending pool and also burn tokens from the pool. This ensures the availability of stablecoins within the lending pool. The treasury can also provide flash loans to the dedicated pegkeeper to enable it to perform arbitrage trades, in order to ensure the stablecoin has enough liquidity.

• Blend Pool: Users would deposit XLM into the blend pool to borrow the stablecoin they want. Conversely, when they want to retrieve their XLM, they can do so by returning their borrowed stablecoins to the pool. Through this process the Blend pool will algorithmically calculate the interest rate for both lending and borrowing stablecoin, which will be the way to encourage and discourage users from borrowing stablecoins.

• Backstop Module: The backstop module in the Blend protocol functions as a reserve pool of funds that acts as first-loss capital for each isolated lending pool, meaning it covers losses before any impact on lenders’ funds. Specifically, each lending pool has its own dedicated backstop funds, which are crucial for pool management operations. These funds come from both deposits from users and taking part of the interest paid to the pool, a percentage given by the backstop take rate. These deposits can be withdrawn at any time; however, initiating a withdrawal moves the funds into a 30-day withdrawal queue. This delay ensures that the backstop module retains its ability to serve as effective lender insurance. The user can retrieve their funds after this queue period, provided the backstop module does not have any outstanding bad debt.

• PegKeeper: Curve Finance implemented pegkeepers which is an automated smart contract mechanism designed to stabilize the price of crvUSD, ensuring it remains pegged to the US dollar. In Orbit protocol the pegkeeper helps keeping the protocol healthy by performing liquidations making use of flash loans. It then sells the liquidated positions to an AMM to repay the flash loan. This system enhances currency stability by performing liquidations on the blend pool for users. Users are encouraged to submit profitable liquidations to the treasury, which then uses the pegkeeper perform them. Users initiating profitable liquidations are rewarded with a share of the profits.

• Bridge Oracle: The Bridge Oracle contract ensures that the stablecoins' prices are accurately reflected in the system by bridging their prices to corresponding fiat currencies. This is crucial for maintaining accurate lending and borrowing operations within the blend pool.

Usage of Blend: Instead of building everything in house we are spreading out responsibilities as mentioned before. Blend’s framework facilitates the permissionless creation of isolated lending pools, offering significant adaptability to meet emerging market needs without compromising security or capital efficiency. This is crucial for CDP stablecoin issuance, where risk management and operational flexibility are paramount. Furthermore, Blend’s market-driven backstop system for pool curation maintains appropriate risk levels dynamically, enhancing the resilience of stablecoin operations. The protocol also features a dynamic interest rate model that adjusts based on asset utilization, optimizing capital efficiency and making stablecoin issuance economically viable over time. Operating as an ungoverned, modular protocol, Blend streamlines adjustments to pool parameters in response to market conditions, offering a decentralized and efficient foundation for stablecoin management.

Interest: Interest rates play a crucial role in any financial system by serving as a mechanism to balance supply and demand for capital. Interest rates are necessary to incentivize users to either supply or demand the stablecoin, thus helping to maintain its peg to a stable asset, typically a fiat currency like the US dollar. When the demand for Orbit stablecoins exceeds its supply, an increase in interest rates encourages users to supply more Orbit stablecoins, increasing its availability in the market and stabilizing its value. Conversely, when there is an excess supply of Orbit stablecoins, lowering interest rates incentivizes users to borrow Orbit stablecoins, thereby reducing its supply and preventing its value from deviating from the intended peg. Therefore, interest rates serve as a critical tool in stabilizing the value of decentralized stablecoins and ensuring their usability within the broader financial ecosystem.

The different parameters from the interest rate formula are adjustable by the DAO, more details on this can be read in the litepaper. Users must deposit collateral worth 133% of the stablecoin value to protect against liquidation due to price fluctuations. This setup ensures debt positions remain secure, and stablecoins cannot be used as collateral, maintaining system integrity. This robust structure supports reliable interest rates, ensuring stability for borrowers and sufficient liquidity for the platform.

Risk Management and Pegging: The system has built-in mechanisms to prevent collapse, including over-collateralization and liquidation. Additionally, the pegkeeper can be used to liquidate users using flash loans, thereby helping to keep the protocol healthy. Orbit also uses a backstop module to finance liquidations, a pool of funds that acts as first-loss capital for the lending pool. The pool’s backstop funds are specific to that pool and are extensively used in pool management to protect the system from under-collateralized positions.

Blend Capital. “Backstop Module.” Blend Whitepaper, January 2024, https://docs.blend.capital/whitepaper/blend-whitepaper

MakerDAO. “Dai Stablecoin System.” December 2017. https://makerdao.com/whitepaper/DaiDec17WP.pdf.

Curve Finance. “Curve Stablecoin Whitepaper.” Available at: https://github.com/curvefi/curve-stablecoin/blob/master/doc/curve-stablecoin.pdf.