Cryptocurrency holders can lock their assets to QIAN's smart contract to obtain the amount of QIAN stablecoin that is equivalent to fiat currency without having to pay any interest. The stablecoin QIAN is regarded as the currency exchange proof issued by the smart contract to the holders of the cryptocurrency. We name the smart contract under this mechanism as CSA (i.e. Currency Swap Agreement).
No interest cost for holding CSA
As a liquidity provider, QIAN CSA’s holders do not have to pay any interest. On the contrary, they could gain interest from the smart contract as additional income, which will encourage the creditors to hold QIAN’s CSA for a long time, and is likely to enable QIAN’s vairous financial functions, such as overseas payments, consumer payments, asset transactions, and loan. Only by eliminating the costs of holding assets can QIAN really participate in the development of the crypto open financial ecosystem, and grow shoulder by shoulder with fiat-backed stablecoins which do not require holding cost neither, to serve users with different needs.
Support Flash Loan
It is known that Flash Loanis a safe technology. Any smart contract with assets is able to provide external Flash Loanservice. By charging a certain amount of loan interest, holderscan obtain more revenue from hisassets. Currently, there are Flash Loanaggregation tools in the Ethereum DeFi ecosystem, which provide more powerful loan services by aggregating the traffic of smart contracts that support Flash Loan. QIAN's smart contract will support Flash Loan, and the crypto assets locked in the QIAN smart contract can generateadditional rewards. QIAN’s administrator will regularly use the rewardsto buy FOR tokens in the market. FOR, as the value storage container for the revenue of QIAN smart contract, will be locked into a smart contract that preserves the revenue of the QIAN system.
In the design of QIAN, we followed the following risk management rules:
First, QIAN 2.0 adheres to the principle of excess reserves. When users use crypto assets such as ETH to generate QIAN, they need to meet a certain startadequacy rate. The ratio of the value of locked crypto assets to the value of generated QIAN must be at least 120%.
Second, in order to enhance the security of locked assets in CSA, and avoid the occurrence of account blow upsin extreme market conditions, while taking into consideration the usage rate of crypto assets, QIAN will introduce a volatility factor according to the changing pace of the market price of crypto assets, to control the asset lock multiplierof CSA. When the price rises or fallsunilaterally, the volatility rises and the system will increase the CSA's start adequacy ratio. Ina stable market, the volatility rate will decrease and the system will lower the CSA's startadequacy ratio. This design will effectively reduce the impact of market volatility on locked CSA assets, encourage users to lock CSA under stable market conditions, and enhance the security of the locked assets.
Third, when the price plummets, users’ CSA adequacy rate will decline. During the decline, CSA will have two states: warning and frozen. If a user holds the CSA of ETH, and his reserve asset adequacy ratio drops to around 150% (ETH’s warning line), the QIAN system will demand a margin call from the user. However, if the market continues to plunge quickly and the user is not able to cover the margin call, his adequacy ratio will continue to decline. When it is less than 120%, the smart contract will freeze the user's CSA until the user brings the locked assets back to the safe level, before which the user is not be able to redeem the locked assets through his own address.
Fourth, the frozen CSA may be liquidated. The smart contract allows non-CSA holders to use the same amount of QIAN that is generated by the frozen CSA to redeem the frozen asset. This part will be explained in details later in the chapter of Smooth Arbitrage Mechanism.
Under extreme market conditions, the adequacy ratio of some or all assets in the QIAN system may be less than 100%, resulting in insufficient support for QIAN's intrinsic value. If none of the CSA holders has the intention to cover the margin call, and the market price of the underlying reserve assets does not recover for a while, a reserve gap (i.e. debt)will be createdin the QIAN system. In this case, the system will start a global debt auction after a certain observation period, if the overall reserve adequacy ratio continues to staybelow a certain level.
In the global debt auction, the system will unfreeze the governance token FOR provided by The Force ProtocolFoundation and auction it. The auction proceeds will be used to make up the reserve asset adequacy ratio of the entire system.
In summary, the design advantages of QIAN are as follows:
Table 4 The Design Advantages Of QIAN
Collateral and loan
CDP holding cost
Zero cost with potential positive gains
Medium to high cost
CDP holding risk
Medium to low risk
Medium to high risk
Extreme condition resistant capacity
Strong, to be examined
Weak, has been shown
Is there interest on collateral?
Support for new technologies
To be examined
Is there any final buyer?
DeFi; Cross-border payments; Customer payments; Asset trading; Loan; etc.
Limited to DeFi
Pegged fiat money