Abstract
Astro introduces USDA, an over-collateralized stablecoin developed on AO's hyper parallel computing environment. This litepaper presents an overview of the protocol's design—emphasizing stability, scalability, and security for digital currency transactions.
It employs a robust collateralization mechanism to unlock and maintain liquidity while aiming to minimize volatility. The litepaper also briefly outlines the protocol's governance model, and the economic incentives designed to foster a decentralized ecosystem.
The content aims to offer a foundational understanding of Astro Protocol's operational framework and security features, setting the stage for a comprehensive full whitepaper.
Motivation
Over the past decade, blockchain technology has transformed financial services, once dominated by traditional intermediaries like banks and other institutions. Platforms like Ethereum have enabled the development of Decentralized Finance (DeFi), providing open, transparent financial tooling that have reduced operational costs and complexity for users globally.
Astro's introduction of the USDA stablecoin to the Arweave ecosystem is a major step forward. USDA aims to provide stability to the permaweb's economic environment, leveraging Arweave's decentralized storage and the innovative aoComputer (AO) for smart contract-like processes, enabling secure and efficient value exchange.
The rapid growth of DeFi since 2020 underscores the need for stablecoins like USDA. Existing stablecoins like USDC and USDT, along with decentralized options like MakerDAO's DAI, have enhanced transactional stability and fostered a low-volatility store of value within the Ethereum ecosystem. However, the absence of a stablecoin can hinder ecosystem development by restricting liquidity and value movement.
USDA's Purpose
USDA addresses these issues by supporting economic activities on AO and fostering the growth of its financial ecosystem. Astro's USDA is designed to facilitate seamless transactions, enhance liquidity, and stabilize the Arweave ecosystem, encouraging broader adoption and innovation in DeFi applications.
1. The Astro Protocol
Astro Protocol is a blockchain-based framework that enables the minting of stablecoins and synthetic assets, backed by on-chain collateral, stored and managed by processes developed within the AO compute environment. Unlike existing platforms, Astro introduces dynamic liquidation processes and stability modules to enhance system resilience and user trust.
1.1 Basic Concepts
Astro Protocol utilizes the Vault Contract as its core, where users lock in collateral to mint synthetic stablecoins. The protocol's design includes unique mechanisms for liquidation and stability, supported by real-time data from integrated oracle services.
We also introduce a Protocol Hosted Wallet (PHW) and Wrapped Arweave (wAR) tokens, extending functionality and usability, making the protocol adaptable to a wide range of blockchain environments.
Note: In this document, the terms "contract" and "process" are used interchangeably. Within the AO compute environment, processes are analogous to contracts, and this terminology reflects their functional equivalence in the context of the Astro Protocol.
1.2 Formal Definitions
Vault Contract (VC)
Manages the deposits, withdrawals, and issuance of synthetic assets against locked collateral.
Oracle Module (OM)
Provides real-time pricing data by integrating feeds from sources like ChainLink, Pyth, and RedStone.
Liquidation Module (LM)
Activates to handle undercollateralized positions via direct user actions or systematic protocol-driven auctions.
Stability Module (SM)
Manages liquidity pools to mitigate systemic risks and ensure protocol stability.
Protocol Hosted Wallet (PHW)
A dedicated wallet system designed to hold and manage Arweave tokens securely within the protocol.
Wrapped Arweave (wAR)
A synthetic version of AR transferable within the aoComputer, designed for use within the Astro Protocol and other processes on the computer.
1.3 Astro Protocol Flow
Astro's Vault Contract is the entry point for users to interact with the protocol by depositing collateral and minting synthetic stablecoins. The Vault Contract holds the information needed to calculate the USD equivalent and USDA value and fees.
Key Formulas
USD equivalent value: V(currency, q) = q x P(currency)
USDA loan value: L(currency, q, c) = V(currency, q) / c
Fee calculation: F(s, amount) = s x amount
1.3.1 Deposit and Mint
Users deposit collateral into the Vault Contract, which allows them to mint synthetic assets proportional to the value of their deposit, while maintaining a collateralization ratio deemed 'safe' by the protocol.
1.3.2 Liquidation Processes
In the event of market downturns affecting collateral values, the Liquidation Module is triggered to secure the protocol's assets and users' positions. The Contract is responsible for calculating collateralization ratios, liquidation bonuses, total redeemable collateral, and repayment amounts.
Liquidation Calculations
Collateralization ratio: ratio = Collateral Value in USD / USDA Debt
Liquidation bonus: Bonus = Liquidated Collateral x (Liquidation Bonus % / 100)
Total redeemable: Total Redeemable = Liquidated Collateral + Bonus
Repayment: Repayment = Debt x (1 + Stability Fee)
2. Protocol Architecture
Astro Protocol's architecture is designed to support simple yet robust interactions among its components, optimizing for large amounts of liquidity while minimizing volatility.
2.1 Vault Contract
Central to the protocol, the Vault Contract enforces the deposits, withdrawals, and issuance of synthetic assets. It interacts directly with the Oracle Module to get real-time pricing, ensuring that the collateralization ratios are maintained within safe limits.
Key Functions and Role
- •Collateral Management: The Vault Contract allows users to deposit collateral in exchange for synthetic assets or stablecoins (e.g., USDA).
- •Debt Issuance and Management: Minting synthetic assets is enabled for users upon collateral deposit, following the protocol's determined ratios.
- •Real-Time Pricing Updates: The Vault Contract integrates with the Oracle Module for real-time pricing updates on different collateral types.
- •Liquidation Triggers: The Vault Contract starts liquidation if collateral value drops below predefined thresholds.
- •User Interaction Interfaces: The contract offers action handlers for users to interact with their collateral and debts.
- •Fee and Penalty Collection: The Vault Contract calculates and collects stability fees and liquidation penalties during liquidations.
2.2 Liquidation Module
This module is triggered when collateral value falls below predefined thresholds, with two main components: the Direct Liquidation Handler and Protocol Liquidation Handler. It supports both immediate liquidations by users and systematic liquidations managed by the protocol itself.
2.2.1 Direct Liquidation Handler
The Direct Liquidation Handler is a specialized component crafted to facilitate the immediate liquidation of undercollateralized vaults when specific conditions are met. This handler enables rapid response to mitigate potential risks from fluctuating market values of collateral.
Example: If a vault's collateralization ratio drops to 160% (less than 175% but more than 150%), the Direct Liquidation Handler will be activated. The liquidator pays off the vault's debt, including a 5% stability fee and 13% liquidation penalty, to recover the collateral.
2.2.2 Protocol Liquidation Handler
The Protocol Liquidation Handler is designed to manage the systematic liquidation of undercollateralized vaults when they fail to meet the required collateralization thresholds. This handler automates critical processes to maintain the system's stability and prevent potential financial crises within the protocol.
Example: If a vault's collateralization ratio drops to 130% (below the 150% minimum threshold), the Protocol Liquidation Handler will be triggered instead of the Direct Liquidation Handler, initiating an auction process.
2.3 Stability Module
The Stability Module is integral for maintaining the health of the protocol during market volatility. It includes a Stability Pool where users can deposit stablecoins to earn rewards and a Collateral Pool that enhances liquidity and supports the protocol's stability. It acts as a financial buffer against market volatility and systemic risks by managing liquidity pools and providing mechanisms to mitigate potential defaults and liquidations.
Key Functions
- •Liquidity Management: Aggregates user deposits in the form of stablecoins to support the protocol during periods of high demand for liquidation.
- •Risk Mitigation: By pooling resources, the Stability Module can intervene in liquidation events to purchase undercollateralized assets at a discount.
- •Reward Distribution: Users who contribute to the Stability Pool will be rewarded with AST tokens or other incentives.
- •Automated Liquidation Participation: The Stability Module automatically purchases distressed assets if a vault lacks collateral.
Stability Pool Liquidation Scenario
Setup: Stability Pool Total: 1,000,000 USDA | Bob's Contribution: 100,000 USDA (10% share)
Alice's Vault: Debt of 20,000 USDA, Collateral of 400 wAR at $75/wAR
Bob's Contribution to Debt: 10% x 20,000 = 2,000 USDA
Bob's Remaining USDA: 100,000 - 2,000 = 98,000 USDA
Bob's Share of Collateral: 10% x 400 = 40 wAR (valued at $3,000)
Bob's Net Gain: $3,000 - $2,000 = $1,000
2.4 Peg Stability Handler
The Peg Stability Handler is a critical component designed to maintain the stability of the USDA peg within the Astro Protocol. It targets vaults with a Collateral Ratio (CR) less than 175%. If there are no such vaults, the handler includes the lowest loan-to-value (LTV) vaults.
Users or automated agents can redeem USDA for wAR using the Peg Stability Handler. The process includes identifying vaults, processing redemption requests, and executing adjustments.
Process Flow
- User initiates redemption request through the protocol interface
- Protocol checks for vaults with CR less than 175%; if none found, looks for lowest LTV vaults
- Request is validated and user's USDA is accepted
- Equivalent value in wAR is transferred from the vault to the user
- USDA used in redemption is removed from vault's debt, increasing CR
- Vault records are updated to reflect new amounts
2.5 Auction Module
The Auction Module is an essential component designed to manage the auctioning of collateral from undercollateralized vaults. This module facilitates efficient asset liquidation, promoting debt recovery and financial stability. It implements Dutch-style auctions to enable broader market participation in liquidations, promoting fair market prices and efficient collateral redistribution.
Auction Mechanism
- •Dynamic Pricing Strategy: Starting price is set 20-30% above current market value, decreasing based on a predefined decrement percentage until the auction ends.
- •Debt Recovery: Auctions address debts of the liquidated vault, including principal, stability fees, and liquidation penalties.
- •Integration with Oracle Module: Ensures auctions start at a reasonable price relative to the market with accurate and timely asset valuations.
2.6 Oracle Module & Service
The Oracle Module is a pivotal component of the Astro Protocol, tasked with providing accurate and timely market data to various other parts of the system. This module ensures that all financial operations within the protocol are based on the most current and reliable asset valuations.
Key Functions
- •Real-Time Data Feeds: Collects price data from multiple sources to minimize manipulation and errors.
- •Price Update Mechanisms: Utilizing advanced algorithms and time-weighted averages, prices are updated at predefined intervals or in response to significant market movements.
- •Security and Reliability: Incorporates features to detect and mitigate potential threats such as flash loan attacks or unusual market activity.
2.7 Protocol Hosted Wallet (PHW)
The Protocol Hosted Wallet (PHW) is an essential component designed to streamline user interactions with Arweave and AO layers by managing assets directly within the protocol itself. This dedicated wallet system simplifies the user experience and enhances security by maintaining a controlled environment for asset transactions and management.
The PHW serves as a gateway to assets into AO, taking charge of managing users' AR deposits. It secures these assets through predefined wallets, enhancing security and simplifying operations for users within the ecosystem. Similar to the Wrapped Bitcoin (WBTC) model with BitGo as the primary custodian, consideration is being given to appointing a third-party custodial partner to oversee the development of new wallets.
Legal and Governance Structure
The PHW may be governed by two legal entities: a foundation and a trustee. The foundation would manage overarching governance, while the trustee would oversee daily operations and legal responsibilities.
Bankruptcy Remote Vehicle
Incorporating the PHW within a trust's legal framework would make it bankruptcy remote, safeguarding it against the insolvency of associated entities and enhancing asset security for users.
3. Risk Factors and Mitigation
3.1 Liquidation Risk
Liquidation risk occurs when the value of the collateral backing USDA drops significantly, making it insufficient to cover the issued stablecoins. This could lead to forced liquidation of collateral assets, causing instability in the protocol.
Mitigation Strategies
- •Over-Collateralization: Astro ensures that all USDA stablecoins are over-collateralized, providing a buffer against market volatility.
- •Automated Liquidation Mechanisms: Automated systems monitor collateral levels and initiate liquidations when values fall below a threshold.
- •Stability Module and Stability Pool: Acts as a financial buffer during market volatility, purchasing undercollateralized assets at a discount.
- •Auction Model: Dutch-style auctions ensure efficient liquidation and fair market prices for collateral.
3.2 Custodial & Distributed Wallets Risk
Custodial risk involves potential loss or mismanagement of collateral assets. If custodians fail or act maliciously, it could jeopardize asset security.
Mitigation Strategies
- •Protocol Hosted Wallet (PHW): Manages assets directly within the protocol, enhancing security and simplifying user interactions.
- •Trusted Custodians: Collaboration with reputable custodial service providers known for robust security measures.
- •Community-Driven Governance: The PHW is supported by a consortium of ecosystem teams, ensuring transparent and decentralized management.
- •Bankruptcy Remote Vehicle: Legal framework safeguards against the insolvency of associated entities.
3.3 Oracle Risk
Oracle risk involves the potential for inaccurate or delayed market data from oracles, which could lead to improper valuations of collateral and subsequent financial instability within the protocol.
Mitigation Strategies
- •Real-Time Data Feeds: The Oracle Module aggregates price data from multiple external sources, ensuring a robust and diversified feed.
- •Price Update Mechanisms: Advanced algorithms and time-weighted averages update prices at predefined intervals or in response to significant market movements.
- •Security and Reliability Enhancements: Features to detect and mitigate potential threats such as incorrect prices from malicious actor feeds or unusual market activity.
4. Governance of the Protocol
Astro Protocol's governance model will be designed to evolve from being initially stewarded to fully decentralized, mirroring successful frameworks like MakerDAO's. Astro Labs will have a major role as a contributor, overseen by the Astro Foundation.
The protocol's development will introduce the Astro Token (AST) for governance, with a clear roadmap towards decentralization. Executive Voting and Governance Polling empower AST holders to participate in key decision-making processes for protocol upgrades, risk management, and other critical decisions.
This approach strives for stability, transparency, and resilience in the Astro Protocol with an inclusive governance structure.
5. Conclusion
The Astro Protocol uses an innovative compute environment to introduce the USDA stablecoin, which is crafted to enhance liquidity and ensure stability across the ecosystem. The protocol's architecture prioritizes adaptability, considering potential changes in use-cases, community dynamics, and technology. Astro's modular approach ensures continuous support for stable transactions, evolving with the ecosystem's growth.
Stable Value Preservation
USDA provides a stable value against volatile market conditions, aiding in financial planning and risk management for users across the network.
Enhanced Liquidity Solutions
By integrating with the aoComputer (AO), Astro allows for efficient and secure smart contract executions, bolstering the liquidity and usability of USDA within various financial applications.
Following its deployment, Astro will continue to advance its commitment to decentralization with the introduction of additional features. A Governance Model will be implemented, allowing users to participate actively in the evolution of the protocol:
- •Protocol Level: An introduction of AST (Astro Token) for overarching updates and strategic decisions, enhancing user involvement and transparency.
- •Customizable Modules: Enabling users to adapt and deploy tailored solutions based on Astro's core smart contracts, fostering innovation and diversification within the ecosystem.
Through these measures, Astro aims to establish a resilient and adaptive framework that not only supports the growth of aoComputer (AO) but also sets a new standard for stability and user empowerment in the DeFi sector.
6. Acknowledgements
This work builds upon the foundational research and implementations from the following protocols:
7. Legal Disclaimer
This Litepaper is for general information purposes only and may be subject to change without prior notice. Astro Labs Research Ltd ("Astro Labs") and any current or future affiliated entities do not make or purport to make any representation, undertaking or warranty in any form whatsoever concerning the accuracy and completeness of any of the information set out in this Litepaper.
This Litepaper does not constitute a prospectus, an offer of any sort including securities, a solicitation for investment in securities in any jurisdiction, or any offer to sell any product, item, or asset. No information in this Litepaper should be considered as business, legal, financial, or tax advice regarding the Astro Protocol or the Astro Token.
Prospective purchasers of Astro Tokens should evaluate all risks and uncertainties associated with the purchase of Astro Tokens. Such purchase and holding carry substantial risks that could lead to a loss of part, or all, of the funds invested.