1. Abstract
The Path protocol enables permissionless stablecoin market creation through orchestrated collateral allocation across yield strategies, leveraging liquidity and intent protocols. It supports a comprehensive range of assets—from yield-bearing stablecoins and LSTs to tokenized strategies.
Path allows anyone to launch and manage their own stablecoin while participating in the economics, preserving both liquidity and capital efficiency parameters of traditional stablecoins in the market today.
As Internet capital markets evolve, the need for app-specific dollars becomes critical. While applications generate increasing value, current stablecoin infrastructure forces them to leak this value to external issuers unnecessarily. Path protocol introduces a framework where teams can capture and retain the full economic value of their success through customizable stablecoin markets—creating an AWS-like infrastructure for the future of digital dollars.
2. Introduction
This lite paper assumes familiarity with centralized stablecoins and CDP protocols which issue pegged dollar tokens based on collateral backing.
While Circle and Tether are clear market winners in centralized stablecoin issuance, protocols like Sky (formerly MakerDAO) and Ethena have established themselves as market standards for stablecoin protocols. Each optimizes for yield, connectivity to traditional finance, and on-chain nativeness—operating both in the traditional world and on-chain.
With the current trend of tokenizing everything and liquidity orchestration making it easier to transform on-chain dollars into yield-producing assets, a framework can be developed to bring a trust-minimized issuance protocol to market—one that allows anyone to create a dedicated stablecoin for their own chains, apps, or platforms.
Our Mission
To allow anyone to create a stablecoin along with a market that enables third-party protocols and delegates ("Public Allocators") to participate in the economics of stablecoin business—without the operational and regulatory overhead of building a stablecoin from scratch.
3. High-Level Framework
Path is built on a modular 4-layer design that separates concerns while enabling seamless integration:
Issuance Layer
Factory smart contract deploying stablecoin token contracts, similar to Uniswap LP contract creation
Markets Layer
Morpho-style vaults to segment stablecoin markets by risk profile and use case
Orchestration Layer
Cross-chain communication via LayerZero, Wormhole, and similar protocols
Allocators / Yield Curators
Third-party strategy managers generating yield for a percentage fee
4. Core Features and Architecture
4.1 Issuance Layer
The issuance layer is a factory smart contract system that deploys stablecoin token contracts, similar to how Uniswap creates liquidity pool contracts.
- •Each stablecoin is permissionlessly minted using approved collateral types (e.g., USDC, USDT, tokenized RWAs)
- •Collateral ratios and minting rules are adjustable per deployment
- •Enables flexibility for different risk tolerances and use cases
Example: A dApp on Polygon can use the issuance layer to mint a chain-specific stablecoin backed by USDC, creating liquidity for its ecosystem while maintaining capital efficiency.
4.2 Markets Layer
Inspired by Morpho's vault segmentation model, Path uses vaults to manage stablecoin markets for different risk profiles.
- •Each vault is isolated and optimized for a specific market segment
- •Tailored interest rates, collateral rules, and market adjustment mechanisms
- •Vaults can interoperate with other stablecoin markets for maximum liquidity
Example: A "High-Risk Vault" may allow minting stablecoins against volatile collateral, while a "Safe Vault" supports only highly liquid collateral such as USDC or wBTC.
4.3 Orchestration Layer
Path leverages cross-chain communication protocols such as LayerZero and Wormhole to enable seamless asset and message transfers across multiple chains.
- •Stablecoins minted on one chain can freely move and interact with markets on another
- •Creates a unified multi-chain liquidity ecosystem
- •No manual bridging required for cross-chain operations
Example: A stablecoin minted on Ethereum can participate in Avalanche's DeFi yield strategies without requiring manual bridging.
4.4 Yield Curators
Yield Curators are third-party managers who interact with stablecoin markets to generate yield through strategies such as staking, lending, or MEV opportunities.
- •Stablecoin creators can delegate yield management to curators
- •Curators earn a fee for their services, aligning incentives
- •Strategies are transparent and auditable for trust-minimized participation
Example: A Yield Curator might allocate idle stablecoins to Aave pools, earning yield and passing profits to the stablecoin market while earning a fee.
5. Economic Model
Path's economic model centers around aligning incentives between stablecoin creators, public allocators, and yield curators:
Stablecoin Creators
Earn a percentage of transaction fees and yield generated by their stablecoins. Creators capture the economic value of their ecosystem's growth.
Public Allocators
Manage liquidity and collateral strategies, earning rewards for maintaining market efficiency. These include keepers and arbitrageurs essential for protocol health.
Yield Curators
Implement advanced strategies to generate sustainable yield, taking a performance fee for their expertise and active management.
6. Governance
Path starts as a semi-centralized protocol with Path Labs stewarding development. Over time, the protocol transitions to decentralized governance through a dedicated governance token.
Governance will be responsible for:
- •Approving new collateral types and yield strategies
- •Adjusting risk parameters (e.g., LTV ratios, liquidation thresholds)
- •Managing updates to core smart contracts
Governance proposals are executed via on-chain voting, ensuring transparency and community alignment.
7. Use Cases
Chain-Specific Stablecoins
L2s and app-chains can issue native stablecoins to bootstrap liquidity for their ecosystems, retaining value that would otherwise leak to external issuers.
DeFi Marketplaces
DeFi protocols can create tailored stablecoins optimized for specific use cases, such as yield farming or cross-chain lending, with custom risk parameters.
Gaming and NFTs
GameFi platforms can issue stablecoins for in-game economies, creating a pseudo closed market for their assets against dollars while maintaining composability.
8. Conclusion
Path unlocks a new paradigm for stablecoin creation by combining trust-minimized issuance, advanced market creation, and yield orchestration.
By enabling permissionless stablecoin deployment and introducing Public Allocators, Path empowers creators to focus on adoption while driving sustainable growth in decentralized finance.
The future of stablecoins lies in flexibility, and Path aims to pave the way.