Tether's new stablecoin experiment aUSDT: gold-backed digital asset

Author: HAMSTER

Tether, the world's largest stablecoin issuance company, recently launched a new stablecoin, aUSD₮, aiming to meet the growing market demand and inject new vitality into the DeFi ecosystem. aUSD₮ is a unique digital asset over-collateralized by Tether Gold (XAUT), meaning that aUSD₮ is backed by real physical gold stored in Switzerland.

What are Alloy by Tether, Tethered Assets, and aUSD₮?

Recently, Tether announced the launch of the new platform Alloy by Tether, introducing a new type of digital asset called Tethered Assets. These assets are designed to track the price of reference assets through stable strategies (such as over-collateralization of liquid assets and secondary market liquidity pools). Tethered Assets can accept single or multiple types of collateral and can track the prices of most known assets, such as fiat currencies, commodities, and similar products.

Alloy by Tether is an open platform that allows for the issuance of different Tethered Assets with a broader support mechanism, potentially including yield products. This technology also provides institutions with a modern approach to asset management, offering a secure, gold-backed digital asset that can be integrated into investment portfolios. Moon Gold NA, S.A. de C.V. and Moon Gold El Salvador, S.A. de C.V. are both authorized by the Salvadoran CNAD to oversee the issuance and management of Alloy by Tether, meeting the needs of diverse client groups and regulatory requirements.

Alloy by Tether tokens use Tether Gold (XAU₹) as collateral, making it a Tethered Asset. aUSD₹ is the first Alloy by Tether token designed to track the value of 1 US dollar. Tether Gold represents physical gold stored in Switzerland, with each XAU₹ token pegged to one ounce of physical gold, in line with the good delivery standards of the London Bullion Market Association (LBMA). This combination aims to provide the stability and reliability of gold, while also offering the trading functionality and convenience of the US dollar. aUSD₹ is created on the Ethereum network, with the entire process managed by Ethereum-compatible smart contracts to ensure transparency and security. This approach not only bridges physical gold with digital trading, but also utilizes price oracles to monitor the real-time relationship between the token and its underlying value, further enhancing stability.

As of June 30th, aUSD₮ has been minted over 19.04 million, with gold collateral exceeding 417.23 kilograms.

aUSD₮ Minting Mechanism: Over-collateralization and Vaults Smart Contract

aUSD₮ The minting mechanism includes the following aspects:

• Over-collateralization: Over-collateralization is a core feature of aUSD₮. Each aUSD₮ token is backed by Tether Gold (XAU₮) worth more than its face value. Excess XAU₮ serves as a buffer, protecting aUSD₮ from fluctuations in the price of gold. When minting aUSD₮, users need to deposit more gold than the value of the aUSD₮ they wish to mint as collateral, ensuring the stability and security of the token.
• Minting Process: Users can mint the corresponding amount of aUSD₮ by locking a specified quantity of Tether Gold in the smart contract. The maximum quantity of aUSD₮ that can be minted is determined by the Minting Value Ratio (MTV), with a maximum MTV of 75%. The entire minting and management process is carried out through Ethereum-compatible smart contracts (Vaults), ensuring transparency and security. Users can mint as long as they have gone through KYC and their CMP's MTV does not exceed the liquidation point.

MTV calculation formula:

MTV = (minted aUSD₮ value / collateralized XAU₮ value) * 100

For example, if a user mortgages $10,000 worth of Tether Gold and mints $7,500 worth of aUSD₮, the MTV is 75%. If the ratio exceeds 75%, the position will face liquidation.

• Vaults Mechanism: Vaults is an intelligent contract system used to store user collateral and unissued aUSD₮, allowing independent and permissionless verification of XAU₮ collateral for each issued aUSD₮. Vaults also store user CMP information and address metrics, such as minted aUSD₮, provided XAU₮, and MTV positions. Only addresses that have completed KYC verification can interact with Vaults and mint aUSD₮. Vaults obtain price data in real-time through oracles, monitor, and calculate MTV positions for each user collateral.
• Oracle Machine Mechanism: The Oracle Machine mechanism ensures that the value of aUSD₮ is always pegged to the US dollar at a ratio of 1:1. The Oracle Machine obtains real-time price data for XAU₮ and the US dollar from multiple trusted sources to calculate the current MTV of each user's collateral position, ensuring the stability and transparency of the system. This mechanism not only maintains the value of aUSD₮, but also provides additional stability and security by leveraging the intrinsic value of gold.
• Liquidation Mechanism: Liquidation occurs when the value of the collateral falls below a predetermined threshold (typically set at 75% of the collateral value). If a user's collateral position approaches the liquidation point, an authorized liquidator can intervene, recover the user's XAU₮, and return the corresponding amount of aUSD₮. This mechanism ensures the integrity of the system and prevents under-collateralization.
• Fee Structure: The minting, redemption, and liquidation processes of aUSD₮ incur certain fees. Currently, the fees for minting and redemption are both 25 basis points (bps), and the liquidation fee is 75 basis points. These fees help cover the operating costs of the system and maintain its stability.

Through this mechanism, aUSD₮ provides a digital asset that combines the stability of the US dollar and the value of gold, suitable for various trading and investment needs.

Detailed minting process:

• Mortgage deposit: Users first visit the Alloy by Tether website and select start minting. On the left side of the screen, users select the amount of Tether Gold (XAU₮) to be provided and decide how much aUSD₮ to mint. (XAU₮ can be purchased through the Tether Gold platform or the Secondary Market)
• Set Parameters: The system will display information such as the amount of collateral and minted aUSD₮, minting fees, liquidation points, MTV, health bars, XAU₮ price, and liquidation price.
• Transaction Overview: Displays detailed transaction summary, including wallet balance changes, CMP impact, and related fees.
• Confirm minting: Users click the "Add collateral and mint aUSD₮" button, confirm the transaction, and transfer XAU₮ from the wallet to the Vault as collateral. The minted aUSD₮ will appear in the wallet.
• Monitoring CMP: Users can monitor CMP and current status on the right-hand screen.

Core Advantages of aUSD₮: Stability of Gold and On-chain Transparency

The core advantages of aUSD₮ mainly include the following points:

• The stability supported by gold and direct exposure to the value of gold: aUSD₮ is collateralized by Tether Gold (XAU₮), which is stored in Switzerland, ensuring its value stability. Through over-collateralization, the face value of each aUSD₮ token is supported by a higher value of Tether Gold, providing a buffer to protect aUSD₮ from the fluctuation of gold prices. In addition, aUSD₮ provides the convenience of daily use similar to fiat currency, while also providing users with direct exposure to the value of physical gold as it is backed by Tether Gold. Users can enjoy the security of gold and utilize aUSD₮ for efficient trading and value storage.
• Transparency and Security: The minting and management of aUSD₮ are carried out through Ethereum-compatible core smart contracts, which can independently and permissionlessly verify the XAU₮ collateral, ensuring the transparency of the system. All interactions require KYC verification, ensuring that only verified addresses can interact with the smart contracts. Price oracles continuously monitor the relationship between the token and its underlying value, further enhancing the stability of the system.
• Liquidity and Efficiency: aUSD₮ provides a simplified way to trade gold that can be used for daily transactions as well as a stable asset management tool for investors. By being compatible with the Ethereum ecosystem, aUSD₮ can seamlessly integrate with various DeFi platforms, promoting yield generation and asset diversification.
• Versatility and wide-ranging applications: In addition to stability and transparency, aUSD₮ also offers a new way of asset management that is suitable for various financial institutions and individual investors. Its design is not only suitable for traditional financial transactions, but also for automated minting, redemption, and clearing through smart contracts, providing a modern asset management solution.
• Continued transparency and auditability: aUSD₮ operates independently of the banking system, as a robust, fully on-chain solution, providing a high level of transparency and security.

With these advantages, aUSD₮ provides users with a stable and efficient digital asset management tool, combining the security of gold with the transparency and efficiency of blockchain technology, providing investors with a reliable value storage and trading tool.

Summary

Tether's new stablecoin aUSD₮ combines the stability of Tether Gold with the transparency of blockchain technology, providing users with an innovative digital asset management tool. aUSD₮ adopts over-collateralization mechanism and smart contracts to ensure its value stability and system transparency. It not only utilizes the intrinsic value of gold to provide additional stability, but also achieves automated management through Ethereum-compatible smart contracts, suitable for various trading and investment needs. With its transparent operation and strong security, aUSD₮ provides investors with a reliable value storage and trading tool, and offers more choices and possibilities for the DeFi ecosystem.

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