Brought to you by Sovryn
June 17, 2022
Today we will send out the first invites to people on the Zero early access waitlist so they can begin using the protocol on mainnet. While we have already published details of how Zero works on the blog and in the wiki, in this post we will share specifics about what participants can expect from the early access version. If you have not yet familiarized yourself with the details about how the Zero protocol works, we recommend reading through the wiki documentation first, then coming back here for an overview of the Zero early access experience.
Here’s everything you’ll need to start using Zero:
Now let’s dive in!
During the early access period, access to the Zero app will be granted on an invite-only basis. This will give us a chance to stress test the protocol and its supporting infrastructure with limited amounts of traffic, rather than potentially overwhelming the system and the team supporting it. While having too much traffic is a good problem to have for a new protocol looking for market fit, at this stage we prefer that everyone who gets access to Zero has a good experience when using it, so we’re content with taking things slower with this rollout. This is an experiment for us and we will learn and adjust as we go.
Once you get access to the Zero app, you will be greeted by a dashboard that will look familiar to anyone who has used the original Liquity app that Zero is based on. The Zero app is in fact the same interface, restyled to better match the Sovryn aesthetic, and reengineered to account for the changes we have introduced in the Zero protocol, such as using RBTC as collateral, integrating ZUSD with the XUSD aggregator, and sending all Zero protocol fees to SOV stakers. Because of the invite-only availability, relatively limited functionality, and new styling choices, we are releasing Zero as a Sovryn Labs product during the early access period. Set your expectations accordingly!
To start using Zero, you will need a Rootstock wallet and Smart Bitcoin aka RBTC. RBTC is the native asset of the Rootstock blockchain that Zero is built on. RBTC is used for paying mining fees on Rootstock, and as mentioned before, is also the asset that is used as collateral to back Zero Lines of Credit. What’s special about RBTC is that, as the name implies, RBTC is backed by BTC on a 1:1 basis using a mechanism called the Powpeg. There are a few different ways that you can convert BTC to RBTC, including using the Powpeg directly. However, using the Powpeg takes 24 hours. A much faster way to get RBTC is using FastBTC, a protocol built by Sovryn developers to facilitate the secure conversion of BTC to and from RBTC with a time delay of about two bitcoin blocks.
Once you have RBTC, you’ll be able to create your Line of Credit. You can deposit as much RBTC collateral as you want, there is no limit. When you create a Line of Credit and borrow from the Zero protocol, the currency that you will receive and that your debt, liquidation reserve, and origination fee will be denominated in, is ZUSD. ZUSD is the native “stablecoin” of the Zero protocol. A stablecoin is so-called because its value is relatively stable compared to a cryptoasset like BTC. In the case of ZUSD, its value is pegged to the US dollar, so the value of 1 ZUSD should always be equal to about 1 USD. Importantly, for each 1 ZUSD issued by the Zero protocol, there should always be at least 1.10 USD worth of RBTC collateral backing it. This equates to a minimum required collateral ratio of 110%, or a 90.9% “loan-to-value” LTV ratio.
Read more about how ZUSD maintains its peg to USD.
During the Zero early access period, the primary way that you will be able to use the ZUSD you borrow is by converting your ZUSD to XUSD. A conversion tool will appear on the Dashboard when you have either a ZUSD or XUSD balance in your connected wallet address. This will enable you to convert ZUSD to and from XUSD on a 1:1 basis.
XUSD is a stablecoin issued by BabelFish, a protocol that aggregates liquidity from multiple popular USD-pegged stablecoins, including BUSD, DAI, USDC, USDT, and now ZUSD, enabling frictionless conversion between them. By converting ZUSD to XUSD you immediately gain access to millions of dollars worth of XUSD liquidity and functionality currently available on Sovryn, including lending pools, collateralized borrowing, spot and margin trading, AMM pools, and bridges to Ethereum and BSC, which may be useful for cashing out on centralized exchanges that do not support Rootstock yet. When you’re ready to repay your debt, you can simply convert XUSD back into ZUSD using the converter on the Dashboard.
Another way that you can use ZUSD during the early access period is by depositing your ZUSD into the Zero Stability Pool. The Stability Pool is the first line of defense for providing liquidity to service liquidations. If there isn’t enough ZUSD in the Stability Pool to service liquidations, then the Line of Credit that gets liquidated has its debt and collateral redistributed to all other Lines of Credit on a pro-rata basis according to the collateral balance of the other Lines of Credit. If there is liquidity in the Stability Pool to service a liquidation, then the debt of the liquidated Line of Credit is paid off using ZUSD from the Stability Pool in exchange for the RBTC collateral balance of the liquidated Line of Credit, minus a 0.5% compensation reward for the liquidator. Historical data from Liquity shows an average profit of about 9% per liquidation for Stability Pool depositors, and we expect to see similar profitability for Zero Stability Pool depositors as well (no guarantees, of course).
Speaking of liquidations, there is a Liquidation page in the Zero app where you can see all open Lines of Credit, their collateral and debt balances, and their individual collateral ratio. If one or more Line of Credit becomes eligible to be liquidated, it will be possible to liquidate one or more of the eligible Lines of Credit in a single transaction. Due to the time-sensitive nature of liquidations, we expect this action to be most often carried out by bots. The Sovryn core developers will run the first liquidator bots in the system, with any profit going to the Sovryn Treasury. We encourage community members to run a liquidator bot as well.
Check out the source code and instructions for running a Zero liquidator bot.
Last but not least is the Redemption page. The redemption feature is one of the key features of Zero and enables any ZUSD holder to redeem their ZUSD for the underlying RBTC collateral at face value, 1 ZUSD for 1 USD worth of RBTC, minus a redemption fee. The redemption feature ensures that if the price of ZUSD ever drops below 1 USD for an extended period of time, arbitrageurs can redeem ZUSD for the underlying RBTC collateral at a discount, which will pull the value of 1 ZUSD back to 1 USD, effectively creating a price floor of about 1 USD per ZUSD. The collateral used to service redemptions comes from open Lines of Credit, starting with the lowest collateral ratio and working up to the highest collateral ratio as needed to service redemptions.
For the first 14 days after deployment to mainnet, redemptions will be disabled to give the protocol time to build up liquidity. After 14 days, it will become possible to redeem ZUSD for RBTC. However, like liquidations, we expect that this feature will primarily be used by automated systems, and only when the value of 1 ZUSD drops below 1 USD. Most likely, most users will never use this feature, but it will be there if it’s needed.
With that introduction out of the way, you’re now ready to open a Line of Credit and take out your first 0% interest loan backed by bitcoin. If you have any remaining questions, bug reports, or feature requests, you can drop a message in the Sovryn Discord server or create a support ticket on the Sovryn Helpdesk. We hope you enjoy Zero, and look forward to hearing your feedback.
Stay Sovryn!
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