Since Bitcoin's inception, its main advantage has been decentralization. However, when it comes to stablecoins, various solutions with differing levels of centralization risks and mechanisms have emerged. Currently, three types of stablecoins are discernible: centralized (e.g., USDT, USDC), backed by well-known assets (e.g., DAI, LUSD), and algorithmically crypto-backed by new assets (e.g., AMPL).

Until 1971, the simplest system was the US dollar backed by gold. Gold served as an effective collateral due to its rarity, verifiability, durability, and widespread acceptance in the global community. As gold became scarcer through mining, it became an asset with deflationary traits, exhibiting high volatility and significant growth in its early stages. In contemporary times, the average historical growth of the gold price aligns roughly with global inflation rates.

For strategies combating inflation, increasing the collateral ratio, and fostering project development, it's essential to accumulate or have a growth factor in assets. To maintain simplicity in the model, the only feasible option for a growth factor is its collateral.

Among the most capitalized digital assets in the crypto space, BTC and ETH stand out due to their deflationary mechanisms. Consequently, these assets have been chosen as the primary collateral elements.

Given the high correlation between ETH and BTC, their inclusion in the main collateral enhances diversification.

To make the collateral more stable and steady, it's a good idea to include a small amount of another stable coin. The USSD development team chose a stable coin based on specific criteria, prioritizing:

• Eliminate Risks in Initial Development: Mitigate risks during the early stages of development.
• Motivate Early Participation: Encourage participation from the outset.

To ensure room for collateral growth, a portion of 5-15% from the total USSD balance is set aside for this stable coin. The most suitable choices are USDT for the Arbitrum USSD version and DAI for the erc20 USSD version.

Additionally, it's important to mention that for certain networks (L1 and L2), wrapped versions of assets are used when using the original versions is not possible. The same criteria used for stable coins apply to the wrapped versions of BTC and ETH.

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Bitcoin follows a cycle of ups and downs, especially tied to its halving events. Looking at the chart, it's evident that shortly after Bitcoin's halving, its price begins to rise.

Halving can be roughly divided into three equal phases after halving, each lasting about one year. Here's a general strategy for collateral accumulation during these phases:

• First Phase (First year after halving): Bitcoin (BTC) is growing. It is reasonable to accumulate BTC and ETH in the collateral.
• Second Phase (Second year after halving): BTC is at its high levels. It is reasonable to stop accumulating BTC and ETH and focus on accumulating only stable coins.
• Third Phase (Third and fourth year after halving): BTC is at its local minimums. It is reasonable to accumulate BTC and ETH in the collateral.

Very approximately, minting USSD for BTC and ETH is possible in the first, third, and fourth periods. In the second period, it’s possible to mint USSD only for Stable Coin (USDT in USSDv2 Arbitrum).

The minting and redeem mechanism involves users exchanging crypto assets, such as USDT, wBTC, or wETH, for USSD and vice versa.

The process is relatively straightforward.Users can mint USSD:

Cryptocurrency markets can be very unpredictable, and there's a chance that the value of the collateral might go down for a while. To maintain a high over-collateralization ratio, we introduced insurance capital, which includes crypto assets. This capital will be used if there's under-collateralization.

The main question was what kind of asset to include in the insurance capital. We set some criteria for this:

By contributing BGL (wBGL) to the insurance capital, users can mint ICT (Insurance Capital Treasury). The minting of ICT will follow these progression ratios:

USSD's main focus is on security. Those who value security can play a role in providing it and, in return, get rewarded for their contribution.

The reward system for ICT token holders activates automatically when the Collateral Ratio reaches a level of 1.05. These rewards are paid as interest to ICT holders. To claim these interests, ICT holders need to stake their ICT in a smart contract.

The interest is calculated at a rate of 4.2% per year based on the Collateral market value. It is paid through the creation of new USSD tokens every 24 hours, at a daily rate of approximately 0.011507% (4.2%/365). The distribution of interests is based on the proportion of staking shares held by ICT holders.

For example, if a total of 500 ICT were minted, and 400 were staked for claiming interests, with David staking 100 ICT, his interest share would be 25% (100/400).

ICT holders can claim their interests by using a withdrawal function.

To protect funds from centralization issues and inflation, an anti-inflation mechanism has been introduced in USSD. USSD users can stake their USSD tokens to receive a share of the interests.

Similar to the reward system, the interest for USSD holders will be automatically activated when the Collateral Ratio reaches the 1.05 level. These interests will be paid to USSD holders and can be claimed by staking USSD in the smart contract.

The interest is calculated as 1.8% annually based on the Collateral market value. It is paid through the minting of new USSD every 24 hours, using a simple percentage of 1.8%/365 (or approximately ~0.0049315% per day). The interests will be distributed according to the staking shares of USSD.

For example, if a total of 3,500,000 USSD were minted, with 500,000 staked for claiming interests, and David staked 100,000 USSD, his interest share would be 20% (100,000/500,000). If the collateral ratio of the main collateral is 150%, overall interests income will be 94,500 USSD.
David's interests share will be 18 900 USSD (94,500 * 20%) or 18.9% interests Annual Percentage Yield (APY) would (18,900/100,000).

Wrapped token centralization risks

Before a trusted and time-proven decentralized bridge is developed, every wrapped token carries centralization risks. Due to various ways the owner can manipulate the smart contract of the wrapped token, manual and limited defense mechanisms were implemented in USSD: