Choosing the stablecoin design

The only working confidential stablecoin we are aware of is xUSD by Haven. It uses Terra's UST design and, given the recent UST collapse, this approach doesn't look sufficiently safe.

Silk is a confidential stablecoin project on Secret Network, trying to overcome UST design flaws by using additional reserves for peg support. UST also had such reserves, but they didn't help save UST from a death spiral. Banknote redeemability as an automatic stabilization mechanism proved its efficiency back in the days of the gold standard — the collateral printer is not such a mechanism.

The last but not least confidential coin worth mentioning is ZeroStableCoin. Its design is brilliant but infeasible until the discovery of "quantum interpersonal DeFi-agnostic computing."

Overcollateralization is the only robust path

We believe the only way to build a robust decentralized stablecoin is overcollateralization.

DAI by Maker is the most successful and battle-tested decentralized stablecoin, but it has flaws: a too-complicated design, charges loan interest, is not redeemable, and is not truly decentralized in terms of collateral and governance. A good decentralized stablecoin should have the opposite characteristics. LUSD by Liquity is such a stablecoin.

DAI vs. LUSD

These are the reasons why the Nephrite team has chosen Liquity as a reference stablecoin design.