USDi Overview
Injera enables the creation and redemption of a delta-neutral synthetic dollar, USDi, a fully-backed, onchain, scalable, and censorship-resistant form of money.
The mechanism backing USDi enables the first "Internet Bond" offering a crypto-native, value-accruing, dollar-denominated instrument, derived from staked asset returns (to the extent utilized in backing) and the funding and basis spread available in perpetual and futures markets.
Peg Stability Mechanism
USDi derives its relative peg stability from executing automated and programmatic delta-neutral hedges with respect to the underlying backing assets.
Hedging the price change risk of the backing asset in the same size minimizes fluctuations in the backing asset price as the change in value of the collateral asset is generally offset by the change in value of the hedge.
This enables the synthetic USD value of the collateral to remain relatively stable in most market conditions.
Injera does not use any material leverage to margin the delta hedging derivatives positions beyond the natural state as a result of exchanges applying slight discounts to the value of backing assets to the extent used as backing and margin collateral on the initial hedge and issuance of USDi.
Key Information
Users are able to acquire USDi in permissionless external liquidity pools.
Approved institutional parties from permitted jurisdictions who pass KYC/KYB screening are able to mint & redeem USDi on-demand with Injera contracts directly following whitelisting.
There is no reliance upon traditional banking infrastructure as trustless collateral is held and stored within the crypto ecosystem.
Mechanic Example
A whitelisted user provides ~$100 of stETH and receives ~100 newly-minted USDi atomically in return less the gas & execution costs to execute the hedge.
Slippage & execution fees are included in the price when minting & redeeming. Injera earns no profit from the minting or redeeming of USDi.
The protocol opens a corresponding short perpetual position for the approximate same notional dollar value on a derivatives exchange.
The backing assets are transferred directly to an "Off Exchange Settlement" solution. Backing assets remain onchain and custodied by off exchange service providers to minimize counterparty risk.
Injera delegates, but never transfers custody of, backing assets to derivatives exchanges to margin the short perpetual hedging positions.
Generated Yield
The Injera protocol generates two sustainable sources of yield from the backing assets.
The protocol yield is derived from:
Staked INJ assets receiving consensus and execution layer rewards such as validation
The funding and basis spread from the delta hedging derivatives positions.
Yield from staked assets is floating by nature and denominated in the native asset - for example, liquid staked INJ tokens are typically denominated in INJ.
The funding and basis spread can be floating or fixed depending upon if the protocol uses non-deliverable or deliverable derivatives positions to hedge the backing asset delta.
The funding and basis spread has historically generated a positive yield given the mismatch in demand and supply for leverage in crypto as well as the existence of positive baseline funding. If funding rates are deeply negative for a sustained period of time, such that the staked asset yield cannot cover the funding and basis spread cost, the Injera reserve fund is designed to bear the cost.
Risks
The protocol is exposed to various risks including but not limited to:
Smart Contract Risk
External Platform Risk
Liquidity Risk
Custodial Operational Risk
Exchange Counterparty Risk
Market Risk
Injera recognizes these risks and actively attempts to ameliorate & diversify these risks as much as possible. In practice, this means the system uses multiple providers for each step of the workflow and actively monitors all partners and market conditions.
Every element of the Injera design has been formulated with risk mitigation in mind including the use of custodians, absence of material leverage, and diversification constraints on the hedging positions
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