Kujira USK Stablecoin Launch — Kickstarting Grown-Up DeFi


At Kujira, we rewrite decentralized finance by continually innovating and introducing products centered around long-term sustainability, intrinsic excellence, and tangible value-add. DeFi is a space with the potential to introduce groundbreaking fintech that could meaningfully change the world.

One of the biggest opportunities in decentralized finance is the challenge to fight back against an ever-growing reliance on centralized stablecoins such as USDC and USDT. Decentralized money needs decentralized stablecoins, not stablecoins with freeze account functions backed by TradFi goliaths. Back in the day when we built ORCA to provide high capital efficiency to Anchor liquidations, we believed that UST (an algorithmic stablecoin) could very well be the solution the space needed.

Since witnessing the fallout of Terra Classic collapsing at ground zero, we redoubled our efforts resulting in the launch of a sovereign Cosmos layer 1 blockchain 6 weeks later. Furthermore, we came to realize that the space needed a new grown-up sustainable model to set a new foundation for DeFi and for decentralized money, so that this sort of collapse would never happen again.

In the aftermath, we put our heads together and after careful planning decided on our next key product: USK, an over-collateralized Cosmos stablecoin soft-pegged to the USD and initially backed by ATOM, DOT and wETH (nBTC and others to follow soon).

As Vitalik Buterin succinctly explained in a post about automated stablecoins, ‘while there are plenty of automated stablecoin designs that are fundamentally flawed and doomed to collapse eventually, and plenty more that can survive theoretically but are highly risky, there are also many stablecoins that are highly robust in theory and have survived extreme tests of crypto market conditions in practice.’ As we pride ourselves on building sustainable DeFi at Kujira, we want to use a reliable, tested model while relying on our expertise to iterate newer high-quality innovations.

For this reason, we took inspiration from Maker Dao and DAI in dreaming up USK. However, rather than using Solidity, our codebase is written in Rust, a much more robust and expressive language. Instead of being 50% backed by USDC, we plan to carefully avoid being easily censorable as explained later in the article. As we plan to focus on payments and commerce and launch our own high quality Kujira wallet, we felt that we would have far more flexibility for future integrations if we were able to launch our own native stablecoin. Now let’s get down into the nitty gritty.

TLDR: Why Kujiras’s USK Stablecoin Will Thrive

  • We pioneered a top-grade liquidation queue for Anchor Protocol #3 DeFi TVL dApp
  • We saw UST collapse at ground zero and are determined to be sustainable
  • We are using a trusted, theoretically sound system employed by Maker DAO
  • As a native Cosmos stable, USK gives ATOM another use case driving value accrual
  • Rust is an expressive codebase for USK and easily allows for more technical complexity as compared to JavaScript or Solidity. It is also inherently built to be safer (bug-resistant) and increasingly used for financial applications due to its level of safety guarantees
  • USK, key infrastructure, is sovereign, uncensorable, and revenue generating

Table of Contents

USK Mechanism Design

As mentioned above, Kujira USK will be a native Cosmos overcollateralized stablecoin soft-pegged to the US dollar, initially backed by ATOM, DOT & wETH. Users stake collateral to mint USK while users would burn USK to redeem their collateral. Further, if the value of a user’s collateral were to fall too low, it would be liquidated, as will be clearly illustrated later on. We have integrated USK by design into ORCA to allow for seamless democratized liquidations that are publicly accessible to all of our users. We want USK to be sovereign and uncensorable, so it won’t be backed by other stables. While this makes arbs slightly more complex and loosens the peg, it removes censorship risk. Also, on Cosmos, as ATOM liquidity is quite high, it makes for the perfect initial collateral.

We plan for preset parameters such as mint fee, borrow APR, liquidation fee, ORCA withdrawal fee, and max LTV to be conservative and then later on controlled by community governance as part of a natural progression. As part of this setup, we are thinking:

  • 0.5% mint fee
  • 1% borrow APR
  • 1% liquidation fee
  • 0.5% ORCA withdrawal fee
  • 60% max ATOM, DOT & wETH LTV (i.e. 67% overcollateralized)

These numbers can later be discussed as a community after we get everything rolling.

For those readers less familiar with the technical peculiarities of over-collateralized stablecoins it might help to discuss in further detail the difference between soft and hard pegged stablecoins.

A hard pegged stablecoin is directly exchangeable for a specified quantity of the asset it is pegged to. It maintains a permanent, fixed ratio. In contrast, a soft pegged stablecoin deviates in value within a range based on well-designed incentives. For example, when Ethereum fell from $1400 to $90, DAI fluctuated between $0.96 and $1.04 per coin (at the extremes) though it was centered around $1. As can be seen, this is a battle tested model.

Much like the gold-standard, USK, a soft-pegged stable coin would have ATOM collateral sitting in reserve in the Kujira blockchain which could in theory be used to buy back USK thus guaranteeing its value. Unlike with fiat, money is not printed out of thin air and fractional reserve ponzinomics are not at play here in this model. ATOM collateral is insufficient by itself to guarantee USK stability, but it plays an essential role.

USK is created or ‘minted’ by locking crypto assets such as ATOM as collateral on smart contracts. MakerDAO, the original creator of the overcollateralized stable model, refers to such smart contracts as collateralized debt positions (CDP’s). This is the only way to mint USK. In this situation, the ATOM lenders are also the USK borrowers. When ATOM is provided in a smart contract, USK is minted (after subtracting a 0.5% minting fee that is distributed across KUJI stakers) and borrowed at a 5% APR (with all interest accruing to the borrower’s CDP over time), then the borrower may swap the USK for other crypto assets such as ATOM or KUJI.

This allows borrowers to go long on provided assets such as ATOM, while also freeing up liquidity to buy other tokens. This is useful if they believe ATOM will appreciate in value and can even be used to leverage ATOM.

In the above explanation of CDP’s, USK borrowers have one of two eventual outcomes. In the first case, the borrower returns all borrowed USK as well as any interest accrued from the 5% APR borrow interest. In this case, all fees from the repayment are distributed proportionally amongst KUJI stakers and the underlying USK that was minted from that collateral is burned.

In the second case, ATOM suffers a price drop, and the borrower’s position backing minted USK is not properly overcollateralized above the necessary minimum allowable loan-to-value ratio. In this case, the borrower’s collateral is liquidated democratically via the ORCA public liquidations queue. For example, to start, there will be an ORCA liquidation queue for ATOM, and as ATOM collateral is liquidated, bids (made in USK), will eat up the liquidated ATOM and 1% of the USK from those bids would be paid as a fee and distributed to KUJI stakers. Furthermore, as that ATOM is withdrawn 0.5% of the collateral is paid as a fee which is also distributed to KUJI stakers.

To give a clear example of this second case consider the following scenario: lender/borrower Dale has provided $100 of ATOM collateral at ATOM’s current price of $8 (so 12.5 ATOM) and has minted $50 of USK. Dale would be liquidated if the ratio of his borrowed USK to provided ATOM collateral were to drop below 60%, that is if the price of his ATOM collateral position were to fall below ($50/60%) $83.3. Therefore, $6.664 or lower per ATOM would trigger the provider’s ATOM collateral to be liquidated.

Say ATOM hit $6.664. At this point, liquidation would occur automatically via ORCA. ORCA calculates the price, executes the swap, sends 99% i.e. $82.467 to the USK market and 1% i.e. $0.833 USK is distributed to all KUJI stakers. Loan principal is written off, and the same amount of USK is burnt. Meanwhile, accrued interest is deducted from the USK returned from ORCA and sent to stakers.Finally, the remaining repay amount is sent to the borrower’s account.

In this case, 12.5 ATOM is purchased at varying discounts by USK positions deposited in the ORCA liquidation queue, and when withdrawn overall 0.5% of that ATOM (0.0625 $ATOM) is paid as a fee. Across all fees, that’s 2% per liquidation.

Preview of the upcoming ‘Mint $USK’ interface on BLUE

ORCA as a Proven Liquidation Mechanism

We are experienced with liquidations. We initially worked intimately with Anchor in dreaming up the public Anchor liquidation queue that initially brought ORCA so much success with hundreds of millions of dollars in platform liquidations. This sustainable capital-efficient liquidation model allows money markets to safely take more risk while relying on an over-collateralized model. Back on Terra, ORCA had over 50,000 users, and had over 150 million dollars of TVL at its peak.

All in all, because ORCA is very established as an egalitarian liquidation mechanism in its success and is built into the Kujira blockchain and USK at a base level, the resulting synergy allows for trustworthy premier handling of liquidations. This sets us apart from other projects in the space that are attempting to create overcollateralized stablecoins without the wealth of experience spent liquidating on what was once known as the stablecoin L1.

Preview of the upcoming ORCA interface to bid on liquidated ATOM at a discount

What USK Means for Kujira

As mentioned above, we rebuilt Kujira from the ashes of Terra Classic’s collapse. We understand just how important it is to handle a stablecoin correctly by pursuing transparency, community involvement, sustainable governance, while focusing on adoption and tangible value.

Local, a P2P protocol is relaunching on Kujira soon and CALC Finance is allowing for DCA’ing into KUJI and could easily be integrated with USK much as Kado was previously integrated with UST on Terra.

Between ORCA, a democratized liquidations queue; FIN, a clob DEX; Kujira wallet, a high quality Cosmos wallet, and much else besides, we plan to develop all sorts of use cases that bring USK to life. As we help onboard the next billion users into DeFi and we expand our vision, we are excited to push the boundaries of our sustainable Grown-Up DeFi ecosystem. We believe USK is a critical piece of the puzzle.

USK volumes and integrations will ultimately drive higher rewards for Kujira stakers as all protocol fees end up proportionally distributed across our KUJI stakers. Minting, burning, liquidations, trading of USK will all contribute to such fees. Uncensorable and sovereign, much like the Kujira blockchain itself, USK is a proud addition to our suite of products that will allow us to launch many new innovations on top of it in the coming weeks and months.

Wrap Up

Despite facing an incredible challenge when Terra Classic collapsed, we are shippers at heart. That is why, emboldened by our ability to build a sovereign layer 1 Cosmos blockchain in six weeks, we further decided to lay the groundwork for USK and bring it to life in less than 3 months since the collapse of UST. As might have also been clear by now, ORCA will also imminently relaunch as part of USK’s launch.

In this volatile trustless space, stablecoins are a revolutionary financial primitive that have springboarded DeFi years forward by allowing many financial innovations to be built vertically on top of them. As such, for such an important foundational aspect of our space, ethos, high integrity, and passion are necessary driving forces to ensure that they are done right. This is why we, Kujira, are ready to take the mantle and shake up DeFi, one giant leap at a time.


USK and ORCA go into TestNet from Wednesday (10th August 2022) where it will go into testing and QA with the view to go live around 2 weeks from this date. Loan LTV will be made nice and safe initially to ensure maximum stability, and will be adjusted as the system grows.

Stay tuned for detailed Medium articles and videos on how to mint USK, as well as a guide on how to use ORCA to bid on liquidated ATOM, DOT and wETH at a discount.

Thanks for being on this journey with us.