The Broken Dream

As we embrace decentralized dream to resist the abuses of centralized power, we also give up the enforcement mechanisms that deal with wrongdoing. Without safeguards, crypto is slowly turning into a dystopia where bad actors like hackers and malicious founders are heavily incentivized and rewarded to hack and steal in broad daylight with little consequence.

This dystopia is slowly killing the decentralized industry following Gresham's Law, where good actors are gradually driven out till only bad actors left.

Failed Attempt

Early-stage Ethereum did have an attempted solution — "Code is Law", which uses smart contracts' immutability to prevent misconduct. Unfortunately, this hasn't worked out, largely due to vulnerabilities in smart contracts as well as the practical needs of upgradability, which remains as an industry disagreement till today.

Now that the crypto space is flawed, we didn't come up with a new solution but ignored the flaw because we have become numb to the hacking news and rug pulls happening all the time. This is rather irresponsible. And it is even worse when we onboard the next million innocent users, exposing them to sophisticated hackers and social engineering attacks with their life savings at stake.

Philosophical Roots

We need a new solution, one without centralized power while still be able to deter back actors. Usd8 is our attempt at this, our mission is to restore the missing layer of order enforcement in DeFi security.

Usd8 is rooted in the philosophical proposal of insurance powered anarcho-captialism where the system uses insurance to organize order enforcement, replacing government central powers. In a nutshell, all citizens rely on private insurance to deal with accidents and losses. These insurance companies play a role beyond covering losses - they also enforce order, as they deal with the bad actor's insurance company directly to recover any losses incurred. Essentially, it uses capitalism and game theory to offload the government's order enforcement role to insurance companies.

We adapted this model and made it crypto native, Usd8 will be serving two major purposes - as insurance to cover users' losses and as an order-enforcing mechanism to recover hack losses.

The Insurance

Usd8 offers coverage to DeFi users based on their Usd8 usage history, covering a range of DeFi protocols vetted by the Usd8 team. The more you use Usd8, the more you are covered. If a hack occurs in any covered DeFi protocol, users can claim coverage (up to 80% value) with their covered LP token.

E.g., if Aave USDC market is hacked and 1 aUSDC drops to 0.3 USDC, users can claim up to 0.8 USDC with their aUSDC.

The actual coverage depends on 3 factors - the user's Usd8 history, how many other users are also claiming, and the Cover Pool size.

The coverage funds come from Usd8's Cover Pool, a public vault with different asset types, incentivized by Usd8's revenue. Any LPs depositing into this vault will get stable coin yield in Usd8, however assets in the Cover Pool might be deployed to cover any potential losses.

This insurance system is exciting because:

It is a first-in-the-industry coverage in the industry, free for all Usd8 users, past and present.
It offers a new stream of yield in stable coins for assets that traditionally lack yield sources, like wBTC, or even alts like AAVE, LINK, UNI... unlocking capital efficiency.

Order enforcement

Since Usd8 sits on a pile of hacked LP tokens after users claim, this puts Usd8 in a unique position with significant financial incentives to recover these funds. An interesting approach is to cultivate a "white hat culture" to involve the public in tracing and recovering the lost funds, as opposite to the current crypto culture that incentivizes bad actors. Mechanisms could be considered include:

Million-dollar public bounties without an expiry date for any help in recovering lost funds
Working with hacked project teams, white hats, professional groups, and law enforcement agencies across borders
Educating the public how to trace, identify, and monitor stolen funds

This system could cultivate a positive culture with significant incentives for good actors and extra burden to deter bad actors, potentially leads to perception reality to further reduce bad acts - If hackers know they will be forever chased by the public and professionals for their wrongdoing, their decision to hack and steal might change at the moment of committing the crime.

We are Crypto Native

We are crypto native — we live and breathe the decentralized dream and are committed to building projects that adhere as closely as possible to the Trustless Manifesto.

Join us if you share our vision.