The Mint Cash Behind the Surge of USTC: A New Exploration of Stablecoins Collateralized by Bitcoin

At 23:00 on November 26th, the original Terra ecosystem stablecoin USTC suddenly surged, reaching 0.05 USDT from 0.02 USDT within one hour, a 250% increase, and as of the time of writing, it still maintained around 0.065 USDT, reaching a new high in a year. Influenced by the airdrop expectations of the new stablecoin project Mint Cash in the Terra ecosystem, the heat of USTC returned overnight. The market speculates that it is related to the airdrop empowerment of Mint Cash developed by former Terra members and the proposal to restore the anchoring of USTC to the US dollar.

Mint Cash is a stablecoin system based on BTC collateral, intending to provide stable and efficient payment and savings solutions by combining the advantages of the Terra ecosystem and the anti-censorship and anti-inflation properties of Bitcoin. The project maintains purchasing power stability and provides income for cash holders through innovative synthetic exchange mechanisms, while also promoting the development of DeFi.

According to the official whitepaper, the main features and design goals of Mint Cash include:

1. Not relying on centralized institutions, fully supported by Bitcoin collateral to achieve stablecoin exchange and payment;
2. Using synthetic asset exchange mechanisms, without the need for excessive collateralization as in traditional systems, thus achieving high capital efficiency;
3. Achieving monetary policy flexibility through adjustments in interest rates, taxation, collateral mechanisms, etc., to resist price shocks;
4. Providing stable and high-yield savings accounts through the Anchor protocol;
5. Supporting multiple currencies, including stablecoins of other major fiat currencies besides the US dollar;
6. Drawing on the economic model of traditional monetary policy and adjusting it for the characteristics of blockchain to achieve smooth operation between Mint Cash tokens and various stablecoins;
7. Avoiding large capital outflows through moderate capital control measures to maintain system stability;
8. Providing a synthetic foreign exchange lending market to increase system liquidity and achieve interchangeability between multiple currencies.

Participation Methods:

Mint Cash allows users to participate in two ways through USTC: one is for users to hold UST or LUNA before May 10, 2022, before the collapse of Terra; the other is to lock and destroy a specified amount of USTC through the Mint Cash airdrop.

The core developers of Mint Cash come from the former Anchor team and Aleph Research, with core developers under Aleph Research responsible for developing the stablecoin protocol. Additionally, Aleph Research is involved in the development of the new version of the Anchor Protocol, Anchor Sail, which will play a key role in the stablecoin growth and anchoring in the Mint Cash ecosystem. Furthermore, the team is also planning to collaborate with the smart contract platform CosmWasm and the EVM L1 blockchain Berachain to build Polaris EVM support based on the Cosmos SDK.

The reason for the surge of USTC is that Mint Cash core developer Shin Hyojin previously tweeted to explain the airdrop rules: "We will airdrop an equivalent amount of tokens at a valuation of 1 USTC = 1 US dollar (specific circumstances may vary), which is a discount of up to 99%." In the eyes of most users, USTC was not even worth 0.015 US dollars before this surge, and even after the surge, it has only reached a maximum of 0.067 US dollars, which is an amplifier of valuation of more than 20 times.

Although Shin Hyojin clarified in a tweet on the 27th, stating "This is an initial valuation quote, meaning the tokens received will not always be exchanged at a 1 USTC = 1 US dollar ratio," the market sentiment has already been ignited. Currently, the total circulation of USTC exceeds 9 billion, and it can be speculated that the nominal initial valuation of this project will be very high, possibly reaching several billion US dollars.

Instead of using algorithmic stablecoins, Mint Cash generates stablecoins through BTC collateral, which is similar to the over-collateralization model of Maker DAO. So what are the differences between the design of Mint Cash and Maker DAO's DAI, and are there any unique aspects?

According to the whitepaper published by Mint Cash, let's take a look at the virtual liquidity model between MintCash and Bitcoin:

The virtual liquidity model between MintCash and Bitcoin is defined in the document as the following four lemmas:

Lemma III.2.1: Defines the quantity of MintCash issued when n satoshis are collateralized.

Lemma III.2.2: Defines the quantity of MintCash destroyed when the collateral corresponding to n satoshis is redeemed.

Lemma III.2.3: Defines the amount of Bitcoin collateral required to issue n RoundUnits of MintCash.

Lemma III.2.4: Defines the amount of Bitcoin collateral returned when n RoundUnits of MintCash are redeemed.

These formulas establish the correspondence between the input and output of MintCash and Bitcoin. When different amounts of Bitcoin collateral flow into the system, the corresponding issuance or destruction of MintCash can be determined based on these formulas.

To control capital flow, the whitepaper also mentions the introduction of the BaseCollateralLiquidity parameter, combined with the constant product formula in Uniswap, forming a virtual liquidity model with a liquidity upper limit. This restricts the total amount of capital that can flow into or out of the system within a unit of time. The virtual liquidity model controls the capital exchange process between MintCash and Bitcoin, achieving control over the inflow and outflow of funds in the system. This forms the basis for Mint Cash to implement flexible monetary policies and capital control features.

In summary, Mint Cash and MakerDAO demonstrate two different methods and philosophies in stablecoin generation. MakerDAO's DAI focuses on providing stability through over-collateralization and partial reliance on centralized stablecoins, while Mint Cash emphasizes the use of Bitcoin's decentralized properties through synthetic exchange mechanisms.

Overall, the goal of Mint Cash is not to pull USTC back to 1 US dollar. Its essence is to launch a new project, which can be participated in using USTC for IDO. In addition, to some extent, the Mint Cash airdrop is a positive attempt for USTC to move towards destruction and deflation by expanding its usage scenarios. By stimulating users to actively lock USTC to participate in the airdrop and destroy the corresponding USTC.

Based on the currently disclosed information, the use cases of USTC, Mint Cash, and the new Anchor are not closely related, and users should exercise caution when participating. Additionally, it should be noted that Mint Cash only has a whitepaper at the moment and has not officially launched a product.

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