USTX: the technology
The project consists of a token and a decentralized exchange, where all the magic actually happens. The USTX token is a standard TRC20 token with a few addon features: Minting and burning (only owned tokens). They are needed by the DEX to operate and control the price fluctuations. The DEX is handled by a different contract that implements a modified AMM model to allow buying and selling USTX in exchange for one of the reserve tokens (TRC20).
To validate the system the team made extensive simulations taking the BTC history data as input. The source data have been modeled to behave like a standard AMM exchange (taking into account also the increasing circulating supply of BTC). From this model we obtained data representing daily trades, that have then been used as an input for the USTX DEX model. We understand that the models are always a simplification of reality, but we think they give a good qualitative indication of the system behavior.
In figure above, it’s easily appreciated the main feature of the proposed solution: damping the negative market periods, reducing drawdown, while allowing to catch the upsides. The strength of the damping and expansion depends on the reserve level, that is actively managed by the smart contract, without any intervention from the owners. The internal mechanism of the DEX that allow to control the price of the token relies on minting new tokens in the reserve when buying and burning them when selling.
Comparison with a standard AMM DEX
A normal DEX (like Uniswap) will interact with users guaranteeing the constant product of the assets liquidity, as shown in the image below. We can observe a 2% effect on price on both directions, sell and buy.
The USTX DEX will be able to manage the asset price, depending on the reserve ratio. So we can have two possible scenarios: A, with reserve ratio above the set threshold and B, with reserve ratio below the set threshold.
In this case the price effect is asymmetrical: there is a positive price effect of +1.5% in case of buy operation and a dampened -0.5% effect on a token sell operation.
When the reserve ratio is below the threshold level, the damping action cannot be as strong and also the expansion is limited, until the reserve has reached a healthy value again, as can be seen in the image below.
In this case the price effect is conditioned by the contract aim of restoring a healthy reserve level. So expansion is limited to +0.5% and damping is reduced to -1.5%.
The numbers shown above are a qualitative representation of the proposed DEX mechanism and should not be considered as quantitative reference data.