SILK - Private Algorithmic Stable Coin

[mohammedpatla]

Silk

https://github.com/securesecrets/shade

Project Description

Secure Secrets will create Silk, the world’s first native privacy-preserving stablecoin built on the Secret Network. Launching in tandem to Silk is Shade - the governance and utility token of Shade Protocol that helps algorithmically maintain the $1 Silk peg. Secure Secrets has already developed a pre-MVP demo that includes Keplr integration, a front-end built on the Griptape framework, Vue3, and secret contracts for minting Silk by burning sSCRT.

Pre-MVP photos (complete UI overhaul will be on the way):

New Branding:

Problem / Solution

Current stablecoins such as TerraUSD have been designed based on protocol level
architecture and incentives - relying on validators to maintain positions despite short term price
volatility in return for inflationary governance token rewards that exist to resolve peg disparities.
While a protocol level design has certain advantages, having the supply of the stablecoin be tied to
validators (as conduits for token expansion) limits the long term viability and effectiveness of the
stablecoin for two reasons: decentralization of the stablecoin expansion is tied to the validator set,
and the total supply of both the stablecoin and the governance token is contingent upon indefinite
inflation so as to properly incentivize validators. Additionally, these systems have no underlying
collateral or intrinsic value outside of the maintenance of the peg and continued demand for the
underlying stablecoin. Finally, there is no stablecoin in DeFi with transactional privacy by default.
Silk is the solution to this problem - built on Secret Network as a native privacy-preserving
algorithmic stablecoin using the SNIP-20 token standard. The Silk architecture is designed using a
dual burn minting process for both the governance token Shade and the stablecoin Silk. Total
stablecoin supply is limited by initial Shade distribution as well as Total Value Burned (TVB) in the
minting process of both Shade & Silk (which are convertible with each other). Native AMM support
in combination with Shade and Silk convertibility resolves peg disparities.

Additionally, Secret Network has a distinct liquidity problem when it comes to position changes on SecretSwap as it pertains to stablecoins. Slippage ranges from 10% - 1500% depending on position sizes, making it difficult for users to exit into stable value. As a result, the majority of large position changes are in the form of SNIP-20 -> sETH -> Binance -> stablecoin.

Part of the difficulty with liquidity on DEXs in Secret Network is that the value of the underlying liquidity is competing against a range of DeFi protocols external to Secret Network. While volume begets volume, users are currently actively struggling with this core liquidity issue.

Solution
As such, this grant team proposes the creation of a native algorithmic burn-based stablecoin that can be natively minted by burning SCRT, IBC tokens, and SNIP-20 tokens. As more value is burned into this ecosystem, the more liquidity that will be available for use on DEXs on Secret Network. In essence, Secret Network will be able to natively generate stablecoin liquidity as opposed to having to pull it in from an external ecosystem. Additionally, Silk will have a significant amount of flexibility with expanding its implementation and capabilities over time as it pertains to integration with Secret DeFi and future Shade Products.

Contracts 3 & 4 (Conversion Minting) are identical to other algorithmic stablecoin pegs such as TerraUSD / Luna. Silk is not innovating with the peg resolve mechanisms. The significant innovation that is made with this particular MVP iteration of Shade Protocol has to do with the burn-based entry (known as “Entry Minting”) into the Shade ecosystem.

Alice can burn $50 worth of sSCRT for 50 Silk. Each Silk is worth a stable $1 of value, whereas the value of sSCRT can fluctuate based on larger market movements. Additionally, Alice has the option to burn $50 sSCRT to mint $50 worth of Shade. Arbitrage mechanisms that user’s can execute help maintain the peg at $1, as is demonstrated by the bottom right of the graphic above. Note that these peg arbitrage mechanisms are identical to TerraUSD/Luna which are what keep the stablecoin price maintained at $1 for Silk.

Burn based entry into the Shade ecosystem is distinctly different from other algorithmic stablecoin alternatives such as Terra because there is no indefinite block-based inflation attached to Shade Protocol. While Terra is limited in its protocol design because it needs a set of validators to execute transactions and resolve peg mechanisms, Shade Protocol does not need tokenomics specifically tied to the underlying validator set on Secret Network. This increases the amount of decentralization as with this iteration of Shade Protocol anyone has the opportunity to directly mint the governance token (Shade) as well as the stablecoin itself. This is a radically new architecture that has never been executed by any stablecoin design to date. This architecture not only creates a supply sink for assets that enter into Shade Protocol, but it also simultaneously increases decentralization of the underlying system. Where Terra is contingent upon inflationary rewards to resolve contraction based events, Shade Protocol instead relies on users to entry mint into Shade or using existing Shade in order to resolve contractionary peg disparities (as opposed to relying on a limited inflation based validator set).

Silk whitepaper (subject to change): https://32184fa2-0116-41dd-971d-2057a7b58cc8.filesusr.com/ugd/b34138_a782412307fe4810a7923e7ceeb7b23b.pdf

Detailed product description

• Pre-MVP Completed:

• Griptape integration
• Vue3 front-end
• Keplr integration
• Mint Silk by burning sSCRT
• Viewing key page handler
• Conversion from SCRT on front-end -> sSCRT
• Dashboard
• Testnet total silk minted
• Shade in circulation
• Price calls (static)
• Whitepaper
• Brand book (not yet integrated)
• Logos (not yet integrated)

Broad MVP Deliverables:

• Band Oracles integration
• SNIP-20 Shade Entry Minting contract (2)
• Shade -> Silk Conversion Minting contract (3)
• Silk -> Shade Conversion Minting contract (4)
• Front-end price slippage management
• Shade governance contract
• Treasury contract (synthesis)
• Extendability of Shade contracts
• Implementation of landing page branding overhaul
• UX user testing
• Shade Protocol stress testing / modeling

The end result of the MVP is a fully functioning and test stablecoin that will be launched on mainnet. Additionally, all contracts will be extendable for future Shade Product releases as well as features (such as Global Yield Derivation outlined in the Silk whitepaper).

This development team will commit to bi-weekly updates on development progress, as well as regular meetings.

Go-to-Market plan

Initial Shade Distribution (ISD) once Shade Protocol is ready to be launched with v1 of the mainnet launch (an iteration that occurs after the completion of this MVP) will strongly incentivize individuals to burn tokens to enter into the Shade Protocol ecosystem. This will include a Shade Atom staking airdrop as well a SCRT staking airdrop. Double liquidity providing (Shade + DEX gov tokens such as SEFI or Sienna) will incentivize users to acquire Silk and Shade in particular. Additionally, a % of ISD will be dedicated to minting incentives for those that choose to mint Silk and Shade. Marketing will involve the various BizDev members attached to the core dev team, as well as various external entities and marketing initiatives to draw awareness and demand for Silk and Shade.

Value capture for Secret Network ecosystem

The main KPIs for Secret Network are as follows:

• TVL
• Number of transactions
• Number of unique addresses
• Number of developers
• Size and value of the application layer

A successfully launched Silk & Shade will bring in a whole host of new users from the Atom airdrop, increased usage for DEXs, attract new liquidity to the Secret Network ecosystem, as well as a distinct supply sink for SCRT because of the burn-based entry of Shade Protocol. A natively generated stablecoin can serve as the basis for a host of Secret Network DeFi applications. Finally, this grant will empower an existing developer team to continue to build and share their expertise with the developer ecosystem.

Developers

(1) Mohammed Patla (Project Lead)
(2) Carter Woetzel (Grant Lead / Developer)
(3) Austin Woetzel (Front-end Developer)
(4) Roman Sanine (Front-end Developer)
(5) Guy Garcia (Secret Contract Developer)
(6) Jack Swenson (Secret Contract Developer)

Other Shade Protocol contributors separate from grant

Jeremy (BizDev), Dalton (Marketing), Stephany Wood (Graphics), .

• https://www.securesecrets.org/

Dev’s experience

• Mohammed is a full stack developer, with previous experience in ML and AI. He has worked in a team to build solutions for clients like regional police of halton for facial detection systems. He also has embedded and IOT development experience for steam trap detection, where the solution is used by clients all over Ontario. He also has adequate experience in front-end development, backend deployments, and has contributed to open source code on multiple occasions.

• Austin Woetzel is a senior process engineer with 6 years of experience at Minco Products. Austin created the staking ROI calculator, the validator ROI calculator, and the Staking Optimizer that has been used 1,000s of times by various community members. Created Keplr integration guide. Also created securesecrets.org website from scratch. Contributions to the main Secret Network website. Completed Griptape implementation into pre-MVP product demo.

• Guy Garcia is a senior software engineering student with extensive experience in applying neural networks for machine vision and work experience creating functional web applications from scratch. He used to work for a robotics company in which he created some internal web-apps that kept track of many supply line materials, items and warranties which managed to save the company a few millions. He is currently the AI lead for an autonomous submarine project sponsored by many defense and tech companies. In the crypto space he has already created a few blockchain projects using the Cosmos SDK and has contributed to Cosmos' starport repo. Polygon bridge proof-of-concept contract creator. Created pre-MVP Silk contracts.

• Carter Woetzel is the primary author of the Secret Network graypaper, Shade Protocol Whitepaper, Silk Whitepaper, and Synthesis Whitepaper. Lead researcher and economist for Shade Protocol.

• Jack Swenson - Secret contract developer. Integrated proof-of-concept Band Protocol into secret contracts. Created product demo front-end and Griptape integration with Austin.

Secure Secrets is one of the oldest teams in the Secret Network ecosystem, with both the founder and co-founder in the blockchain privacy domain since 2017. Secure Secrets contributes to the opensource Secret Network website, has built out scrt.learn documentation, and has created 65+ pieces of educational community content. While Secure Secrets is relatively young as an organization, we are fully committed to creating valuable Secret Network application-layer products for the Secret Network community.

Team Code Repos

https://github.com/securesecrets
https://github.com/mohammedpatla
https://github.com/AustinWoetzel
https://github.com/FloppyDisck
https://github.com/DrPresident
https://github.com/CarterLWoetzel

Team LinkedIn Profiles

• https://www.linkedin.com/in/mohammedpatla/

• https://www.linkedin.com/in/carter-woetzel-16936b136/

• https://www.linkedin.com/in/austin-woetzel-a1713a67/

Development Roadmap

This project will require a full 14 weeks to bring from the pre-MVP demo which already exists, all the way to a full mainnet launch. 4 developers at $42.75 an hour * 20 hours per week * 14 weeks ~ $47,880. Lead researcher + project manager ~ $42.00 * 20 hours * 6 weeks = $5,040. The total cost is ~$52,920 (paid in SCRT). Current price places this around ~33,000 - 35,000 SCRT.

Cost basis is paid out in SCRT based off of a rolling 2 week average price.

Detailed Milestones:

Initial MVP release (weeks 0 - 4) - $13,090

• Band Oracle Integration with SILK price
  • Including publishing SILK and SHADE price.
• Shade - SILK peg mechanism
  • Entry minting contracts
    • sSCRT -> Silk
    • sSCRT -> Shade
  • Conversion minting contracts
    • $1 Shade -> 1 Silk
    • 1 Silk -> $1 Shade
• Initial MVP release on testnet and public to community.
• Testing basic UI integration with new contracts

Synthesis and UI (weeks 4 - 8) - $17,374

• UX/ UI overhaul
• UX testing
  • Integration of brand book
  • Integration of logos
  • Creation of landing page
  • Application integration with the three new contracts
• Implement synthesis treasury into shade protocol.
  • Synthesize mechanic to be introduced in multiple contracts (see whitepaper)
    • Burn = 1 - X
    • Synthesize (% of funds that don’t get burned, and instead sent to a treasure) = 1 - Burn
  • Treasury contract for Shade.
  • Implement synthesize into entry minting
  • Governance contract for synthesis
  • Preliminary economic model testing
• Documentation review

Testing and Governance (weeks 8 - 14) - $22,414

• Mainnet Launch v1 with SILK/SHADE stablecoin.
  • Airdrop
  • Publication of tutorials
  • Publication of full documentation
• Final minting contract testing
• Final governance contract testing
• Final “synthesis” contract testing
• Tokenomics of Shade distribution finalized
• Final economic model testing
• Integration of Silk/Shade on AMMs on Secret Network (such as SecretSwap/Sienna)
• Research for Synthetics Protocol for V2 product launch post-Silk/Shade launch
  • Shade Synthetic Asset Protocol
  • Synthetic crypto-indexes
  • Synthetic commodities
  • Shade Governance Updates.
  • Shade Burning Mechanism.
  • Collateralized Positions, and private pools.
  • Global yield Derivation (GYD)
  • Contract stress testing
  • Ability to collateralize these pools with SILK/SHADE.
  • Testing with SecretSwap/ Sienna Swap.

Full Document

[guyz]

This is a much needed project, well done! We've discussed this offline and this version is approved.

[mohammedpatla]

https://www.youtube.com/watch?v=oxrO8AMoVCE