Ardana: Cardano’s Linchpin DEX and Stablecoin Liquidity Pool
Cryptocurrency often attracts zealous users, and the Cardano community is among the most loyal and vibrant even within the wider blockchain space. Appreciated for its methodical, research-oriented approach to development, Cardano sees top-tier engineers building much-anticipated protocols. Ardana is a high-potential project that seeks to empower DeFi on Cardano through decentralized, overcollateralized stablecoins and a permissionless stable swap DEX. By leveraging the layer one network’s functional programming capabilities, the protocol has innovated a secure mechanism to mint stablecoins that can be pegged not only to the U.S. Dollar but also to any currency or even other real-world assets. This feature harmonizes with Ardana’s own stable swap AMM, leading to a fully decentralized foreign exchange on-chain. The project’s development coincides well with Cardano’s Vasil hard fork, which bolsters network capacity and enables greater transaction scalability for DeFi protocols like Ardana.
The Ardana team mainly comprises functional programming experts with an affinity for mathematics. Ryan Matovu, the project’s founder, has been involved in cryptocurrency since 2015 when he joined the then-burgeoning Ethereum community to experiment with blockchain technology. By 2017, he had shifted to become deeply ingrained in Cardano, first through marketing and community management, then to front-end development. These early experiences taught him lessons in decentralized project management: “Given how open the crypto space is, being able to manage a protocol in a way where you can imagine it transitioning to a DAO is really something I picked up by watching people do it in the Ethereum space. How can we both keep the team as open, fluid, and flat as possible without compromising on efficiency.” Ryan and early Ardana members came together to build the protocol in 2020, after pinpointing the need for DeFi infrastructure on Cardano. By taking inspiration from other platforms like MakerDAO and Curve Finance, the team recognized that a fully decentralized stablecoin and stable swap exchange could be offered on Cardano in a superior form.
The Two Core Pillars of Ardana
Initially, Ardana sought to immediately launch as a DAO with its primary stable coin and DEX as essentially offerings. Throughout the development process, the team realized the need for a transitory roadmap toward decentralizing governance and now also aims to implement a foreign exchange system to enable users to mint other stable currencies. The DEX itself can facilitate the trading back and forth between these different stablecoins. Ryan surmises: “The stablecoin forms one pillar of the ecosystem, and the different currency stablecoins and the exchange forms another pillar. They support the global decentralized foreign exchange being built on Cardano.” He foresees increasing use cases for stablecoins of different regional currencies and has begun to construct the Ardana forex in anticipation of this global view.
dUSD is the project’s current decentralized stablecoin and is pegged 1:1 to USD. Ardana’s stablecoin collateralization approach resembles that of MakerDAO. By overcollateralizing dUSD using a permissionless cryptocurrency such as Cardano, Ardana ensures that the stablecoin is fully decentralized and depeg resistant. Unlike algorithmic stablecoins which are mainly backed by their namesake algorithm, dUSD can only be minted after excess ADA is deposited into its smart contract. Since Ardana’s stablecoin is directly and programmatically backed by on-chain assets, it’s unlikely to suffer a rapid depeg and collapse as seen during the recent UST fiasco. Ryan views algorithmic stablecoins as interesting experiments, but too unsound to facilitate real financial value: “You had a model that was destined to fail that was allowed to grow too large and was allowed to create vast knock-on effects throughout the ecosystem.” In contrast, dUSD will initially feature an average over-collateralization ratio of roughly 150% and stability fees ranging from 1.5% to 3%. These numbers, along with eligible collateral types, can be modified in the future through Ardana’s decentralized governance. At launch, the only collateral type accepted will be ADA because of its consistent volume and liquidity, but other Cardano-native assets will also be considered after achieving certain growth thresholds. Liquidations play a major role in maintaining dUSD’s dollar peg by ensuring that the over-collateralization ratio does not devalue. As a fully permissionless stablecoin, dUSD is more than just a crypto-backed alternative dollar. It represents full-scale liquidity unlock across the Cardano ecosystem because now users no longer need to sell ADA to access stable liquidity, they can just take out dUSD against their ADA and use it on various dApps, including yield-generating activities. There exist other stablecoin alternatives on Cardano, such as Stasis and Djed, but dUSD is the only one that implements the same tried-and-true model as MakerDAO to achieve long-term decentralization and depeg protection. Ryan states: “I’d say the other models are interesting, but we feel confident about our offering given that we’re following an approach that’s been tried and tested that was effectively the basis of the first stablecoin that’s been launched. We’re confident our stablecoin can stand in any market environment.”
The second pillar of Ardana’s product suite is Danaswap – a decentralized AMM designed to accommodate stable, multi-asset liquidity pools. Most AMM protocols work well for governance tokens because they constantly change in value, but can succumb to considerable slippage on stable asset swaps. Danaswap, on the other hand, uses an innovative modified invariant curve to achieve high capital efficiency when exchanging two assets that remain roughly the same value. StablePools on Danaswap will offer liquidity provisions for stablecoins and tokens that represent identical assets such as synthetic BTC. Certain pools contain more than two assets and enable swaps between several kinds of tokens within a single transaction. Rebalancing fees and rewards help to constantly maintain the optimal pool proportion so that even seven-figure transactions can be executed with minimum slippage.
Foreign Exchange and Real World Asset Marketplace
While dUSD and Danaswap represent Ardana’s two core offerings, their technological underpinnings can be synergized to create even more innovative DeFi platforms. The team plans to launch a fully decentralized foreign exchange that extends the capabilities of both core products while featuring its own front-end interface. The same tech and model used for dUSD can be replicated to integrate other fiat currencies such as the Euro, Yen, or whatever the market demands at a particular time. When these alternative stable currencies are minted, they effectively represent loans taken out against excess collateral, which are held in permissionless Ardana Vaults. Danaswap acts as the exchange point where the majority of liquidity for all these stablecoins is held. Such a system enables users to swap from one regional currency to another in a fully secure way on-chain, without the hassle and fees associated with traditional foreign exchange. Ardana plans to incorporate fiat on-ramps and off-ramps in the future through third-party collaborations, which will make the process even more convenient. Beyond incorporating various stable currencies, the platform can also take the same concept and apply it to real-world assets. Ryan explains, “Moving forward, we can create vaults on any real-world asset that has enough data to get highly accurate price feed. Such as creating a coin pegged to the price of gold, or to the price of a commodity. These will be synthetic assets in a sense.” Currently, centralized custodial services already mint synthetic tokens by collateralizing them with the asset itself, such as wrapped BTC. As such services expand, Ardana can integrate them and still maintain a slightly over-collateralized ratio across the entire system above 1:1. An alternative approach would be to mint a “real-world asset stablecoin” that’s also backed by Cardano-native cryptocurrencies, similar to dUSD’s minting mechanism. Ardana is able to accommodate vaults for both scenarios and opt for the most strategically optimal method based on future market conditions.
Despite recent questions surrounding crypto stablecoins and their reliability, we retain confidence in Ardana’s technology, team, and execution. dUSD has several security structures in place that separates it from most stablecoins. It’s overcollateralized and crypto-backed, so the foundation remains decentralized. In an event where ADA collateral value declines significantly, liquidations will force users to auction off their collateral for dUSD itself, reducing the stablecoin supply and maintaining the peg. Even if the collateral price drops rapidly in a short period of time, like what the market saw with LUNA, surplus and debt auctions would be automated throughout the Ardana system to prevent insurmountable depegging. Furthermore, Ardana has already undergone a full security audit by Platonic systems, a reputable Haskell consultancy that’s worked with Cardano directly.
Moving forward, the project’s foreign exchange and real-world asset marketplace development could be a gamechanger for the blockchain industry. With all frontend and backend coding already complete and on-chain testing nearly finished, the Ardana dAPP is primed for a Q4 2022 launch. By operating on Cardano, a chain with much-untapped potential and an ardent following, Ardana can leverage inbuilt scalability and a dApp-friendly environment. The Vasil hard fork further improves throughput and reinforces the Cardano advantage. Ardana’s team is currently working to build an in-house oracle, which will play a substantial role in sourcing accurate data and maintaining the peg for each stablecoin on their respective fiat currencies. One interesting mechanism that Ardana looks to pioneer is a 1-hour price feed delay, which Ryan believes can act as a safeguard against malicious acts and sudden swings: “This is something that helps to prevent black swan events that do happen. If the system was instantaneous, it would be vulnerable to bad actors with enough capital who can create flash crash scenarios and manipulate price oracles to liquidate people initially. This gives the system time to react to any usual behavior in the protocol or the market itself.” As a stablecoin protocol, Ardana correctly focuses on fundamental soundness while still pursuing aggressive innovation. The team’s ambition to facilitate the minting and trading of various fiat stables and synthetic real-world assets reflects Mentha’s vision for the future of blockchain being more inclusive of all the world’s assets and resources.
Disclosure: At the time of publication, Mentha Partners may hold DANA or serve in an advisory role to the project. This statement identifies and discloses any conflicts of interest and should not be interpreted as a recommendation to purchase certain tokens. This article is created for informative purposes only and does not constitute financial or legal advice.