Motivation

Stablecoins are vital to blockchain ecosystems, representing billions of dollars in value. Most are fiat-collateralized, like USDT and USDC, while decentralized variants like DAI and USD are less common, signifying that most stablecoins are centralized. These centralized types face increasing regulatory scrutiny, causing potential risks for users. The Bucket Protocol offers a solution to these problems with a user-friendly, decentralized stablecoin system.

Fiat-backed stablecoins also carry inherent risks, as seen when Circle's USDC lost its value peg to the dollar following financial turbulence at Silicon Valley Bank. This event showed that stablecoin issuers' dependence on a few off-chain financial institutions can jeopardize their stability.

Crypto-asset-backed stablecoins, like Liquity's LUSD, offer an alternative. They proved resilient during the USDC de-pegging event, thanks to an over-collateralization mechanism, acceptance of ETH as collateral, and an algorithm for LUSD stabilization. Such protocols, bolstered by over-collateralization and well-designed liquidation mechanisms, offer a promising alternative to traditional stablecoins. Unifying these new types of stablecoins on a new chain is also essential to consider.