Module 15: Overview of Ardana

The last section in this series begins with an overview of Ardana. In this module, we will give an introduction to our stablecoin, DANA token, Danaswap, governance structure, and more.

What is Ardana?

The last section was all about Ardana, in this next section we shall focus on Ardana.

Ardana is an on-chain asset-backed stablecoin protocol built to unlock the true value of Cardano. Ardana users can mint, send, spend, and receive cryptocurrencies stored in a compatible wallet or vault.

Ardana's DeFi hub is built on the Cardano blockchain. Ardana provides Cardano users with proven DeFi primitives that will catalyze and support the financial ecosystem. The two main features of Ardana are the stablecoin and Danaswap.

The stablecoin allows users to leverage supported native Cardano assets, and Danaswap enables highly efficient swaps between stable asset sets. It also allows liquidity providers to earn trading fees and DANA rewards for putting forward their liquidity.

Ardana is an ecosystem of independently functioning but symbiotically working DeFi protocols on Cardano. From a DeFi macro perspective, Ardana and its associated protocols have been developed individually and collectively to act as the financial foundation for Cardano's decentralized economy, using historically proven protocol models based on capital efficiency, stability, and composability.

How do Stablecoins Work?

Ardana (dUSD) is soft pegged to the value of the US dollar, allowing users to easily borrow as it is over-collateralized with Cardano-owned assets. This arrangement gives holders confidence in the stablecoin's value during market fluctuations. The Ardana stablecoin allows holders to purchase an asset when the holder liquidates another asset. Once purchased, the asset serves as collateral for a low-cost stablecoin loan. Instead of converting ADA into currency, ADA can be placed in Ardana's vault to receive a portion back as minted dUSD credit. Assets accepted as collateral can mint Ardana stablecoins using smart contracts triggered through the Ardana vault.

What Happens Inside Ardana's Vaults?

The vaults hold cryptocurrency just like wallets; the difference is that they stop cryptocurrency from being immediately withdrawn. Vaults offer higher security when it comes to storing crypto assets. In the unlikely event of a security breach within the vault, users have recourse to clawback for their lost assets.

Ardana vaults enable users to generate stablecoins using Cardano native token collateral deposited in the vaults; the Ardana vaults run on a permissionless technology that backs all minted stablecoins with the chain's excess collateral.

dUSD is easy to obtain, generate, and utilize through the vaults. Users earn dUSD by putting collateral in vaults within the protocol using Collateralized Debt Positions (CDPs), which are unique smart contracts.

In order to generate dUSD, a user must first access the Ardana vaults. Ardana vaults are the repositories used to secure loan collateral (i.e., the CDP). Assets that are accepted as collateral can be used to mint Ardana stablecoins using smart contracts. Users will need to follow the same process to generate any other Ardana stablecoin.

It is important to note that a vault only holds a single Cardano native token; however, users can have multiple vaults for different Cardano native tokens open simultaneously.

By depositing approved collateral into a vault, a user generates a CDP and earns stablecoins against their collateral up to a specific limit. After generation, the user must repay the principal debt plus interest before they can release their collateral.

Governance

Ardana has a unique governance structure. The governance mechanism of the Ardana protocol is built on the principle of flexibility. When Ardana is first launched, the Ardana team will oversee the platform's governance, which will gradually transition to Ardana token holders. 

Ardana's decentralized decision-making mechanism relies heavily on voting. Ardana platform users must stake their DANA tokens and earn exDANA to participate in the decision-making process. In addition to accessing the platform's profits, exDANA allows users to vote on important issues and the direction of the project.

Risk Variables Controlled by Governance

Each collateral token has its own set of risk variables, with the value of each token being determined by the risk profile. These values are directly controlled by DANA token holders voting. The main risk variables for vaults are:

Debt Ceiling

A debt ceiling is the maximum amount of dUSD that a single form of collateral can generate. This is to guarantee that the collateral portfolio is sufficiently diverse. Once a collateral type's debt ceiling is reached, new collateral debt cannot be created in that token unless existing users repay the outstanding vault debt or the cap is raised.

Liquidation Ratio

A liquidation ratio is a measurement of the collateral-to-debt ratio used to force a collateral asset's liquidation. For example, a low liquidation ratio indicates that the Ardana governance expects low price volatility of the collateral token, allowing for a lower collateral-to-debt ratio to be permitted; on the other hand, a high liquidation ratio indicates that increased volatility is anticipated.

Liquidation Fee

The liquidation penalty is a fee added to a vault's total outstanding generated dUSD when a liquidation occurs. The liquidation penalty is intended to encourage vault owners to ensure there is a sufficient amount of collateral in their vault.

Duration of Collateral Sale

Each collateral token has its maximum duration for collateral sales. The duration of debt and surplus auctions, on the other hand, is a global system variable.

Sale Bid Duration

The time before a single bid expires and ends the sale.

Sale Step Size

The smallest bid step in the auction exceeds a previous bid. This is an incentive for early bidders and is intended to prevent abuse by bidding a small amount above an existing offer.

Stability Fee

The stability fee is the percentage annual interest rate paid for a particular type of vault.

DANA Token

As we know, the Ardana platform is controlled by its users through DANA tokens. DANA token holders have voting rights and can significantly influence the direction and development of the project. Users who wish to participate in staking can also claim ADA tokens by participating in various yield generating activities on the platform and have the opportunity to create passive income through interest payments, trading fees, and more.

The DANA token is the Ardana ecosystem's utility and governance token. DANA is a native Cardano asset. Users can buy DANA on the open market or through one of Ardana's liquidity mining programs. Users must time lock their DANA in the Ardana Reward Enhancement Module (AREM) to exercise the governance and utility value of DANA, in exchange for which they earn exDANA.

What is the AREM?

The AREM (Ardana Rewards Enhancement Model) allocates a portion of Ardana stablecoins and Danaswap platform fees to DANA token holders. Users can claim rewards by staking DANA tokens to earn exDANA, providing liquidity, and depositing dUSD in the Ardana Savings Module.  

ExDANA is created by locking a DANA token in the AREM, making it no longer tradable. The longer exDANA is locked away in the vault, the greater the rewards.

Platform users can also consult with the built-in AREM calculator to determine how much exDANA they need to claim the various rewards offered in the system.

Danaswap

Danaswap is a decentralized exchange (DEX) that enables multi-asset swaps between stablecoins and assets with high speed and minimal slippage using multi-asset liquidity pools. Danaswap is an automated market maker (AMM) that maintains a tight spread between assets in a liquidity pool by automatically adjusting the concentration of liquidity within a set range. As a result, swaps incur minimal slippage and fees with this method while impacting the liquidity providers' earnings.

Decentralized exchanges function differently compared to centralized exchanges. Centralized exchanges operate through companies that provide crypto and fiat ramps. These are powered by software known as a trading engine. Centralized exchanges typically decide which currency pairs are available for trading and can add or remove them at any time. The operators of a centralized exchange can also remove features or shut down the platform altogether whenever they see fit.

Users who choose to trade on a decentralized exchange, like Danaswap, will enjoy many advantages such as: remaining in possession of their private keys, lower fees, easy to manage assets, and much more.

Ardana's Stable Pools and Swaps

The stable pools at Danaswap hold a collection of pegged assets. These asset sets consist of assets that all trade at (approximately) the same price. Thus, unlike classic constant product AMMs, stable pools concentrate most of the available liquidity around the current price point, making them a more effective trade execution platform for swaps.

On Danaswap, swaps are completed using one of the liquidity pools. Thus, when users execute a swap, they can trade between two assets (as long as the respective pool supports both) while taking advantage of quick and efficient trade execution. In addition, Danaswap's pools allow for competitive slippage; this even applies to six- and seven-figure swaps.

Foreign Exchange

The Ardana protocol will support a range of currencies, including the US Dollar (USD), British Pound (GBP), and Euro (EUR).

There are currently limited options to mint stablecoins that are not tied to the US dollar on the blockchain. This means that a stablecoin in a foreign currency will be used by a potentially large international user base. There are stablecoins for currencies other than the US dollar, but they are not decentralized, relying instead on a custodian to back these assets with its reserves.

Users of the Ardana platform will be able to mint stablecoins in various currencies and exchange them on Danaswap, allowing for a quick, low-cost, and universal international currency system.

Conclusion

Ardana is ready to unlock Cardano's true value through its innovative DeFi hub. Thanks to Ardana's advanced product suite and robust community governance framework, the project is well on track to provide the crypto community with unprecedented value and autonomy.

Join us in Module 16 to learn more about Ardana’s stablecoins.