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What’s the motivation behind Virtue?

Stable-value assets are an essential building block for Web3 applications and have grown to represent tens of billions of dollars in value.

However, the vast majority of this value is in the form of fiat-collateralized stablecoins like USDT and USDC. Decentralized stablecoins like DAI and sUSD make up only a small portion of the total stablecoin supply, meaning the vast majority of stablecoins are centralized.

Virtue addresses this by creating a more capital efficient and user-friendly way to borrow stablecoins. Furthermore, Virtue is decentralized, all operations are algorithmic and fully automated, and protocol parameters are time locked and verifiable prior to changes.

What are the key benefits of Virtue?

Virtue’s key benefits include:

  • 0% interest rate — as a borrower, there’s no need to worry about constantly accruing debt
  • Minimum collateral ratio of 110% — more efficient usage of deposited wSMR
  • Directly redeemable — vUSD can be redeemed at face value for the underlying collateral at any time
  • Fully decentralized — all operations are algorithmic and fully automated, and protocol parameters are time locked via multi sig and verifiable prior to changes.

Can Virtue be upgraded?

Yes, the team is working on features such as the acceptance of additional collateral assets and revenue opportunities which will be announced in the future. Protocol changes are time locked via multi sig and verifiable prior to release.

What are the main functions of Virtue?

  1. Borrow vUSD against wSMR by opening a position
  2. Secure Virtue by providing vUSD to the Stability Pool in exchange for rewards
  3. Stake VIRTUE to earn the fee revenue paid for borrowing or redeeming vUSD
  4. Redeem 1 vUSD for 1 USD worth of wSMR when the vUSD peg falls below $1. wSMR/USD price is taken from an Oracle to provide additional security.

What are vUSD and VIRTUE?

vUSD is the USD-pegged stablecoin used to pay out loans on the Virtue protocol. At any time it can be redeemed against the underlying collateral at face value. Learn more about the stability mechanism.

VIRTUE is the secondary token issued by Virtue. It captures the fee revenue that is generated by the system and incentivizes early adopters and frontends.

What do I need in order to use Virtue?

To borrow vUSD, all you need is a wallet (e.g. MetaMask) and sufficient wSMR to open a position and SMR to pay the gas fees.

To become a Stability Pool depositor or VIRTUE staker, you need to have vUSD and/or VIRTUE tokens. vUSD can be borrowed by opening a position while VIRTUE can be earned as a Stability Pool depositor and providing liquidity to wSMR:vUSD LPs. You can also use a decentralized exchange to buy the tokens on the open market.

Does Virtue charge any fees?

There is a one-off fee whenever vUSD is borrowed, and when vUSD is redeemed:

  • For borrowers, there is a borrowing fee on loans as a percentage of the drawn amount (in vUSD).
  • For redeemers, there is a redemption fee on the amount paid to users by the system (in wSMR) when exchanging vUSD for wSMR. Note that redemption is separate from repaying your loan as a borrower, which is free of charge.

Both fees depend on the redemption volumes, i.e. they increase upon every redemption in function of the redeemed amount, and decay over time as long as no redemptions take place. The intent is to throttle large redemptions with higher fees, and to throttle borrowing directly after large redemption volumes. The fee decay over time ensures that the fee for both borrowers and redeemers will “cool down”, while redemptions volumes are low.

The fees cannot become smaller than 0.5% (except in Recovery Mode), which protects the redemption facility from being misused by arbitrageurs front-running the price feed. The borrowing fee is capped at 5%, keeping the system (somewhat) attractive for borrowers even in phases where the monetary is contracting due to redemptions. Other than that, the two fees are identical and are depicted as "Fee" in the following exemplary chart:

Fees exemplary chart

How can I earn money using Virtue?

There are two different ways to generate revenue using Virtue:

  • Deposit vUSD to the Stability Pool and earn liquidation gains (in wSMR) and passive continuous VIRTUE rewards.
  • Stake VIRTUE and earn vUSD and wSMR revenue from borrowing and redemption fees.

Can I lose my funds?

As a non-custodial system, all the tokens sent to the protocol will be held and managed algorithmically without the interference of any person or legal entity. That means your funds will only be subject to the rules set forth in the smart contract code, which has been forked from Liquity and Ethos Reserve, leading stablecoin platforms which have been audited by Trail of Bits, Coinspot and CertiK respectively. Liquity has also been battle tested over 2 years securing over $4b of loans. Virtue will also complete an audit prior to launch.

There are two scenarios under which you may lose a part of your funds:

  • You are a borrower (position owner) and your collateral in wSMR is liquidated. You will still keep your borrowed vUSD, but your position will be closed and your collateral will be used to compensate Stability Pool depositors.
  • You are a Stability Pool depositor and your deposited vUSD is used to repay debt from liquidated borrowers. Since liquidations are triggered any time borrowers’ collateral drops below 110%, you will receive more wSMR in return with a very high probability. However, if wSMR decreases in price and you maintain exposure, you may lose value in your total pool deposits.

Please note that vUSD isn't perfectly pegged to the USD, and can deviate slightly in both directions under certain market conditions. See Price Stability of vUSD for more details.

Although the system is diligently audited, a hack or a bug that results in losses for the users can never be fully excluded.