The KANAI Protocol: KANAIDAO’s Bi-Collateral USTEBO System (BUS)

About KANAIDAO

KANAIDAO is an open-source project on the Ethereum blockchain and a Decentralized Autonomous Organization. The project is managed by people around the world who hold its governance token, KANAI(NAI). Through a system of scientific governance involving Executive Voting and Governance Polling, KANAI tokens (NAI) holders manage the KANAI Protocol and the financial risks of USTEBO to ensure its stability, transparency, and efficiency. KANAI voting weight is proportional to the amount of NAI a voter stakes in the voting contract. In other words, the more NAI tokens locked in the contract, the greater the voter’s decision-making power.

About the KANAI PROTOCOL

The KANAI Protocol, built on the Ethereum blockchain, enables users to create currency. Current elements of the KANAI Protocol are the USTEBO stablecoin, Collateral Vaults, Oracles, and Voting. KANAI DAO governs the KANAI Protocol by deciding on key parameters (e.g., stability fees, collateral rates, etc.) through the voting power of KANAI Token (NAI) holders.

Introduction

The USTEBO Stablecoin System, today called the KANAI Protocol, accepts Ethereum and Wrapped Bitcoin (WETH & WBTC) asset that has been approved by NAI holders, who also vote on corresponding Risk Parameters The USTEBO Stablecoin System, today called the KANAI Protocol, accepts Wrapped Ethereum and Wrapped Bitcoin (WETH & WBTC) asset that has been approved by NAI holders, who also vote on corresponding Risk Parameters for each collateral asset. Voting is a critical component of the KANAI decentralized governance process.

Welcome to Bi-Collateral USTEBO System (BUS).

In BUS We Trust

Blockchain technology provides an unprecedented opportunity to ease the public’s growing frustration with—and distrust of—dysfunctional centralized financial systems. By distributing data across a network of computers, the technology allows any group of individuals to embrace transparency rather than central-entity control. The result is an unbiased, transparent, and highly efficient permissionless system—one that can improve current global financial and monetary structures and better serve the public good.

Bitcoin was created with this goal in mind. But, while Bitcoin succeeds as a cryptocurrency on a number of levels, it is not ideal as a medium of exchange because its fixed supply and speculative nature results in volatility, which prevents it from proliferating as mainstream money.

The USTEBO stablecoin, on the other hand, succeeds where Bitcoin fails precisely because USTEBO is designed to minimize price volatility. A decentralized, unbiased, collateral-backed cryptocurrency that is soft-pegged to the US Dollar, USTEBO’s value is in its stability.

After deploying to mainnet user adoption of the stablecoin is expected to rise dramatically and it will become a building block for decentralized applications that help expand the DeFi (decentralized finance) movement. USTEBO’s success will be part of a wider industry movement for stablecoins, which are cryptocurrencies designed to maintain price value and function like money.

For example, in February 2019, JPMorgan became the first bank in the United States to create and test a digital coin that represents 1 USD. As the cryptocurrency industry grows, other banks, financial services companies, and even governments will create stable digital currencies (e.g., Central Bank Digital Currencies (CBDC)), as will large organizations outside of the finance sector. Facebook, for example, announced its plans for Libra, “a stable digital cryptocurrency that will be fully backed by a reserve of real assets,”4 in June 2019. However, such proposals forfeit the core value proposition of blockchain technology: global adoption of a common infrastructure without a central authority or administrator that may abuse its influence.

An Overview of the KANAI Protocol and Its Features

The KANAI Protocol

The KANAI Protocol will be one of the largest dapps on the Ethereum blockchain. Designed by a disparate group of contributors, including developers within the KANAI Foundation, its outside partners, and other persons and entities, is expected to see significant adoption.

The KANAI Protocol is managed by people around the world who hold its governance token, KANAI Token (NAI). Through a system of scientific governance involving Executive Voting and Governance Polling, NAI holders govern the Protocol and the financial risks of USTEBO to ensure its stability, transparency, and efficiency. One NAI token locked in a voting contract equals one vote.

The USTEBO Stablecoin

The USTEBO stablecoin is a decentralized, unbiased, collateral-backed cryptocurrency soft-pegged to the US Dollar. USTEBO will be held in cryptocurrency wallets or within platforms, and is supported on Ethereum and other popular blockchains.

USTEBO is easy to generate, access, and use. Users generate USTEBO by depositing collateral assets into KANAI Vaults within the KANAI Protocol. This is how USTEBO is entered into circulation and how users gain access to liquidity. Others will obtain USTEBO by buying it from brokers or exchanges, or simply by receiving it as a means of payment. Once generated, bought, or received, USTEBO can be used in the same manner as any other cryptocurrency: it can be sent to others, used as payments for goods and services, and even held as savings. Every USTEBO in circulation is directly backed by excess collateral, meaning that the value of the collateral is higher than the value of the USTEBO debt, and all USTEBO transactions are publicly viewable on the Ethereum blockchain.

What Properties of USTEBO Function Similarly to Money?

Generally, money has four functions: A store of value, Medium of exchange, Unit of account and a standard of deferred payment.

USTEBO has properties and use cases designed to serve these functions.

USTEBO as a Store of Value

A store of value is an asset that keeps its value without significant depreciation over time. Because USTEBO is a stablecoin, it is designed to function as a store of value even in a volatile market.

USTEBO as a Medium of Exchange

A medium of exchange is anything that represents a standard of value and is used to facilitate the sale, purchase, or exchange (trade) of goods or services. The USTEBO stablecoin will be used around the world for all types of transactional purposes.

USTEBO as a Unit of Account

A unit of account is a standardized measurement of value used to price goods and services (e.g., USD, EUR, YEN). Currently, USTEBO has a target price of 1USD (1 USTB = 1 USD). While USTEBO is not used as a standard measurement of value in the off-chain world, it functions as a unit of account within the KANAI Protocol and some blockchain dapps, whereby KANAI Protocol accounting or pricing of dapp services is in USTEBO rather than a fiat currency like USD.

USTEBO as a Standard of Deferred Payment

USTEBO is used to settle debts within the KANAI Protocol (e.g., users use USTEBO to pay the stability fee and close their Vaults). This benefit separates USTEBO from other stablecoins.

Collateral Assets

USTEBO is generated, backed, and kept stable through collateral assets that are deposited into KANAI Vaults on the KANAI Protocol. A collateral asset is a digital asset that NAI holders have voted to accept into the Protocol currently is WETH & WBTC. To generate USTEBO, the KANAI Protocol accepts WETH and WBTC. NAI holders also must also approve specific, corresponding Risk Parameters for each accepted collateral (e.g., more stable assets might get more lenient Risk Parameters, while more risky assets could get stricter Risk Parameters). Detailed information on Risk Parameters is below. These and other decisions of NAI holders are made through the KANAI decentralized governance process.

KANAI Vaults

All accepted collateral assets can be leveraged to generate USTEBO in the KANAI Protocol through smart contracts called KANAI Vaults. Users can access the KANAI Protocol and create Vaults through a number of different user interface . Creating a Vault is not complicated, but generating USTEBO does create an obligation to repay the USTEBO, along with a stability Fee, in order to withdraw the collateral leveraged and locked inside a Vault. Vaults are inherently non-custodial: Users interact with Vaults and the KANAI Protocol directly, and each user has complete and independent control over their deposited collateral as long the value of that collateral doesn’t fall below the required minimum level (the Liquidation Ratio, discussed in detail below).

Interacting with a KANAI Vault

Step 1: Create and Collateralize a Vault

A user creates a Vault via the interface by funding it with a specific type and amount of collateral that will be used to generate USTEBO at the moment is WETH and WBTC. Once funded, a Vault is considered collateralized.

Step 2: Generate USTEBO from the Collateralized Vault

The Vault owner initiates a transaction, and then confirms it in his/her unhosted cryptocurrency wallet in order to generate a specific amount of USTEBO in exchange for keeping his/her collateral locked in the Vault.

Step 3: Pay Down the Debt and the Stability Fee

To retrieve a portion or all of the collateral, a Vault owner must pay down or completely pay back the USTEBO he/she generated, plus the Stability Fee that continuously accrues on the USTEBO outstanding. The Stability Fee can only be paid in USTEBO.

Step 4: Withdraw Collateral

With the USTEBO returned and the Stability Fee paid, the Vault owner can withdraw all or some of his/her collateral back to their wallet. Once all USTEBO is completely returned and all collateral is retrieved, the Vault remains empty until the owner chooses to make another deposit.

Importantly, each collateral asset deposited requires its own Vault. So, some users will own multiple Vaults with different types of collateral and levels of collateralization.

Liquidation of Risky KANAI Vaults

To ensure there is always enough collateral in the KANAI Protocol to cover the value of all outstanding debt (the amount of USTEBO outstanding valued at the Target Price), any KANAI Vault deemed too risky (according to parameters established by KANAI Governance) is liquidated through automated KANAI Protocol auctions. The Protocol makes the determination after comparing the Liquidation Ratio to the current collateral-to-debt ratio of a Vault. Each Vault type has its own Liquidation Ratio, and each ratio is determined by NAI voters based on the risk profile of the particular collateral asset type.

KANAI Protocol Auctions

The auction mechanisms of the KANAI Protocol enable the system to liquidate Vaults even when price information for the collateral is unavailable. At the point of liquidation, the KANAI Protocol takes the liquidated Vault collateral and subsequently sells it using an internal market-based auction mechanism. This is a Collateral Auction. The USTEBO received from the Collateral Auction is used to cover the Vault’s outstanding obligations, including payment of the Liquidation Penalty fee set by NAI voters for that specific Vault collateral type.If enough USTEBO is bid in the Collateral Auction to fully cover the Vault obligations plus the Liquidation Penalty, that auction converts to a Reverse Collateral Auction in an attempt to sell as little collateral as possible.

Any leftover collateral is returned to the original Vault owner. If the Collateral Auction does not raise enough USTEBO to cover the Vault’s outstanding obligation, the deficit is converted into Protocol debt. Protocol debt is covered by the USTEBO in the KANAI Buffer. If there is not enough USTEBO in the Buffer, the Protocol triggers a Debt Auction. During a Debt Auction, NAI is minted by the system (increasing the amount of NAI in circulation), and then sold to bidders for USTEBO.

USTEBO proceeds from the Collateral Auction go into the KANAI Buffer, which serves as a buffer against an increase of NAI overall supply that could result from future uncovered Collateral Auctions and the accrual of the USTEBO Savings Rate (discussed in detail below)

If USTEBO proceeds from auctions and Stability Fee payments exceed the KANAI Buffer limit (a number set by KANANI Governance), they are sold through a Surplus Auction. During a Surplus Auction, bidders compete by bidding decreasing amounts of NAI to receive a fixed amount of USTEBO. Once the Surplus Auction has ended, the KANAI Protocol autonomously destroys the NAI collected, thereby reducing the total NAI supply.

Example (Collateral Auction Process):

A large Vault becomes undercollateralized due to market conditions. An Auction Keeper then detects the undercollateralized Vault opportunity and initiates liquidation of the Vault, which kicks off a Collateral Auction for, say, 50 WETH. Each Auction Keeper has a bidding model to assist in winning auctions. A bidding model includes a price at which to bid for the collateral (WETH, in this example). The Auction Keeper uses the token price from its bidding model as the basis for its bids in the first phase of a Collateral Auction, where increasing USTEBO bids are placed for the set amount of collateral. This amount represents the price of the total USTEBO wanted from the collateral auction.

Now, let's say the Auction Keeper bids 5,000 USTEBO for the 50 WETH to meet this amount. The USTEBO bid is transferred from the Vault Engine to the Collateral Auction contract. With enough USTEBO in the Collateral Auction contract to cover the system's debt plus the Liquidation Penalty, the first phase of the Collateral Auction is over. In order to reach the price defined in its bidding model, the Auction Keeper submits a bid in the second phase of the Collateral Auction. In this phase, the objective is to return as much of the collateral to the Vault owner as the market will allow. The bids that the Auction Keepers place are for fixed USTEBO amounts and decreasing amounts of WETH. For instance, the bidding model of the Keeper in this example seeks a bid price of 125 USTEBO per ETH, so it offers 5000 USTEBO for 40 ETH. Additional USTEBO for this bid is transferred from the Vault Engine to the Collateral Auction contract. After the bid duration limit is reached and the bid expires, the Auction Keeper claims the winning bid and settles the completed Collateral Auction by collecting the won collateral.

Key External Actors

In addition to its smart contract infrastructure, the KANAI Protocol involves groups of external actors to maintain operations: Keepers, Oracles, and Global Settlers (Emergency Oracles), and KANAI community members. Keepers take advantage of the economic incentives presented by the Protocol; Oracles and Global Settlers are external actors with special permissions in the system assigned to them by NAI voters; and KANAI community members are individuals and organizations that provide services.

Keepers

A Keeper is an independent (usually automated) actor that is incentivized by arbitrage opportunities to provide liquidity in various aspects of a decentralized system. In the KANAI Protocol, Keepers are market participants that dep USTEBO maintain its Target Price ($1): they sell USTEBO when the market price is above the Target Price, and buy USTEBO when the market price is below the Target Price. Keepers participate in Surplus Auctions, Debt Auctions, and Collateral Auctions when KANAI Vaults are liquidated.

Price Oracles

The KANAI Protocol requires real-time information about the market price of the collateral assets in KANAI Vaults in order to know when to trigger Liquidations. The Protocol derives its internal collateral prices from a decentralized Oracl e infrastructure that consists of a broad set of individual nodes called Oracle Feeds. NAI voters choose a set of trusted Feeds to deliver price information to the system through Ethereum transactions. They also control how many Feeds are in the set. To protect the system from an attacker attempting to gain control of a majority of the Oracles, the KANAI Protocol receives price inputs through the Oracle Security Module (OSM), not from the Oracles directly. The OSM, which is a layer of defense between the Oracles and the Protocol, delays a price for one hour, allowing Emergency Oracles or a KANAI Governance vote to freeze an Oracle if it is compromised. Decisions regarding Emergency Oracles and the price delay duration are made by NAI holders.

Emergency Oracles

Emergency Oracles are selected by NAI voters and act as a last line of defense against an attack on the governance process or on other Oracles. Emergency Oracles are able to freeze individual Oracles (e.g., ETH and BAT Oracles) to mitigate the risk of a large number of customers trying to withdraw their assets from the KANAI Protocol in a short period of time, as they have the authority to unilaterally trigger an Emergency Shutdown.

DAO Teams

consist of individuals and service providers, who may be contracted through KANAI Governance to provide specific services to KANAIDAO. Members of DAO teams are independent market actors and are not employed by the KANAI Foundation. The flexibility of KANAI Governance allows the KANAI community to adapt the DAO team framework to suit the services needed by the ecosystem based on real-world performance and emerging challenges.
Examples of DAO team member roles are the Governance Facilitator, who supports the communication infrastructure and processes of governance, and Risk Team members, who support KANAI Governance with financial risk research and draft proposals for onboarding new collateral and regulating existing collateral. While the KANAI Foundation has bootstrapped KANAI Governance it is anticipated that the DAO will take full control, conduct NAI votes, and fill these varied DAO team roles in the near future.

The USTEBO Savings Rate

The USTEBO Savings Rate (USR) allows any USTEBO holder to earn savings automatically and natively by locking their USTEBO into the USR contract in the KANAI Protocol. It can be accessed via the interface into the KANAI Protocol. Users aren’t required to deposit a minimum amount to earn the USR, and they can withdraw any or all of their USTEBO from the USR contract at any time.

The USR is a global system parameter that determines the amount USTEBO holders earn on their savings over time. When the market price of USTEBO deviates from the Target Price due to changing market dynamics, NAI holders can mitigate the price instability by voting to modify the USR accordingly:

Initially, adjustment of the USR will depend on a weekly process, whereby NAI holders first evaluate and discuss public market data and proprietary data provided by market participants, and then vote on whether an adjustment is necessary or not. The long-term plan includes implementation of the USR Adjustment Module, an Instant Access Module that directly controls both the USR and the Base Rate. This module allows for easy adjustment of the USR (within strict size and frequency boundaries set by NAI holders) by an NAI holder on behalf of the larger group of NAI holders. The motivation behind this plan is to enable nimble responses to rapidly changing market conditions, and to avoid overuse of the standard governance process of Executive Voting and Governance Polling.

Governance of the KANAI Protocol

Use of the NAI Token in KANAI Governance

The NAI token—the governance token of the KANAI Protocol—allows those who hold it to vote on changes to the KANAI Protocol. Note that anyone, not only NAI holders, can submit proposals for an NAI vote. Any voter-approved modifications to the governance variables of the Protocol will likely not take effect immediately in the future; rather, they could be delayed by as much as 24 hours if voters choose to activate the Governance Security Module (GSM). The delay would give NAI holders the opportunity to protect the system, if necessary, against a malicious governance proposal (e.g., a proposal that alters collateral parameters contrary to established monetary policies or that allows for security mechanisms to be disabled) by triggering a Shutdown.

Polling and Executive Voting

In practice, the KANAI Governance process includes proposal polling and Executive Voting. Proposal polling is conducted to establish a rough consensus of community sentiment before any Executive Votes are cast. This helps to ensure that governance decisions are considered throughtfully and reached by consensus prior to the voting process itself. Executive Voting is held to approve (or not) changes to the state of the system. An example of an Executive Vote could be a vote to ratify Risk Parameters for a newly accepted collateral type. At a technical level, smart contracts manage each type of vote. A Proposal Contract is a smart contract with one or more valid governance actions programmed into it. It can only be executed once. When executed, it immediately applies its changes to the internal governance variables of the KANAI Protocol. After execution, the Proposal Contract cannot be reused. Any Ethereum Address can deploy valid Proposal Contracts. NAI token holders can then cast approval votes for the proposal that they want to elect as the Active Proposal. The Ethereum address that has the highest number of approval votes is elected as the Active Proposal. The Active Proposal is empowered to gain administrative access to the internal governance variables of the KANAI Protocol, and then modify them.

The KANAI(NAI) Token’s Role in Recapitalization

In addition to its role in KANAI Governance, the NAI token has a complementary role as the recapitalization resource of the KANAI Protocol. If the system debt exceeds the surplus, the NAI token supply may increase through a Debt Auction (see above) to recapitalize the system. This risk inclines NAI holders to align and responsibly govern the KANAI ecosystem to avoid excessive risk-taking.

NAI Holder Responsibilities

NAI holders can vote to do the following:

NAI holders can also allocate funds from the KANAI Buffer to pay for various infrastructure needs and services, including Oracle infrastructure and collateral risk management research. The funds in the KANAI Buffer are revenues from Stability Fees, Liquidation Fees, and other income streams. The governance mechanism of the KANAI Protocol is designed to be as flexible as possible, and upgradeable. Should the system mature under the guidance of the community, more advanced forms of Proposal Contracts could, in theory, be used, including Proposal Contracts that are bundled. For example, one proposal contract may contain both an adjustment of a Stability Fee and an adjustment of the USR. Nonetheless, those revisions will remain for NAI holders to decide.

Risk Parameters Controlled by KANAI Governance

Each KANAI Vault type (e.g., WETH Vault and WBTC Vault) has its own unique set of Risk Parameters that enforce usage. The parameters are determined based on the risk profile of the collateral, and are directly controlled by NAI holders through voting.

The Key Risk Parameters for KANAI Vaults are:

Risk and Mitigation Responsibilities of Governance

The successful operation of the KANAI Protocol depends on KANAI Governance taking necessary steps to mitigate risks. Some of those risks are identified below, each followed by a mitigation plan.

A malicious attack on the smart contract infrastructure by a bad actor.

One of the greatest risks to the KANAI Protocol is a malicious actor—a programmer, for example, who discovers a vulnerability in the deployed smart contracts, and then uses it to break the Protocol or steal from it. In the worst-case scenario, all decentralized digital assets held as collateral in the Protocol are stolen, and recovery is impossible.

Mitigation: The KANAI Foundation's highest priority is the security of the KANAI Protocol and the strongest defense of the Protocol is Formal Verification. In addition to formal system verification, contracted security audits by the best security organizations in the blockchain industry, third-party (independent) audits, and bug bounties are part of the Foundation's security roadmap. These security measures provide a strong defense system; however, they are not infallible. Even with formal verification, the mathematical modeling of intended behaviors may be incorrect, or the assumptions behind the intended behavior itself may be incorrect.

A black swan event

A black swan event is a rare and critical surprise attack on a system. For the KANAI Protocol, examples of a black swan event include:

Please note that this list of potential "black swans" is not exhaustive and not intended to capture the extent of such possibilities.

Mitigation: While no one solution is failsafe, the careful design of the KANAI Protocol (the Liquidation Ratio, Debt Ceilings, the Governance Security Module, the Oracle Security Module, Emergency Shutdown, etc.) in conjunction with good governance (e.g., swift reaction in a crisis, thoughtful risk parameters, etc.) help to prevent or mitigate potentially severe consequences of an attack.

Unforeseen pricing errors and market irrationality

Oracle price feed problems or irrational market dynamics that cause variations in the price of USTEBO for an extended period of time can occur. If confidence in the system is lost, rate adjustments or even NAI dilution could reach extreme levels and still not bring enough liquidity and stability to the market.

Mitigation: KANAI Governance incentivizes a sufficiently large capital pool to act as Keepers of the market in order to maximize rationality and market efficiency, and allow the USTEBO supply to grow at a steady pace without major market shocks. As a last resort, Emergency Shutdown can be triggered to release collateral to USTEBO holders, with their USTEBO claims valued at the Target Price.

User Abandonment for Less Complicated Solutions

The KANAI Protocol is a complex decentralized system. As a result of its complexity, there is a risk that inexperienced cryptocurrency users will abandon the Protocol in favor of systems that may be easier to use and understand.

Mitigation: While USTEBO is easy to generate and use for most crypto enthusiasts and the Keepers that use it for margin trading, newcomers might find the Protocol difficult to understand and navigate. Although USTEBO is designed in such a way that users need not comprehend the underlying mechanics of the KANAI Protocol in order to benefit from it, the guidance consistently provided by the KANAI community and the KANAI Foundation help to ensure onboarding is as uncomplicated as possible.

Dissolution of The KANAI Foundation

The KANAI Foundation currently plays a role, along with independent actors, in maintaining the KANAI Protocol and expanding its usage worldwide, while facilitating Governance. However, the KANAI Foundation plans to dissolve once KANAIDAO can manage Governance completely on its own. Should KANAIDAO fail to sufficiently take the reins upon the KANAI Foundation's dissolution, the future health of the KANAI Protocol could be at risk.

Mitigation: NAI holders are incentivized to prepare for the Foundation's dissolution after it completes "gradual decentralization" of the project. Moreover, successful management of the system should result in sufficient funds for governance to allocate to the continued maintenance and improvement of the KANAI Protocol.

General Issues with Experimental Technology

Users of the KANAI Protocol (including but not limited to USTEBO and NAI holders) understand and accept that the software, technology, and technical concepts and theories applicable to the KANAI Protocol are still unproven and there is no warranty that the technology will be uninterrupted or error-free. There is an inherent risk that the technology could contain weaknesses, vulnerabilities, or bugs causing, among other things, the complete failure of the KANAI Protocol and/or its component parts.
Mitigation: See “A malicious attack on the smart contract infrastructure by a bad actor” above. The Mitigation section there explains the technical auditing in place to ensure the KANAI Protocol functions as intended.

Price Stability Mechanisms

The USTEBO Target Price

The USTEBO Target Price is used to determine the value of collateral assets USTEBO holders receive in the case of an Emergency Shutdown. The Target Price for USTEBO is 1 USD, translating to a 1:1 USD soft peg.

Emergency Shutdown

Emergency Shutdown (or, simply, Shutdown) serves two main purposes. First, it is used during emergencies as a last-resort mechanism to protect the KANAI Protocol against attacks on its infrastructure and directly enforce the USTEBO Target Price. Emergencies could include malicious governance actions, hacking, security breaches, and long-term market irrationality.
Second,
Shutdown is used to facilitate a KANAI Protocol system upgrade. The Shutdown process can only be controlled by KANAI Governance.

NAI voters are also able to instantly trigger an Emergency Shutdown by depositing NAI into the Emergency Shutdown Module (ESM), if enough NAI voters believe it is necessary. This prevents the Governance Security Module (if active) from delaying Shutdown proposals before they are executed. With Emergency Shutdown, the moment a quorum is reached, the Shutdown takes effect with no delay.

There are three phases of Emergency Shutdown:
    1. The KANAI Protocol shuts down; Vault owners withdraw assets.
    When initiated, Shutdown prevents further Vault creation and manipulation of existing Vaults, and freezes the Price Feeds. The frozen feeds ensure that all users are able to withdraw the net value of assets to which they are entitled. Effectively, it allows KANAI Vault owners to immediately withdraw the collateral in their Vault that is not actively backing debt.
    2. Post-Emergency Shutdown auction processing
    After Shutdown is triggered, Collateral Auctions begin and must be completed within a specific amount of time. That time period is determined by Governance to be slightly longer than the duration of the longest Collateral Auction. This guarantees that no auctions are outstanding at the end of the auction processing period.
    3. USTEBO holders claim their remaining collatera
    At the end of the auction processing period, USTEBO holders use their USTEBO to claim collateral directly at a fixed rate that corresponds to the calculated value of their assets based on the USTEBO Target Price. For example, if the ETH/USD Price Ratio is 200, and a user holds 1000 USTEBO at the Target Price of 1 USD when Emergency Shutdown is activated, The user will be able to claim exactly 5 ETH from the KANAI Protocol after the auction processing period. There is no time limit for when a final claim can be made. USTEBO holders will get a proportional claim to each collateral type that exists in the collateral portfolio. Note that USTEBO holders could be at risk of a haircut, whereby they do not receive the full value of their USTEBO holdings at the Target Price of 1 USD per USTEBO. This is due to risks related to declines in collateral value and to Vault owners having the right to retrieve their excess collateral before USTEBO holders may claim the remaining collateral.

The Future of the KANAI Protocol: Increased Adoption and Full Decentralization

Addressable Market

A cryptocurrency with price stability serves as an important medium of exchange for many decentralized applications. As such, the potential market for USTEBO is at least as large as the entire decentralized blockchain industry. But the promise of USTEBO extends well beyond that into other industries.

The following is a non-exhaustive list of current and immediate markets for the USTEBO stablecoin:

Asset Expansion

Should NAI holders approve new assets as collateral, those assets will be subject to the same risk requirements, parameters, and safety measures as USTEBO (e.g., Liquidation Ratios, Stability Fees, Savings Rates, Debt Ceilings, etc.).

Evolving Oracles

KANAIDAO project will run reliable Oracles on the Ethereum blockchain. As a result, many decentralized applications will use KANAIDAO Oracles to ensure the security of their systems and to provide up-to-date price data in a robust manner. This confidence in KANAIDAO and the KANAI Protocol means that KANAI Governance can expand the core Oracle infrastructure service to better suit the needs of decentralized applications.

Conclusion

The KANAI Protocol allows users to generate USTEBO, a stable store of value that lives entirely on the blockchain. USTEBO is a decentralized stablecoin that is not issued or administered by any centralized actor or trusted intermediary or counterparty. It is unbiased and borderless —available to anyone, anywhere.

All USTEBO is backed by a surplus of collateral that has been individually escrowed and publicly viewable Ethereum smart contracts. Anyone with an internet connection can monitor the health of the system anytime.

With hundreds of targeted partnerships and one of the strongest developer communities in the cryptocurrency space, KANAIDAO will become the engine of the decentralized finance (DeFi) movement. KANAI will unlock the power of the blockchain to deliver on the promise of economic empowerment today.

APPENDIX

USTEBO Use-Case Benefits and Examples

The KANAI Protocol can be used by anyone, anywhere, without any restrictions or personal-information requirements. Below are a few examples of how USTEBO will be used around the world:

USTEBO Offers Financial Independence to All

According to the World Bank’s Global Findex Database 2017, about 1.7 billion adults around the world are unbanked. In the US alone, according to a 2017 survey by the FDIC, around 32 million American households are either unbanked or underbanked, meaning that they either have no bank account at all or they regularly use alternatives to traditional banking (e.g., payday or pawn shop loans) to manage their finances. USTEBO can empower every one of those people; all they need is access to the internet.

As the world’s unbiased stablecoin, USTEBO allows anyone to achieve financial independence, regardless of their location or circumstances. For example, in Latin America, Asia and Africa, USTEBO will provide an opportunity for individuals and families to hedge against the devaluation of their currencies.

Self-Sovereign Money Generation

KANAI Protocol allows users to generate USTEBO by locking their collateral in a KANAI Vault. Notably, users do not need to access any third-party intermediary to generate USTEBO. Vaults offer individuals and businesses opportunities to create liquidity on their assets simply, quickly, and at relatively low cost.

Savings Earned Automatically

USTEBO holders everywhere can better power their journeys to financial inclusion by taking advantage of the USTEBO Savings Rate, which, as detailed earlier, builds on the value of USTEBO by allowing users to earn on the USTEBO they hold and protect their savings from inflation.

For example, if Alice has 100,000 USTEBO locked in the USR contract, and the USR set by KANAI Governance is 6% per year, Alice will earn savings of 6,000 USTEBO over 12 months. Additionally, because exchanges and blockchain projects can integrate the USR into their own platforms, it presents new opportunities for cryptocurrency traders, entrepreneurs, and established businesses to increase their USTEBO savings and USTEBO operating capital. Due to this attractive mechanism, Market Makers, for example, may choose to hold their idle inventory in USTEBO and lock it in the USR.

Fast, Low-cost Remittances

Cross-border remittances, whether for the purchase of goods or services or to simply send money to family and friends, can mean high service and transfer fees, long delivery timelines, and frustrating exchange issues due to inflation. The USTEBO stablecoin is used around the world as a medium of exchange because of confidence in its value and efficiency.

Remittance users will benefit from USTEBO in the following ways:

Stability in Volatile Markets

As noted above, USTEBO is both a readily accessible store of value and a powerful medium of exchange. As such, it can help protect traders from volatility. For example, it provides traders with a simple way to maneuver between positions smoothly and remain active in the market without having to cash out and repeat an on-ramp/off-ramp cycle.

USTEBO as an Ecosystem Driver and DeFi Builder

As more and more users become aware of USTEBO’s value as a stablecoin, more developers are integrating it into the dapps they build on the Ethereum blockchain. As such, USTEBO will help to power a more robust ecosystem. In short, USTEBO allows dapp developers to offer a stable method of exchange to their users who would rather not buy and sell goods and services using speculative assets.

Additionally, because USTEBO can be used to pay for gas in the Ethereum ecosystem, by creating DeFi dapps that accept USTEBO instead of ETH, developers offer users a smoother onboarding experience and a better overall experience.

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