Diversification is arguably the most important practice in modern investment theory. The concept of diversification is simple: spread the performance risk of any one individual stock across a basket of securities. In the aggregate, the negative impact of underperformers will be outweighed by the performance of the overall basket portfolio, and investors' investments will be more resilient and stable as a result.
We aim to introduce the benefits of diversification into USDE's price stability mechanics and improve its resiliency as a stable store of value for holders.
Diversifying Risk Within ERD's V2 Protocol
In V2 of the ERD protocol, we aim to develop an index-backed stablecoin that mirrors the market dynamics of the entire ERC-20 ecosystem, providing users with a wide range of collateral options. This approach will diversify risk of the entire protocol, and USDE by extension, across an index of tokens.
We will introduce collateral support for blue-chip DeFi tokens on the ERD protocol. This will expand the available channels for users to increase the efficiency while reducing the relative risk of their investment strategies.
We anticipate this to bring the following benefits:
Collateral Diversification: It minimizes the risk associated with dependency on a single collateral source. This is particularly relevant to maintaining overall protocol health.
Improved Capital Efficiency: A broader asset base can be leveraged to mint the USDE stablecoin, benefiting from the comparative stability of blue-chip DeFi tokens, which exhibit lower volatility compared to other altcoins. It also expands accessibility and relevancy of the ERD protocol to additional stakeholders within the crypto market.
Price Stability: This approach will help drive long-term resiliency for maintaining USDE price stability.