Philosophy

UNIT is designed to be a BTC-backed Collateralised Debt Position (CDP), programmed to be soft-pegged to the USD at 1.01-1.04 UNIT/USD before transaction costs to finance responsible leveraging across BTC-Fi.

At its core, UNIT offers conservative on-chain leverage to borrowers with a targeted collateralisation ratio of 125-150% at all times. Initially, these UNIT-tokenised "loans" will be made with 0% interest, a 1% Redemption Fee, and a 16% Liquidation Fee. DUCAT token holders will control these parameters, and create new ones, via the DUCAT governance process.

The Ducat Protocol expects to open itself to other BTC-native collateral tokens with at least one full cycle of price history. However, in the near term, BTC's liquidity and volatility profile (as a crypto-native store of value) is unmatched relative to other non-fiat crypto assets.

We chose a 125-150% collateralisation ratio for UNIT to balance BTC's historical 10-minute volatility (roughly the time of a Bitcoin block) with capital efficiency. Exogenous collateralisation is the only market-credible stablecoin risk structure. Every stablecoin and stablecoin-like derivatives whose risk models have held up under high stress is either exogenously overcollateralised (their collateral comes from a token with a much larger market cap that the stablecoin protocol has no/minimal influence over) or, in a few CDP cases, very heavily endogenously overcollateralised, with very tight controls on debt origination.