Philosophy
UNIT is designed to be a BTC-backed Collateralised Debt Position (CDP), programmed to be soft-pegged to the USD at 1.01 to 1.04 UNIT per USD before transaction costs, to finance responsible lending and leverage.
At its core, UNIT offers conservative on-chain leverage to borrowers, with a targeted collateralisation ratio of 135 to 160 percent at all times.
During pre-launch, UNIT-tokenised loans carry zero percent interest and a seven percent Minting Service Charge, applied once at the minting event. Liquidations are subject to a maximum 15 percent Liquidation Tax. Below 125 percent collateralisation, a variable rebate reduces the effective protocol tax and increases the liquidator’s reward. The Ducat Foundation sets pre-launch parameters; once DUCAT governance is operational, subsequent changes will be made through DUCAT-holder proposals and voting.
We chose a 135 to 160 percent 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 derivative whose risk model has held up under stress is either exogenously overcollateralised (their collateral comes from a token with a much larger market cap that the stablecoin protocol has no or minimal influence over) or, in a few CDP cases, very heavily endogenously overcollateralised, with tight controls on debt origination.
Price Stability
Our stability mechanism relies on Liquidation Auctions to recapitalise distressed vaults.
This process will be executed in a decentralised manner, with liquidators incentivised by strong returns on invested capital.
Our priority is ensuring that all UNIT remains at least 135% collateralised by BTC at all times.
As long as UNIT is consistently collateralised well above 100%, even in periods of extreme market stress, market forces will maintain the peg.
Borrowers will be strongly motivated to repay their UNIT debts whenever UNIT trades at a discount to $1.
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