Aoki, Alameda Back Algorithmic Stablecoin on Arbitrum at $200M Valuation

A yield-paying stablecoin on Arbitrum is the latest dollar-pegged crypto asset to bet that crafty algorithms can stand in place of fully-backed reserves.

Sperax launched its algorithmic stablecoin, USDs, on the Ethereum scaling solution on Dec. 23. Anyone who posts token collateral can mint USDs and, according to Sperax’s team, receive interest payments from the revenue their collateral yields. Sperax plans to lessen the collateral demands over time as it shifts more power to its algorithms.

That vision was enough to capture crypto VC interest: Amber Group, Alameda Research and the DJ Steve Aoki recently invested $6 million in Sperax’s governance token SPA at a $200 million valuation, project leads told CoinDesk. The project plans to use the money to scale up its Solidity developer team.

Launching a dollar-pegged (not dollar-backed) stablecoin can be a tricky business in decentralized finance (DeFi). Projects have blown up spectacularly when the mechanisms propping up their value goes awry, like in Iron Finance’s June collapse. Even so, the promise of using code instead of collateral to build more efficient capital markets keeps teams like Sperax chipping away at solutions.

Read more: The Quest for a Truly Decentralized Stablecoin

Algorithms “allow you to scale much faster” than a fully-collateralized stablecoin would, Marco Di Maggio, an associate professor at Harvard Business School and paid advisor to Sperax, told CoinDesk in an interview.

He said Sperax will ease its protocol into algorithmic mode. At first, it will require users to post collateral in SPA and their choice of USDC, USDT and ETH that is roughly equal to the dollar value of their desired USDs.

“At the beginning, we have to prove that we are indeed, you know, stable, that we can make it happen, and so we’re gonna start on the conservative side. But then as the demand for the stablecoin increases, we’re going to shift towards a more and more algorithmic one,” Di Maggio said.

The upside for users is escaping, at least partially, the influence of stablecoins like Tether’s USDT and Circle’s USDC, which are both issued by centralized entities and subject to censorship demands by state actors. Sperax’s white paper called Tether “at odds with the core principles of DeFi.”

Still, Sperax users can post their collateral in UDST – meaning its fully on-chain solution, as business developer lead Alec Shaw put it, could be at least partially collateralized by crypto’s most controversial asset.

He said Sperax’s team “debated extensively” over whether to whitelist USDT before the stablecoin’s market dominance ultimately won out. Despite lingering questions over its backing, the crypto community has decided to trust the stablecoin with “the largest market cap and the deepest liquidity,” and so Sperax would too.

That community will ultimately have a strong say in the direction Sperax and USDs takes. Like many projects, its pledged to decentralize itself with steps that grant SPA token holders voting authority over issues such as acceptable collateral.

Sperax is “finishing up the design of the DAO,” Shaw said. In mid-2022, Sperax’s developers will burn their admin keys and transfer governance rights to their token holders. Meaning that Steve Aoki and other SPA holders will have a say.

So too will Jump Capital. According to an October blog post from Sperax, the quietly massive crypto venture giant invested an undisclosed sum in SPA tokens. The firm did not return CoinDesk’s request for comment about the latest funding round.