Thala: A powerful, ecosystem-wide dollar stablecoin for Move

Original Title: A Robust Dominant Stablecoin Built on Move

Original Authors: Henry Ang, Mustafa Yilham, Allen Zhao & Jermaine Wong, Bixin Ventures

Why Do We Need a Stablecoin on Move?

As stated in our year-end review, one of our core investment principles is to support decentralization and censorship resistance. A decentralized economy requires decentralized stablecoins. We are also confident in  Aptos and  Sui—blockchains built on  Move—and believe they will form the foundation of a robust and vibrant developer ecosystem that builds the next generation of Web3 applications capable of attracting billions of users. Therefore, we strongly align with Thala Labs’ vision of developing a more resilient decentralized stablecoin while supporting the growth of the entire Move ecosystem.

Following the collapse of Terra last year, we conducted an in-depth analysis of the stablecoin market and found that centralized, fiat-backed fully collateralized tokens like USDT and USDC, or crypto-backed overcollateralized tokens like DAI, suffer from low capital efficiency and lack of composability. Thus, we believe a decentralized stablecoin within the Move ecosystem can reduce liquidity risk, enhance ecosystem autonomy, and improve upon existing debt position models.

How Do Thala’s Move Dollar (MOD) and Other Products Work?

Move Dollar (MOD)

MOD is an overcollateralized stablecoin backed by a class of native and cross-chain assets, including liquid staking derivatives, liquidity pool tokens, deposit receipt tokens, and others. In the future, RWAs will be added to the collateral list.

The fundamental design of MOD will be:

1. Users mint (or effectively borrow) a stablecoin amount worth less than their collateral value, ensuring that the total collateral value in the system always exceeds the value of circulating stablecoins.

2. Users with open vaults will have the option to redeem their collateral for $1 per MOD (after redemption fees), establishing an effective price floor at $1.

3. MOD holders can deposit MOD into the Stability Pool to earn rewards, which helps stabilize the value of MOD.

4. When a user's vault falls below the safe collateral ratio required for MOD backing, a liquidation process is triggered.

The liquidation process works as follows:

1. First, MOD from the Stability Pool is used to purchase the collateral, which is then distributed to MOD providers in the Stability Pool.

2. If the MOD in the Stability Pool is insufficient to cover the collateral, the remaining collateral enters a Dutch auction.

3. Only a portion of the collateral is liquidated at a time—just enough to bring the vault back to a safe collateral level—rather than liquidating all collateral at once.

For collateral pricing, Thala employs a tiered oracle design, meaning that even if one oracle goes offline, other active oracles can still provide price feeds. The primary oracle’s price is always prioritized unless its data is stale or abnormal price movements are detected. Currently, Thala has two primary oracle options: Pyth and  Switchboard, a project we’ve invested in.

Thala Swap

Thala Swap primarily serves to stabilize the value of MOD and improve access to it. Upon reviewing why certain stablecoin projects failed to gain traction, a key factor was clear: usability. If a stablecoin lacks use cases and composability, users have no incentive to hold it. Thala Swap enables integration with other crypto assets and tokens in the Move ecosystem, helping drive demand for MOD.

Currently, Thala Swap features three types of pools:

1. Weighted Pools exchange tokens by enforcing a constant weighted product invariant, where the weighted product of token balances is kept fixed, enabling the pool to determine token prices.

2. Stable Pools allow assets whose values converge around "1" to be traded with minimal price impact and low fees.

3. ThalaLaunch introduces a special type of pool on ThalaSwap called Liquidity Bootstrapping Pools (LBP). LBPs are a subset of weighted pools where the creator can freely set parameters such as weight ranges and the duration over which weights shift. Once permissioned, the pool is created and automatically rebalanced by the LBP manager contract. Thala plans to issue its own governance token and, as numerous projects launch on Aptos, position ThalaLaunch as the most robust cross-chain compatible platform from day one, ensuring value accrues back to Thala.

Currently, Thala expects MOD liquidity yields to range between 5–10%, while LBPs (typically featuring new, smaller-scale tokens) could offer yields from 50% up to 100%.

DAO

Thala has a native token, $THL, which serves as its governance token. Holders can propose initiatives, vote on issues, and suggest potential changes to protocol parameters, playing a key role in shaping the protocol’s direction.

Although the protocol will initially be governed by the core team, Thala plans to transition to a DAO model once the necessary governance framework is established. $THL will adopt a veModel, aligning protocol governance with long-term value incentives. To further enhance $THL liquidity and utility, veTHL is actually an LP token composed of 80% $THL and 20% $MOD. LP token holders must lock their tokens in the liquidity pool for up to a year to receive enhanced benefits, such as:

1. Creating and voting on key liquidity pool parameters.

2. Enjoying fee discounts when using platform services.

3. Access to exclusive Discord channels.

What Makes Thala Unique?

Massive Market Opportunity in the Move Ecosystem

Beyond Aptos, several new blockchains are now being built on Move, including Mysten Labs’ Sui and Solana’s Move VM. The ease of deployment, developer-friendly environment, and high performance make Move-based blockchains incredibly scalable.

Thala recognizes the absence of a native Move-based stablecoin as a critical gap in the current market and aims to capitalize on this by building a dominant, robust stablecoin within the ecosystem—similar to how DAI and others dominate the EVM ecosystem.

Diversified Collateral

The main advantage of MOD lies in its diversified collateral. Thala plans to accept RWAs as collateral for MOD and is actively working to integrate credit instruments, U.S. Treasury bills, real estate debt, and blue-chip equities as valid collateral.

Compared to digital assets, real-world assets are less volatile and more tangible, offering greater residual value. This is crucial because we believe DeFi must bridge the gap with the broader global economy, including real-world assets.

Focus on Security and Risk Management

To ensure the security and stability of the entire system and the stablecoin peg, Thala is conducting comprehensive and transparent evaluations of proposed collateral types, covering smart contract, counterparty, market volatility, and liquidity risks. You can read more about their framework here.

Most notably, they have implemented an Emergency Redemption Mechanism (ERM), which prioritizes holder safety by allowing MOD holders to directly redeem MOD for collateral after an emergency period.

ERM acts as a last-resort mechanism to enforce the target price for MOD and vault holders, protecting Thala from infrastructure attacks and periods of extreme, prolonged market instability or irrationality. It triggers a systemic redemption mechanism that settles all ongoing protocol operations.

Integrated AMM

As mentioned above, Thala Swap’s relationship with $MOD allows its AMM to continuously provide liquidity for $MOD. With sufficient liquidity, users can use major liquidity pairs like $MOD-USDC as collateral to mint additional $MOD, enabling leveraged positions and higher returns.

This approach resembles MakerDAO’s G-UNI DAI/USDC pool and demonstrates clear leverage opportunities for users in the market. Even if CDPs fail to attract users, they can still earn yield by staking in primary AMM pools.

Thala’s Future Roadmap

At the time of writing, MOD and ThalaSwap are preparing to launch mainnet applications in Q1 2023. Following this, Thala will focus on expanding collateral diversity and cross-chain deployment, including adding RWAs to the MOD collateral list and deploying on other Move-based chains such as Sui, Solana Move VM, and Sei.

Thala plans to expand its offerings, potentially launching additional stablecoins such as euro and Canadian dollar variants. Thala will also introduce its native token THL and the Thala DAO, achieving greater decentralization through community governance.

We look forward to continuing close collaboration with Thala to build fully decentralized, collateral-diverse stablecoins within the Move ecosystem.