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Basics

  • Founded in: summer of 2020.
  • Mainnet release:
  • Based in:
  • From their blog (21-10-2021):

"To make it really simple, we're building out a crypto primitive for reputation, based purely on your on-chain activity. This reputation layer manifests itself through the DeFi Passport, a product that can create scores for different things based on your on-chain history and behaviour. The key insight is that when opening a loan with your DeFi Passport, you're using your reputation as collateral. That's something that's never been done and why we're so excited to ship this."

History

  • Changed its direction drastically from synthetic assets to reputation (21-10-2021).
  • Used to aim to gameify debt. "Players of the game are referred to as Arc Angels".
  • From their blog (12-1-2021):

"ARC is a synthetic asset protocol aimed at creating debt based stablecoins through using collateral users already have but don't have liquidity for."

"If you were to ask me "what's the one-liner for ARC", I'd respond "it's MakerDAO for everything". So what does that mean? Well, the idea is quite simple really. You have individual synthetic asset pools where you deposit a single collateral asset and you get back a single output asset.

Input ERC20 → Get back ERC20-USD

The thinking around this model is that you can actually create a universe of debt from every token that exists while fine-tuning the risk parameters around each one and not creating compounding risk in a global system. So for example, the first asset in the system is LINKUSD - a Chainlink collateralized synthetic US dollar. 

Ultimately, anyone will be able to bring a price-feed available on-chain with some valuable collateral and create a synthetic asset. If we look back in crypto history, decentralized exchanges like IDEX/EtherDelta were permission-less but still had gatekeepers listing tokens. ARC aims to do what Uniswap/Balancer have done to decentralized exchanges - let anyone create debt based on their own parameters. Of course, there are many attack vectors with such a proposition, but if you create permissionless technology you can always add trust elements on-top to keep users safe."

Audits & Exploits

  • Bug bounty program can be found [insert here].
  • The ARCx smart contracts are currently being audited by Quantstamp (28-8-2020).
  • Audits are online (8-9-2020). Most of the 12 risks got resolved, some left unresolved. Front running was acknowledged and left unresolved.
  • From their Discord (15-12-2020):

"We've got Quantstamp and some external code reviews done for the new contracts and no critical vulnerabilities were found!"

Bugs/Exploits

Governance

  • From it's FAQ (28-8-2020):

"The team will retain ownership of the contracts during ARCx’s infancy. This will eliminate the possibility of a governance attack early on, and will allow for quick updates if necessary."

  • From the end of 2020 update (21-12-2020):

"To begin with, we’ll be setting [the] parameters manually until we can understand what an automated system would look like. Our long term goal is for ARCx to be governance minimised however we recognise that we’ll need to be governance heavy/centralised until we can reach there."

  • From their blog (21-3-2021):

"The first stage of governance is to enable the ARCx token to control the Community Treasury via snapshot voting. Any expenditure from the Treasury, such as future team hires, grants and operational costs will be put to the community via snapshot voting and then executed by a 4-of-6 multisig which will consist of the core team and community members. This will mark the first phase of our transition into decentralized governance, with the end goal to hand off full protocol governance and implement on-chain voting control of the Treasury completely to token holders. Full details of the multi-stage plan will be published in the coming days."

DAO

"ARCx Governance will mature through the following stages:

  1. Stage 1 - Allow ARCx token holders to decide on treasury spending via Snapshot vote, which will be executed by Treasury Multisig. Protocol changes will still be approved by the Core team.
  2. Stage 2 - The ARCx Council will be elected and will be able to spend funds from the treasury and upgrade certain parameters of the protocol.
  3. Stage 3 - The ARCx Council will have complete control over the protocol and funds. There could even be multiple councils in charge of different aspects of ARCx.

We are aiming to reach stage 2 in the next 6-9 months, depending on the progress of the product and maturation of the protocol and community.

For Stage 1, we will start with a 4 of 6 multisig with the following members:

  1. Kerman Kohli (Core Team)
  2. Gabriel Tapuc (Core Team)
  3. Reuben Bramanathan (Advisor)
  4. Jonathan Caras (Investor)
  5. To Be Determined (Community Member)

In addition to the above, the Core Team would like to request funding from the ARCx DAO for the next 6 months of operational expenses:

  1. $500,000 for salaries for current and future team members and contractors (6 full time and 1 part time)
  2. $150,000 for security audits, reviews and other security related expenses
  3. $75,000 in contract deployments, contract testing and simulating on mainnet
  4. $15,000 in operating expenses (hosting, infrastructure etc)
  5. 50 ARCx tokens for liquidity needs, future team token grants, and other operating expenses"

Treasury

  • From their blog (21-3-2021):

"The ARCx token will govern the Community Treasury, which currently holds 19.1% of the ARCx circulating supply, plus the $6.5m contributed from the ARCx community."

Token

Launch

  • From their blog (21-3-2021):

"After a successful initial token allocation, ARCx is pleased to announce that the ARCx governance token has been released and is now live on 1inch. ARCx will also be setting up a pool for users to become a liquidity provider and stake to earn both ARCx and 1inch tokens."

Token allocation

  • An API has been proposed to change the tokenomics (31-8-2021):

"If AIP4 was to pass it involves a one off mint of approximately 60 million ARCX to get the total supply to 100 million tokens. From here a new schedule should be formed for the Angel investors, ARCx Team and $KERMAN holders (detailed below) with various unlock dates in the coming months and a stream started where relevant. The initial unlock dates have been pushed back to flatten the inflation curve. Passing this AIP would leave the ARCx Treasury with over 52 million ARCX tokens, leaving a huge opportunity for expansion."

  1. "ARC tokens can only be earned by using the protocol itself - aka yield farming. No pre-mine ensures that no one has an advantage before launch. Inflation will be used as a strategic tool to grow the network for whatever it needs.
  2. 1/3 of all tokens minted in real-time go to the ARC DAO over the course of 4 years. This provides an incentive for future team members, investors and myself. At the end of 4 years the community can decide whether to remove this percentage or change allocations within it.
  3. The remaining 2/3 will be owned by the community, ensuring that insiders are always a minority and the network won't be at risk of being insider dominated compared to other protocols. Control of the protocol will remain at the hands of the team and myself to begin with but certain decisions will be open to community governance. This is intentional since I'd like ARC to iterate fast and I can use my expertise in the short-term as the founder to get to a stable place. My long term goal is to be a silent, occasional voice in the community with Vitalik my inspiration here.
  4. To bootstrap the network, a small percentage of future issuance was sold from the ARC DAO allocation. This means that the backers only get tokens when the DAO gets tokens (when users farm tokens).
    • As of now, 5.41% of the future issuance (for 4 years) was sold in a community round for $406,000. There's a total of 29 backers from all parts of the ecosystem with the average check size being $13k and the maximum at $40k.
    • In addition, 1% of the future issuance (for 4 years) is allocated to $KERMAN holders. I'll be writing a post on my Medium about the details soon.
    • The remaining 26.92% will be held by the ARC DAO."

Utility

"Essentially you need curators of debt to package it in the most appropriate way. That's where ARC token holders come in. ARC holders can assign a risk rating to certain individual debt products and in turn receive the interest earned but will pay any defaults via dilution of the ARC token in a black swan event. If you think of it from another lens, ARC will be one of the first on-chain credit risk rating agencies with skin-in-the-game."

  • From their blog (21-3-2021):

"The ARCx token will govern the Community Treasury, which currently holds 19.1% of the ARCx circulating supply, plus the $6.5m contributed from the ARCx community."

Token Details

  • From it's FAQ (28-8-2020):

"The ARCx platform will have protocol token called $ARCX. The ERC-20 contract for this token will be deployed at a later time from the ARCx platform contracts, likely at some point in the next month. Details regarding ARC issuance and supply are still being considered. We will post updates to the ARC token page as decisions are made. You may also subscribe to receive updates regarding both the ARC token and the ARCx platform."

Token Split

  • From their blog (27-4-2021):

"Many community members take the view that the high unit price per token is negatively affecting discoverability for ARCx - which in turn may hinder adoption of V3. After an initial discussion in the ARCx Forum and overwhelmingly positive feedback, ARCx will proceed with a 1:10,000 token split. This will result in a total supply of 100,000,000 ARCx Governance Tokens. As an indication, if you hold 1 ARCx worth $10,000 pre-split, you would get 10,000 ARCx post split, each worth $1.00."

  • This could be seen as a move to benefit from unit bias.

Stablecoin

  • From their blog (4-12-2020):

"STABLEx is the native stable token of ARCx. It's designed to be pegged to 1 US Dollar. Starting today, you can mint STABLEx by locking up yUSD (yyDAI+yUSDC+yUSDT+yTUSD) as collateral. Soon, you'll be able to mint STABLEx by locking up a number of different types of collateral. You will soon be able stake your StableX to earn a real-time return."

  • From their blog (12-1-2021):

"It has the following characteristics:

  1. Partial Collateral: the system as a whole will be partially collateralised over time which will improve on the deficiencies of Elastic Supply Coins and provide confidence in maintaining the peg
  2. Governance Controlled Variables: from algorithm stable coin experiments we have seen that a fully algorithmic coin does not maintain a tight peg yet. As such the design currently allows for governance to control and update the various levers. This will allow for faster learnings on how to maintain the peg."

Tech

  • Gamepaper can be found here (28-8-2020).
  • Code can be viewed here.
  • From it's FAQ (28-8-2020):

"Currently the contract repos are not open to public access. However, they will be made public at the time of launch."

Implementations

How it works

  • Changed its direction in 2021 to reputation. However this is from it's 'game paper' (28-8-2020):

"Minting a new synthetic asset

  1. Arc Angels must deposit 200% of the synthetic asset value they’re minting. In the case of LINK, if Chad would like to mint $1,000 he will need $2,000 worth of LINK.
  2. Should the price of 1 LINK increase to $20 (from $10 above), Chad will be allowed to mint another $1,000 using his existing LINK collateral.
  3. Chad will pay nothing to ARC in order to mint his synthetic USD
  4. When Chad would like his LINK back he must repay the amount of Synthetic USD he has minted.

Providing liquidity for a new synthetic asset

  1. Arc Angels acquire the LINKUSD they used from minting or via the open market and also acquire the same amount of USDC in their wallets
  2. Arc Angels then go to Balancer in order to deposit the LINKUSD and USDC inside an Arc approved Balancer pool in order to provide liquidity and earn trading fees
  3. Balancer will ultimately give a Balancer Pool Token (BPT) which can then be used within the ARC ecosystem to earn ARC tokens. Details around this will be announced in due time.

Since minters pay a fixed interest rate to mint debt (similar to MakerDAO), you have a reason for a counterparty to hold debt and earn yield. This isn't to be confused with the stability fee which aims to make DAI stable, but rather a proxy for how much interest minters are willing to pay to go long. Debt such as LINKUSD are positioned as stable coins to begin with but will eventually be more free-floating like bonds that trade within a band of say $0.90 and $1.10. Eventually, once you have bonds for many different asset classes you can package them together to create a new debt instrument such as HIGH-GROWTH-DEFI which is a combination of:

  1. LINK-USD where minters are paying 4% APY
  2. LEND-USD where minters are paying 6% APY

The holder of 1 HIGH-GROWTH-DEFI bond would eventually be entitled to 5% APY (average of both debt's interest rates). The best bit about this is that anyone can package this debt into whatever instrument they'd like.

The composability of debt is here.

Another dimension when thinking about all this debt is that understanding the difference between good debt versus bad debt will be much harder. Factors to figure out if certain debt is healthy versus toxic is based on:

  1. Fundamentals of the project or collateral being used (LEND fundamentals vs YAM fundamentals)
  2. Reliability of oracles presenting price-feeds (Chain Link versus single person run feed)
  3. Collateralization ratio of debt based on the underlying liquidity of asset (ETH liquidity vs CRV liquidity)
  4. Liquidation penalty for minters of debt creation (20% penalties versus 1% penalties)

Essentially you need curators of debt to package it in the most appropriate way. That's where ARC token holders come in. ARC holders can assign a risk rating to certain individual debt products and in turn receive the interest earned but will pay any defaults via dilution of the ARC token in a black swan event. If you think of it from another lens, ARC will be one of the first on-chain credit risk rating agencies with skin-in-the-game.

The last dimension which is a derivative of the above use case is the creation of the ARC US Dollar through a basket of diversified debt sources. The idea here is that you can use a constant or hybrid AMM formula to package the minting of debt automatically into an ARC US Dollar. The holder of one ARC US Dollar can in-turn decompose the ARC US Dollar into its individual debt products and eliminate whatever they don't like. It's similar to DAI however there's an intermediate asset which you can always access. Unlike the debt from the previous step, an ARC US Dollar is meant to be pegged to a single dollar whereas the underlying debt is more of a free-floating bond within a certain range.

ARC holders would be in-charge of the composition of ARC US Dollars and take on any default risk in the case that it does happen. The exciting part here is that you can create a decentralized stable coin based on a much more diversified set of inputs rather than just ETH with sprinkles of other assets."

Fees

Upgrades

Staking

  • To earn ARC, a user should (10-9-2020) deposit LINK inside ARC, get LINKUSD back. Then put this LINKUSD together with USDC inside a Balancer Pool, get a BPT for this and stake that BPT inside a ARC Reward contract to earn ARC. The idea is that this long chain incentives minting (LINK in ARC to create LINKUSD) and incentives liquidity (LINKUSD and USDC inside a Balancer Pool).

Liquidity Mining

  • From their blog (12-1-2021):

"Previously, the only users who were able to farm ARCX tokens were users who were verified farmers through the Know Your Farmer campaign. The idea here was to filter for the most sophisticated DeFi users who had interacted with certain DeFi protocols up to a certain block #. This allowed us to create sybil resistance on-chain and enforce deposit caps for each user in order to iterate quickly while minimising any downside damage.

Today we're excited to announce that anyone can start farming ARCx tokens with the launch of Farm #5! Unlike other yield farming schemes, ARCx employs short term yield farming campaigns which are time limited and have certain conditions."

Scaling

Interoperability

Other Details

Oracle Method

Privacy Method

Compliance

Their Other Projects

  • From their blog (21-10-2021):

"Some examples of scores that we're really excited to launch and for others to build:

  1. Protocol Loyalty - scores users based on usage of the product, participation in governance, token ownership history etc. This score can then be used to create differentiated yields, reputation weighted governance and/or capital efficiency in the core product
  2. Networks - scores that rank a user's behaviour on a blockchain. You could have an Ethereum score that marks how much of an ETH OG the user is, a bot score that determines the likelihood this user is a bot or a cross-chain score that shows how cross-chain like the address is.
  3. NFTs - scores that determine a user's behaviour with NFTs. Do they hold or flip them instantly? This can be used to create much fairer NFT distributions with a higher quality base.
  4. Resumes - scores that show how experienced a user is in a particular dimension. We're going to be releasing a successor to the degen score that contains how much you are at the cutting edge of DeFi."

Score Builder

"A configurable on-chain system that allows rapid score development on top of ARCx infrastructure. The scores themselves are highly configurable, meaning any on-chain event or attribute can be used to define the parameters. The flexibility of Score Builder means that a score, which could represent anything we (or our partner protocols) want, can be created and deployed to Mainnet in a matter of hours."

Roadmap

"It’s hard for people to think 2 years ahead in crypto, but 10 years is what it truly takes for something to reach its final end state. ARC enables the original vision of Bitcoin as a P2P digital cash, by unlocking its store of value property through the creation of a stable debt medium of exchange, all powered by Ethereum.

ARC’s final network proposition is creating an entire universe of issuable debt.

I can see a world where trillions of dollars of collateral specific stablecoins/debt could be issued by the year 2030. Ultimately any crypto asset you own, you’ll never have to sell since you can just issue debt against it and pay for your bills. My end goal is that the core team becomes a relic of the network and the community is running ARC with a high degree of sophistication and momentum.

As we see increasingly more valuable collateral types come onto the Ethereum network, the addressable market of debt creation could be very, very large."

  • From the end of 2020 update (21-12-2020):

"Back when we launched in early September (feels like ages ago), the idea was to bootstrap 2-3 individual stable-coins, figure out how to re-aggregate them via an ARC US Dollar and then introduce fees. However, given that DeFi summer ended early we didn’t think spending a lot of tokens on rewards would be the right move especially when the core value proposition around why someone would want to mint LINKUSD and hold it was missing (apart from ARCx rewards). So we decided to go back to the drawing board and figure out what might be useful and set ARC apart from the market. Two key insights came out from that period:

  1. Focusing on too many stablecoins is going to be too hard in the short term, we need to narrow our focus to maximise our chances of success
  2. We need to ensure that we have better mechanics for keeping the peg

Hence we deprecated ETHx and decided to focus on STABLEx (which is the only stablecoin we’ll be focusing on for now). We can ultimately come back to multiple stablecoins and add them as a part of STABLEx but unless we can prove out the model with a single stablecoin we’ll be diluting our focus.

What are our high level objectives for the upcoming weeks?

  1. Launch Farm/Pool #5 to test STABLEx works as intended and the flow of becoming an LP on Shell is easy to stake.
  2. Opening the ARCx yield farming program to all DeFi users and test how the system works at scale. This will be when we expect an influx of users.
  3. Adding more collateral types and scaling ARCx to $5m-$10m in TVL. As the system scales and more people learn about ARC, we can probably set the savings rate to be higher (to incentivise more supply creation) and attract more users."
  • From their blog (2-6-2021):

"ARCx Sapphire (v3) will allow the protocol to issue its DeFi Passport that incentivizes reputation-building and curates on-chain identity int DeFi. The essential elements of this new release are that the:

  1. Protocol can assess on-chain activity and history to deliver the first ‘page’ of the DeFi passport as a ‘credit score’
  2. The credit score is number (0-1000) that assesses credit risk in DeFi
  3. Identities issued quantitatively ‘good’ credit scores will gain access to low-collateral loans and high-yield farms
  4. Initial release will begin with a limited number of first edition DeFi Passports
  5. Future issuance will be based on demand and will continue in limited batches
  6. Performance of the DeFi Passport and credit score will be assessed and iterated to provide even more sophisticated relationships between on-chain activity and identity
  7. DeFi Passport will be integrated with more DeFi protocols to provide new functionality and increased value
  8. Project roadmap has been financed by a new $1.3M in fundraising round led by Dragonfly Capital, Scalar Capital and Ledger Prime bringing the total amount raised till date to over $8m"

Usage

  1. "We had over 650 registered for the first tranche of Know-Your-Farmer and an additional 1505 for the second tranche! 2,000 initial users to play and experiment around with is thrilling to see.
  2. We got over $1.8m worth of LINK locked up in the first 24 hours and approximately $300,000 of debt created (LINKUSD)."

Projects that use or built on it

Competition

  • Changed its direction in 2021 to reputation. However, it first was aiming for synthetics. From the first Community Call notes (11-2020):

"Why is ARC better than other stablecoins?
The main objective of ARCx is to enable borrowing against a long tail of assets, the stablecoin is a second-order effect 

Why will people use ARC instead of AAVE or other lending protocols?
Access to long tail of assets, fixed interest rates"

  • From the end of 2020 update (21-12-2020):

"What sets us apart from existing products out there? Our current thinking around it is that in DeFi, there’s a whole category of assets which are “illiquid” but still have value and very good liquidity - wrapped tokens! As of now:

  • yUSD has $70m circulating and offers a 10% APY
  • cUSDC has $860m circulating and 213,000 holders
  • cDAI has $1.35b circulating and 13,000 holders
  • Curve LP tokens have hundreds of millions of dollars
  • Aave Interest Bearing tokens also have billions of dollars of value locked up
  • Governance Tokens such as xSUSHI which enable you to go back to the underlying asset albeit with a minor time delay

Since these users are relying on the interest rate coming to them, they don’t want to be paying more than they’re earning hence a synthetic asset protocol like ARCx can lock-in an interest rate for them (or even offer a 0 interest rate) which enables them to earn yield on top of yield. In a way, STABLEx can become a sort of “interoperable” DeFi asset where no matter what state your assets exist in, STABLEx can enable liquidity for it again!"

Coin Distribution

Pros and Cons

Pros

Cons

Team, Funding, Partners

Team

Funding

  • Kohli wrote about his funding decisions in the introduction (28-8-2020):

"After a few weeks of deliberating on the key factors to optimize I settled on the following:

  1. Raising the least amount of money needed for an audit and runway for myself + a small team for 6-12 months to be heads down shipping. This includes getting the right mix of backers across the ecosystem to help guide me through the ups and downs of executing a project.
  2. Ensuring that ARC can be owned by the community in the long-term and that the correct incentives are in place to let people get in at the ground floor.
  3. Contributors can capture more of the upside of ARC tokens so if it does work out then the project can self-fund itself and get the right team members to ensure this is a future DeFi primitive for years to come.

As of now, 5.41% of the future issuance (for 4 years) was sold in a community round for $406,000. There's a total of 29 backers from all parts of the ecosystem with the average check size being $13k and the maximum at $40k."

  • From their blog (2-6-2021):

"Project roadmap has been financed by a new $1.3M in fundraising round led by Dragonfly Capital, Scalar Capital and Ledger Prime bringing the total amount raised till date to over $8m"

Partners 

"We're working very closely with the Shell Protocol team to get the STABLEx/USDC pool out. We're getting close and hoping to get this live in the next 24-48 hours."

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