What is XAI?
Cross-silo stablecoin
Pronounced /zī/, XAI is an over-collateralized stablecoin with a soft peg to the US Dollar. Users can collateralize and borrow XAI in several isolated markets as we mention later in this post.
The name XAI pays tribute to Wei DAI, a computer engineer to whom we all owe a debt of gratitude for his immeasurable contributions to cryptography and cryptocurrencies.
XAI can only be borrowed in the Silo Protocol. It cannot be used as collateral to borrow other assets.
The SiloDAO is the only entity that controls XAI. Via executive proposals, the SiloDAO can choose to mint unlimited XAI and deposit it into any number of silos. Similarly, the DAO can burn XAI that is extended to any silos via governance proposals. When the DAO mints XAI into a silo, it effectively determines XAI’s backing. Similarly, when the DAO burns XAI in a silo, it changes XAI’s backing.
Let’s look at an example.
Suppose the SiloDAO mints XAI into the bridge silo (XAI-ETH silo). By doing so, the DAO chooses to back XAI by ETH only. If the SiloDAO later decides to mint XAI into the USDC silo, for example, the DAO extends the backing of XAI to include USDC in addition to ETH. Conversely, if the DAO burns the XAI minted into the USDC silo, the action changes XAI’s backing from ETH and USDC to purely ETH.
In brief, the DAO sets the backing of XAI by controlling two functions:
- Credit Extension: The function determines token assets that can be collateral to borrow XAI into circulation (existence);
- Credit Retraction: The function that removes XAI credit lines from silos by burning XAI out of circulation;
Performing both functions require that the DAO decide on the amount of XAI that will be minted or burned. Having the ability to perform those functions allows the SiloDAO to respond to market conditions swiftly and effectively.
XAI is an over-collateralized stablecoin that is softly pegged to USD. This means we expect XAI value to hover around 1 dollar most of the time. Users must overcollateralize a token asset in order to borrow XAI. The overcollateralization serves as a stabilization mechanism to control the impact of price fluctuations of the collateral token. When collateralized positions approach under-collateralization, a liquidation event takes place that protects the protocol from accruing bad debt.
The Silo protocol treats XAI to equal 1 USDC to allow for arbitrage opportunities when the price of XAI deviates from the peg. Let’s look at two scenarios:
- Users can always borrow and repay 1XAI at 1USDC. When the market price of XAI is below 1USDC, borrowers can arbitrage the price by purchasing XAI at a discount and repaying their loans.
- When the XAI market price trades above 1USDC, users can borrow new XAI into existence and sell it on the market. Once the price of XAI has decreased, they can repay standing loans.
The SiloDAO controls the borrow interest rate of XAI across all silos, effectively controlling the circulating supply for XAI by increasing or decreasing borrow interest rates.
Credit lines is the process of allowing users to borrow XAI into existence in isolated markets using the base assets of those markets.
As of today, XAI is available to borrow in 21 markets, each market capped at a max amount that can be borrowed. The utilization of each XAI credit line determines the effective backing of XAI.
For example, 50.54% of XAI in circulation is currently backed by USDC, as you can see in the table below.
Silo | XAI Credit Line | Utilization | Borrowed XAI | Effective Backing |
|---|---|---|---|---|
USDC | 5,000,000 | 34% | 1,300,000 | 41.67% |
wstETH | 1,500,000 | 38% | 400,000 | 12.82% |
CRV | 0 | 60% | 0 | 0.00% |
gOHM | 500,000 | 77% | 385,000 | 12.34% |
cbETH | 1,000,000 | 4% | 38,000 | 1.22% |
FXS | 150,000 | 76% | 114,000 | 3.65% |
LUSD | 1,500,000 | 7% | 100,000 | 3.21% |
rETH | 1,500,000 | 6% | 100,000 | 3.21% |
CVX | 150,000 | 39% | 58,500 | 1.88% |
LINK | 500,000 | 10% | 50,000 | 1.60% |
YFI | 500,000 | 26% | 220,000 | 7.05% |
LQTY | 300,000 | 6% | 75,000 | 2.40% |
OHM | 600,000 | 56% | 270,000 | 8.65% |
USDT | 500,000 | 0% | 5,000 | 0.16% |
BAL | 150,000 | 2% | 3,000 | 0.10% |
WBTC | 150,000 | 1% | 1,500 | 0.05% |
XAI-ETH | 1,000,000 | 0% | 0 | 0.00% |
FRAX | 300,000 | 0% | 0 | 0.00% |
DAI | 500,000 | 0% | 0 | 0.00% |
ETH/stETH-ng Curve LP | 350,000 | 0% | 0 | 0.00% |
ETH/stETH Curve LP | 350,000 | 0% | 0 | 0.00% |
LUSD/3CRV Curve LP | 350,000 | 0% | 0 | 0.00% |
FRAX/USDC Curve LP | 300,000 | 0% | 0 | 0.00% |
Total | 17,150,000 | | 3,120,000 | 100.00% |
Silo | XAI Credit Line | Utilization | Borrowed XAI | Effective Backing |
|---|---|---|---|---|
USDC | 5,000,000 | 34% | 1,700,000 | 37.73% |
wstETH | 1,500,000 | 38% | 570,000 | 12.65% |
CRV | 1,500,000 | 60% | 900,000 | 19.97% |
gOHM | 500,000 | 77% | 385,000 | 8.54% |
cbETH | 1,000,000 | 4% | 40,000 | 0.89% |
FXS | 150,000 | 76% | 114,000 | 2.53% |
LUSD | 1,500,000 | 7% | 105,000 | 2.33% |
rETH | 1,500,000 | 6% | 90,000 | 2.00% |
CVX | 150,000 | 39% | 58,500 | 1.30% |
LINK | 500,000 | 10% | 50,000 | 1.11% |
YFI | 500,000 | 26% | 130,000 | 2.89% |
LQTY | 300,000 | 6% | 18,000 | 0.40% |
OHM | 600,000 | 56% | 336,000 | 7.46% |
USDT | 500,000 | 0% | 5,000 | 0.11% |
BAL | 150,000 | 2% | 3,000 | 0.07% |
WBTC | 150,000 | 1% | 1,500 | 0.03% |
XAI-ETH | 1,000,000 | 0% | 0 | 0.00% |
FRAX | 300,000 | 0% | 0 | 0.00% |
DAI | 500,000 | 0% | 0 | 0.00% |
ETH/stETH-ng Curve LP | 350,000 | 0% | 0 | 0.00% |
ETH/stETH Curve LP | 350,000 | 0% | 0 | 0.00% |
LUSD/3CRV Curve LP | 350,000 | 0% | 0 | 0.00% |
FRAX/USDC Curve LP | 300,000 | 0% | 0 | 0.00% |
Total | 18,650,000 | | 4,506,000 | 100.00% |
The beneficiary of any interest earned on the borrowed XAI is the SiloDAO treasury. This provides a new revenue stream that grows in proportion to the total amount of borrowed XAI in the Silo protocol.
XAI is owned and managed by SiloDAO. The DAO mints into the XAI Module smart contract that in turns deposits XAI credit lines in voted markets.