Drawbacks of USDO
Of course, while there are pros to this model, there are drawbacks as well.
It’s easy for the coin to grow in value when it starts off at lower collateral. But it would be very difficult to increase the value of the coin when both the collateral and circulating supply are 8, 9, or even 10 figures. As the amount of collateral required to increase the value per coin would be much, much larger.
Hence we never promise any expected growth rate for USDO; as such, no one should be investing in this coin expecting any growth.
The value is 100% dependent on the chosen collateral. For example, if we choose to keep all the collateral in BUSD, and if BUSD suddenly de-pegs, USDO's value would also drop.
To hedge against this risk, the USDO collateral will be diversified into multiple audited stablecoins, multiple currencies, and even collateralized gold as the collateral grows in size.
Once the collateral grows enough, it’s possible we may have to migrate to version 2.0 of the contract to allow the withdrawal of the collateral and deposit it off-chain held by an independent custodial trust to then allocate assets into AAA government bonds.
In line with collateral risk, while we are starting off with a US Dollar base, this works great when US Dollar is the global currency. Should another global power rise up and have a CBDC (Central Bank Digital Currency), we could ideally diversify and possibly reallocate part of our collateral into that.
Possible safe haven currencies are typical:
- CHF (Swiss Franc)
- SGD (Singapore Dollars)
Most major currencies typically face higher inflation rates or lesser economic stability to back their currency.
With a growing amount of collateral, it will definitely draw eyes on USDO, we should expect hackers to attempt to steal the collateral at all times.
To hedge against this risk, USDO's contract has been pen-tested multiple times from multiple vectors. To protect against internal hacking, no single party should be able to reallocate the collateral into another token, even multi-sig wallets, as we can see from the Axies hack.