Background:

There is a suggestion to support USDD on Stargate - at no cost (incentives) to Stargate.

Arguments:

1. Supporting USDD comes with reputational risks for Stargate because USDD has a similar design aspects to Luna/Terra (USDD white paper here: https://usdd.io/USDD-en.pdf)

2. Instead of a “we don’t pick winners approach”, Stargate should only support only high quality assets

USDD - Seen this before

A necessary (but not sufficient) condition for stables to be safe is:

1. They are over collateralised and have a liquidation mechanism (DAI/LUSD), OR

2. They are fiat collateralised (USDC, BUSD).

What doesn’t work is:

1. Collateralised with uncorrelated collateral and no liquidation mechanism (Celo stables, USN, USDD), or worse still:

2. Undercollateralised (UST).

Celo has just woken up to this and moved to target 1:1 stable collateral in their reserve. USN and USDD don’t seem to understand this yet but I expect soon will.

Why Stargate should be picking winners!

In a mature market - like US stocks- it makes sense to buy a market weighted portfolio.

In an immature market (like crypto alts), valuations have not reached equilibrium and there is adverse selection in allowing all assets on the platform. You can’t just take a permissionless approach because you will end up with blow-up risks - some of which will materialise - and hurt your reputation (like FTX having supported UST - what were FTX they thinking… (short term trading fees over long term reputational damage?)).

I can respect the approach of wanting to allow all assets to on-board in a close to permissionless way. Maybe that is a good approach over time when asset inclusions are no longer controlled by STG owners, but for now I think we need to be selective and not take on USDD.