APEX: AI-Algorithmic-Stablecoin-to-Foreign-Currency Exchange Protocol(Part 1)

APEX (AI-Powered Exchange) is a decentralized protocol based on Matrix’s AI technology, supporting the minting and cross-chain exchange of multiple algorithmic stablecoins. By integrating AI with algorithmic stablecoin, APEX will create scalable decentralized stablecoins suited for the specific needs of different countries and regions, and support the free exchange among all types of stablecoins. Here are five core features of APEX:

Smart Stabilization Algorithm: Users need to stake a certain number of assets to mint algorithmic stablecoins. Smart stability adjustment is dependent on both stakes and stabilization algorithms. When the ratio between algorithmic stablecoins and the currency it is pegged to is bigger than 1 on APEX, the weight of stakes will decrease, and the weight of algorithms increase. When this ratio is smaller than 1, the weight of staking will increase, and that of algorithms decrease;

DAO: autonomous community, featuring decentralized management;

Cross-chain Transaction: Since APEX supports the exchange among algorithmic stablecoins on different blockchains pegged to different fiat currencies, the platform’s cross-chain functions are fully capable of facilitating the transactions of different types of assets;

On-chain Oracle Machine: APEX has direct access to the real-time data of DEXs and reads the real-time exchange rates of currencies through Chainlink;

AI-powered Currency Exchange: AI algorithms will help find the best exchange rates for different asset types on APEX. Users may also choose to ignore these AI recommendations and use any currency exchange service they want;

There are two types of tokens on APEX: 1. the algorithmic stablecoin ASC, and 2. the governance token AX, which grants voting power in matters related to governing APEX.

APEX’s System of Algorithmic Stablecoins

APEX is essentially a service that provides each country, region or institution with an algorithmic stablecoin pegged to the fiat currency that the group is most accustomed to using. This is to say that, APEX will host quite a number of algorithmic stablecoins, which sets it apart from other stablecoin projects.

When APEX plans to enter a new market, a voting round will start in its community. If there are enough votes, an algorithmic stablecoin will be created. (This doesn’t describe the first algorithmic stablecoin). Each stablecoin will be named after the fiat currency to which it is pegged plus the letter A as a prefix, e.g. AUSD, ASGD, etc.

If a new stablecoin is passed, APEX will release the contract for minting it, and users can stake the designated type of asset to start minting. In the original state, the percentage of stakes on APEX will be 100%. After algorithmic stablecoins are created, APEX will enter a mixed stage, where the percentage of stakes is calculated and updated hourly through functions contained in the stablecoins’ contracts. Each adjustment will be within 0.25%. Take AUSD as an example. When its price is higher than $1, the contract functions will reduce the staking rate by 0.25% every hour. When the price of AUSD is lower than $1, the same rate will be raised by 0.25% hourly.

APEX’s Smart Price Stabilization Mechanism

By supporting the free minting and redemption of algorithmic stablecoins, APEX has created a system where arbitrageurs can help balance the supply and demand of algorithmic stablecoins in open-market transactions.

Again take AUSD as an example. If the market price of AUSD is higher than $1, this creates an opportunity for arbitrage. To do so, people can mint an AUSD by depositing $1 in the contract, and then sell the AUSD for higher than $1 in the market. At any time, to mint a new AUSD, one US dollar’s worth made up of stakes and AX must be deposited into the system. When AUSD is in a state of 100% stakes, then the value deposited into the system for minting AUSD is 100% stakes. As the contract enters a mixed stage, AX will start to make up part of the value that goes into minting stablecoins and afterwards be burnt in circulation. For instance, at 98% stakes, it will take stakes worth $0.98 and burn AX worth $0.02 to mint an AUSD. While at 97% stakes, to mint an AUSD will consume $0.97 worth of stakes and burn $0.03 worth of AX.

When the market price of AUSD is lower than $1, this also presents an opportunity for arbitrage by simply buying AUSD in the market for less than $1 and exchanging it for one dollar. Users can redeem the one-dollar value in an AUSD at any time from the system. The difference is only in the percentage of stakes and AX that people get through redemption. When AUSD is made up of 100% stakes, people will get 100% stakes through redemption. In a mixed stage, part of the value people redeem will be AX (newly created for redeemers). For instance, at 98% stakes, every AUSD can be exchanged for a combination of stakes worth $0.98 and AX worth $0.02. While at 97% stakes, every AUSD can be exchanged for stakes worth $0.97 and AX worth $0.03.

No matter what price AUSD is at, there will always be chances to arbitrage. This will motivate arbitrageurs to mint or redeem stablecoins, thus helping AUSD to remain stably in a range close to $1.