Overview

Nowadays, the stablecoin market represents nearly 14% of the crypto market capitalization, or almost 140 billion USD. The stablecoin market, with its need to establish a dependency on fiat currencies while the values of crypto would push us away from them, may seem counterintuitive. However, it addresses a real need: that of protecting users from the volatility of markets.

Nevertheless, current market players may have suboptimal performance and offer models that lack consistency. These models are:

• Over-collateralized stablecoins such as MakerDAO's DAI [1]. To mint it, it is necessary to deposit more tokens (ETH [2], USDC [3]) than minted stablecoins. The truth is that today the protocol is more than 60% collateralized by USDC, which means that the only added value of MakerDAO's DAI is the leverage it allows to be taken.

• Under-collateralized algorithmic stablecoins like UST [4]. However, when the market crashes, as it did on May 6, 2022, this type of unresilient stablecoin collapses and takes tens of billions of dollars with it.

• Stablecoins that rely directly on the banking system, as in Tether's case [5], which holds fiat currencies to back its token, make interactions with the banking system essential for exchanges wishing to offer USDT to their users. This begs a larger question: is it conceivable that the third largest capitalization in the cryptocurrency industry is a centralized entity that doesn't share any of the ecosystem's values?

In the current market environment, these models cannot persist. The need for innovation is now critical for users to regain strong and lasting trust in stablecoins, which are such a fundamental asset in the crypto ecosystem.

The goal of Otto is to introduce a protocol that offers a new approach that is significantly different from existing solutions, whether they are centralized or decentralized. Otto allows oracle-valued exchanges between its stablecoin and collateral. The protocol hedges the reserved collateral to remain insured against its volatility as well as to generate a yield.

Otto’s main purpose is to get people to regain trust in algorithmic stablecoins. It is also the promise of innovation in the great world of DeFi, where users are the main actors.

In this white paper, Otto’s main aspects will be introduced. The objective is to present its core innovations and key takeaways.