Principle and need

Otto's hedging module is the centerpiece of the protocol and its most significant innovation. Otto allows USDO to be minted with volatile collateral and is capable of neutralizing its volatility. This is a significant advantage, as USDO only requires a 100% collateral ratio to function correctly, compared to 150% for some overcollateralized stablecoins. Therefore, there is no liquidation risk for Stablecoin Issuers.

To neutralize the volatility of its collateral, Otto employs the purchase and sale of a new type of derivative. Consequently, Otto's holdings comprise of both spot tokens and this innovative derivative product. We will introduce this new derivative product later in this paper.