QiDAO Protocol
QiDao Protocol is a collateralized debt positions (CDPs) protocol that enables users to mint MAI stablecoins pegged to the U.S. Dollar without incurring any interest. The platform offers services such as 0% interest vaults, variable-rate lending markets, and interest-bearing collaterals. QiDao is the first Polygon-based stablecoin protocol. [1][2][3]
Overview
QiDao is a decentralized and community-governed overcollateralized stablecoin protocol designed to provide native stablecoin minting capabilities for multiple blockchain networks. Originating on Polygon PoS, QiDao expanded to zkEVM as its first native stablecoin. It deployed new MAI smart contracts, integrating the permit2 standard for improved user experience and security. The Universal Router was introduced to combine ERC20 and NFT swaps in a single transaction, aiming to reduce gas fees and enhance efficiency.
The protocol is self-sustaining, with loans being secured by maintaining a collateralization ratio greater than the amount of debt issued. Loans are disbursed and repaid in MAI, a stablecoin that is softly pegged to the US dollar. QiDao comprises several components, which include: [4][25][26][27]
- Overcollateralized vaults: MAI relies on collateral vaults to back its value. At all times, MAI stablecoins are fully backed by collateral.
- Vault: Where users deposit their token collateral and borrow MAI. Vaults are user-managed and controlled.
- Decentralized and user-managed: MAI is built on market incentives and penalties. No centralized authority or algorithm is controlling the protocol. Only users can control their funds.
- Two tokens: MAI is the stablecoin made by the QiDao Protocol and Qi is the protocol’s governance token.
Partnerships
QiDao x ZeroLend
On March 12, 2024, QiDAO partnered with ZeroLend to extend the use of Linea's native stablecoin. [11]
ZeroLend × QiDao ( @QiDaoProtocol). We now accept $MAI as collateral in our @LineaBuild lending market. - the ZeroLend team tweeted[11]
QiDao x Chainlink CCIP
In August 2023, QiDao announced an open-source cross-chain Safe module that is powered by Chainlink CCIP. This tool helps projects create robust, anti-fragile systems across multiple chains. QiDao initially integrated on Ethereum, Polygon, Optimism, Arbitrum, and Avalanche. Protocols on these chains are able to automate functions of their protocols and governance across any of these chains. [12]
QiDao x Frax
In February 2023, QiDao teamed up with Frax to boost liquidity for its stablecoin, MAI, on the decentralized exchange, Thena. The partnership was aimed at reducing liquidity costs and expanding available liquidity for both protocols. [13]
The collaboration between QiDao and Frax is mutually beneficial for both protocols. By working together, they attract more liquidity providers, which increases the liquidity depth for both FRAX and MAI stablecoins, thereby lowering slippage and improving market efficiency. This, in turn, attracts more traders to the Thena DEX, which boosts its trading volume and overall lowers the cost of liquidity. [13]
Governance
Community members can vote on QiDao Improvement Proposals, with the weight of each user's vote dependent on their Qi Powah. The voting process is as follows: [5]
- Soft proposal to the community on Discord
- Community Townhall held for Critical Votes
- QIP launched on SnapshotQIP launched on Snapshot
- QIP results are announced and implementation starts[22]
MAI Token
MAI is a decentralized stablecoin that is collateralized by locked collateral tokens, providing users with control over their funds. The borrowing process is non-custodial, meaning that users retain full control of their assets throughout the borrowing process. [6]
The collateral tokens can be either static tokens such as LINK and CRV, or alternative assets such as Beefy and Yearn strategies. The collateralization ensures that the value of MAI remains stable and pegged to the US Dollar. The protocol enables non-custodial and decentralized borrowing of MAI, providing users with complete control over their funds. Users can use interest-bearing collateral such as Beefy, Yearn, and Aave receipt tokens to earn yield while their collateral is deposited in MAI vaults. This feature allows users to accumulate interest on their assets while they are used as collateral for borrowing. [6][23][24]
Bad Debt Elimination
In February 2024, QiDao completed the settlement of its outstanding $668,000 in bad debt on Polygon — and cleared a path to stabilize its dollar-pegged cryptocurrency MAI. The sum was fallout from 2023's Multichain incident where $125 million was removed from the protocol and this affected a portion of the collateral backing the project’s MAI stablecoin. [16][17][19]
A month prior, QiDao’s community voted to burn assets from its treasury that holds over $7 million crypto to cover that bad debt burden. Bad debt happens when a loan position cannot be redeemed because the value of the collateral used to secure the loan loses value, leaving the borrower with insufficient funds to repay the loan. [18]
"QIP221: Eliminate All Bad Debt on Polygon PoS fully implemented.
Every $MAI on @0xPolygon PoS is now: Overcollateralized, Fully backed, Isolated from other chains, Natively minted, and Permissionless." - the team tweeted after the bad debt elimination [16][19]
Qi Token
Qi Token is the protocol’s government token. Qi tokens have a maximum supply of 200 Million. The token's distribution is divided between strategic partners, the keeper allocation, and the community. Strategic/Early partners receive less than 5% of the tokens, which are released linearly over 18 months. The Keeper Allocation constitutes approximately 10% of the total token supply, which will be vested over three years. The remaining 85% of tokens are reserved for Community Distribution. [7]
QiDao V2
Introduced in June 2022, QiDao V2 includes a liquidation engine that helps to mitigate the risk of default, as well as improved risk management tools that enable users to assess and manage their risk exposure. Another update is the implementation of a new liquidation engine, which enables dynamic liquidations in response to a vault's collateralization. [8]
The protocol also includes improvements to risk management processes, including a new process for approving and monitoring new vault types. Other features include tools for the DAO to deprecate vault types and a partnership with Manhattan Finance to open MAI minting to various providers. [8]
To address community demands, QiDao V2 introduced caps on the debt size of individual vaults to prevent excessively large vaults and a new contributor position to create and maintain liquidity monitoring reports for all collaterals and chains on QiDao. Finally, all new vault and Oracle code require approval from the DAO before launching, providing greater transparency and insight into new deployments. [8]
Peg Stability Module
Introduced on March 20, 2024, the Peg Stability Module acts as a vault with USD pegged assets as collateral, and MAI as a mintable asset. It provides users with a way to mint and redeem MAI stablecoins with other stablecoins. The module is designed to adjust the supply of the stablecoin in response to market demand, ensuring that it remains closely pegged to 1 USD. [9][10]
Minting Process
The minting process enables users to obtain stablecoins by depositing their collateral into the Peg Stability Module. Users initiate the process by depositing the pegged asset (e.g., USDbC) into the module, immediately becoming eligible to mint stablecoins at a 1:1 ratio to the deposited asset value. Upon deposit, the minted stablecoins are promptly distributed to the user's wallet, thus completing the minting process. [9]
Redemption Process
The redemption process allows users to exchange MAI stablecoins for collateral assets. Users initiate this process by sending MAI stablecoins back to the Peg Stability Module, joining the public withdrawals queue upon initiation. While in the queue, users await their turn for redemption, ensuring fairness and transparency in processing requests. When their turn comes up, users can redeem their MAI stablecoins at a 1:1 ratio minus a redemption fee for the collateral asset. Subsequently, the redeemed collateral asset is withdrawn from the Peg Stability Module and transferred to the user's connected wallet. [9]
Exploit
Qi Dao reported an exploit of the Superfluid vesting contract via Twitter on February 8, 2022. While confirming the exploit, Qi Dao assured users that its funds remained secure and unaffected. The exploit exploited a vulnerability in the Superfluid contract, with no impact on Qi Dao itself.
"Quick Update. We're still assessing the situation. -We can confirm that all funds in QiDao are safe. -No user funds have been affected. -We're aware there are other tokens affected. -We'll update the community when we learn more. -Qi bridging is temporarily paused." - QiDAO[15]
Qi Dao facilitates real-time asset transfers on-chain, exemplified by a constant flow of assets between wallets. Early reports indicated that the stolen funds, which included team-vested tokens, led to a 65% drop in the price of Qi tokens. Despite the exploit, Qi Dao's price began to recover shortly after.
The attackers absconded with over $20 million in tokens, including USDC, wETH, Stake DAO, and others. The exploit prompted Qi Dao to execute a protocol update to prevent further fund drainage and mitigate the vulnerability. The incident prompted swift response actions, including protocol upgrades, vulnerability patches, and engagement with forensic firms to track down the attacker's address.[14][20][21]
