Helio Protocol: Building a Next-Generation Stablecoin

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Happy Sunday. This extra newsletter issue is a beta project of ours whereby we highlight conversations with founders or operators. There’s no schedule for now, but the idea is to ask thoughtful questions for projects that want to achieve more media exposure.

Today’s conversation is a sponsored segment. I’ve always been fascinated with the stablecoin space, and it’s definitely a tough space to traverse. Every stablecoin project is trying to achieve scale and safety via various means, whether it be centralized reserves, derivatives-pegged, or others.

Helio has a fairly simple model. One that is more crypto-native than others, but remains to be seen if it can achieve the same level of network flywheel as with other more centralized stablecoins.

To understand what they’ll do next after getting a $10M venture investment from Binance Labs, check out my conversation with Adelia Su Xin Yee, Marketing Lead for Helio Protocol.

Disclosures

1. Today’s issue is sponsored by Helio Protocol.

2. None of this is investment advice.

3. Founders of Launchy hold no exposure in Helio Protocol.

We’re building a list of transparency disclosures for projects that want to be highlighted, including a minimum number of audits, investments, and other verticals. If you would like to participate in future issues, reply to this email.

Tell me about the background of Helio Protocol

Helio Protocol combines stablecoin borrowing and liquid staking within a single protocol.

Initially, we began as an overcollateralized decentralized stablecoin borrowing platform, and our native stablecoin is called "HAY." We've coined it as a "destablecoin," signifying a new asset class compared to traditional stablecoins like USDC or USDT.

The key difference is decentralization. While USDC and USDT are trusted, they are centralized. This motivated us to introduce this new terminology to represent a new era in stablecoin products. In essence, HAY aims to address the stablecoin dilemma, which revolves around decentralization, safety, and capital efficiency.

Can you explain what a "destablecoin" is and how HAY differs from traditional stablecoins like USDC or DAI?

Sure, a "destablecoin" is a type of stablecoin that is designed to be decentralized and eliminate the risks associated with collateralization and centralized control over stablecoin issuance. HAY, Helio's destablecoin, differs from traditional stablecoins like USDC or DAI as it is designed to be more decentralized and secure. It uses an over-collateralization model to ensure maximum security.

For example, DAI is secure but has room for improvement in its capital efficiency. HAY solves this by using liquid staking as collateral, which increases capital efficiency by taking rewards generated from liquid staking of the collateral and re-distributing them as additional rewards to users.

Moreover, HAY is fully decentralized, backed by crypto assets such as BNB and Ethereum, which enhances its decentralization aspect. Our open-source nature emphasizes decentralization further, aligning with the stablecoin dilemma's goals. Regarding sustainability, HAY is fully collateralized, ensuring stability even under market fluctuations.

Does this mean that you don’t plan to accept “centralized” collateral such as USDC and USDT?

We currently do not have such plans. We plan to focus on incorporating more decentralized assets such as other cryptocurrencies and liquid staking tokens.

Can you elaborate on the over-collateralization model that Helio Protocol uses for HAY and how it ensures maximum security?

Helio Protocol uses an over-collateralization model for HAY, which means that users must provide more collateral than the value of the HAY they are borrowing or obtaining. This ensures maximum security because if the value of the collateral drops, there is still enough collateral to cover the value of the HAY.

We also liquid-stake the collateral to optimize the capital efficiency as over-collateralized lending is often criticized for poor capital efficiency.

What other ways have Helio Protocol implemented to maximize security?

Helio Protocol has been audited by leading audit firms such as PeckShield, Certik, and Veridise, to name a few. We publish our reports on our website, and users are free to review them.

We also have a bug bounty program with generous rewards and last but not least, Helio Protocol has in place an emergency shutdown mechanism that acts as the last line of defense against when malicious attacks or exploits happen.

It’s interesting that you combine an over-collateralization model with liquid staking.

I saw that Helio merged with Synclub in July 2023. Does this mean that the Helio team handles all the liquid staking mechanisms in-house?

Yes, Synclub is our self-managed validator node that can stake assets across various blockchains such as BNB Chain and Cosmos. Synclub also does liquid staking but only on the BNB Chain for now.

Why did Helio Protocol choose the BNB Chain for its foundation?

We chose to build on the BNB Chain primarily because it serves as a gateway for retail users. Many people conduct their initial transactions on the BNB Chain through platforms like Binance. Our goal is to create a simple and easily understandable product, as we believe stablecoins are for the mass market, not just a niche audience. Additionally, our founders have extensive experience in the BNB Chain ecosystem, making it the ideal choice in terms of product-market fit and team expertise.

I assume that since you’re building on BNB, there might be some Binance connection.

In August 2023, we saw that Binance Labs invested $10M into Helio Protocol, congratulations on the round. What is the main purpose of this fresh capital?

Binance Labs invested $10 million into Helio Protocol to help the platform expand to other chains, such as Ethereum, Arbitrum, and Zksync. Our move to enter the liquid staking sector is a recent one for Helio.

The funding round is expected to help Helio Protocol provide additional use cases for liquid staking tokens, incentivizing staking participation towards higher capital efficiency, and to help Helio Protocol diversify the collateral it uses to back HAY.

Can you elaborate on your plans to expand to other chains? What strategies would you implement to drive usage?

Yes, we do have plans to expand.

We recently launched the Ethereum collateral on the BNB Chain version of the protocol, and in a few months, we're planning to move to Ethereum, our first step towards becoming a multi-chain platform. While expanding into Ethereum is undoubtedly a challenge given the competition, we have unique advantages.

We're considering launching incentives, especially for users with larger holdings, and working on a referral mechanism. Additionally, we haven't introduced our governance token yet, which could provide benefits to users supporting our growth journey. This token-less aspect creates excitement and curiosity around Helio Protocol, something that more mature projects may not offer. We also have a strong retail presence on the BNB Chain, which differentiates our approach to gaining users and provides a competitive edge.

How can users earn HELIO tokens, and what utility do they serve within the Helio ecosystem?

The HELIO token has not been launched.

HELIO is planned to become the governance token of Both Helio Protocol, which manages the stablecoin side, and Synclub.io, which manages the liquid staking side. Once launched, it will be used to govern Helio and Synclub’s Revenue Pool distribution and to incentivize users. HELIO will be a BEP-20 and ERC-20 compatible token.

What’s the percentage of collateral held in BNB out of the TVL?

We're working on a UI graphic to visualize the percentage of different assets in Helio Protocol, but we don't have the specific percentage of BNB collateral at the moment, although it’s the vast majority.

Do you plan to engage in offchain yield such as passing T-Bill yield to holders of HAY?

We don’t have any specific plans for now, but we’re exploring how to best incorporate RWAs as collateral without compromising on our decentralized ethos.

How do you perceive increasing regulation in the cryptocurrency industry, especially around stablecoins and Binance?

While we received a $10 million investment from Binance Labs, we don't have a presence in the United States, and we don't use centralized assets like USDC. Our approach is focused on transparent marketing. We acknowledge that stablecoins can fluctuate in price, and we want users to be aware of the risks associated with using our project. We maintain an ethical stance on marketing and do not promise a risk-free experience.

Your founders are anonymous. Are you able to disclose if the founders have been doxxed by your investors?

Our founders have certainly met with our investors, but they choose to remain anonymous to the public for the time being.

What can we look forward to next?

We have a lot of initiatives on our V2 roadmap. This includes several key changes.

One of the most significant changes is the introduction of an Algorithmic Market Operator (AMO) module, which is a set of smart contracts that employ expansionary and contractionary monetary policies to maintain HAY's peg with regard to different market conditions. The AMO can perform open market operations algorithmically, controlling the supply of HAY in a manner similar to the central bank. The AMO module can respond to HAY price fluctuations instantly to maintain price stability at $1 while earning profits for the project. The key to understanding the AMO module is the fact that it does not require collateral to mint HAY to rebalance HAY liquidity pools, boosting capital efficiency while securing peg stability.

Additionally, Helio Protocol is also working on the following initiatives:

Lending module: By having our own lending module, it will enable users to loan out the HAY minted by the AMO, and at the same time, has separate liquidation risks across different collateral asset pools. Furthermore, by partnering with DEXs and other lending platforms, the lending module will expand the possibilities for leveraged borrowing.

For example, after borrowing HAY, users can convert their HAY into different HAY-LP tokens. They can then use these HAY-LP tokens as collateral to borrow even more HAY, effectively leveraging their debt. This introduces another dimension of DeFi composability to HAY’s lending scene, enhancing HAY’s utility and capital efficiency.

Liquidation module: With lending, comes risks. We will be adopting the Dutch Auction Model for our liquidation process, which has been proven to be efficient and robust.

Integrations of RWAs: Helio Protocol is actively exploring the integration of RWAs to better optimize our reserves and provide lower-risk attractive yields for our users.

Multichain expansion: Helio Protocol aims to expand to Ethereum first, followed by prevalent Layer2 networks such as Arbitrum and Zksync.

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Disclaimer: All the information presented in this publication and its affiliates is strictly for educational purposes only. It should not be construed or taken as financial, legal, investment, or any other form of advice.