Azos Protocol 101

ZAI Framework Mechanics

What is ZAI?

  • Low-Cost: The ZAI protocol is deployed on the Optimism network, offering significantly low gas fees for transactions.
  • Dollar-Denominated: Both the system coin and the collaterals are denominated in US Dollar.
  • Collateral-Backed: A diverse basket of collateral types backs the minting of the system coin.
  • Control-Pegged: A PID controller dynamically adjusts the funding rate to balance value transfer between minters (debtors) and holders (creditors).
  • Settleable: The system can undergo a Global Settlement, during which all debts are squared and ZAI holders can redeem tokens for a share of the collateral pool, regardless of whether they have outstanding debts.

Glossary

Units of Measurement

  • WEI: The base unit for raw ERC20 amounts.
  • WAD: A unit with 18 decimal places, used for representing balances.
  • RAY: A unit with 27 decimal places, utilized for rate computations.
  • RAD: A unit with 45 decimal places, employed for calculating owed amounts.

    Note: The Math Library handles all unit multiplications and divisions.

Tokens

  • systemCoin: The ERC20 stablecoin issued by ZAI.
  • protocolToken: The ERC20 governance token, used for system parameter voting and participating in debt/surplus auctions.
  • collateral: Any ERC20 token that serves as collateral, enhancing the corresponding cType balance.

Key Concepts

  • cType: Represents a unique identifier for a collateral type within the ZAI system.
  • COIN: An internal balance of system coins convertible to systemCoin on a 1:1 basis.
  • DEBT: An internal ledger entry representing unbacked debt, erasable with COIN on a 1:1 basis.
  • SAFE: A vault-like contract holding collateral and generating COINs, which may also accrue DEBT.
    • lockedCollateral: The collateral amount held within a SAFE.
    • generatedDebt: The debt incurred by a SAFE during the COIN generation process. Note that it does NOT correlate directly to the amount of COINs generated.
    • Liquidation: A process triggered for under-collateralized SAFEs, wherein their generatedDebt is moved to the system's DEBT and collateral is seized for auction to cancel out the DEBT.
  • redemptionPrice: The internal price at which system coins can be exchanged for collateral.
  • targetPrice: A reference price utilized to adjust the redemptionPrice, often aligned with market price.
  • redemptionRate: Governs how the redemptionPrice changes over time, essentially functioning as the system's funding rate.
  • stabilityFee: A separate interest rate, unconnected to the redemptionRate, applied to user debts and collected by the system.
  • accumulatedRate: Reflects the compounded stabilityFee applied to a cType, determining the relationship between generatedDebt and the COINs produced.

This guide aims to provide a comprehensive understanding of ZAI's framework and its intricacies. Armed with this knowledge, you'll be better equipped to interact with the protocol effectively.