Collateral Token (USDC)
Last updated
Last updated
The CVEX Protocol utilises USDC as its primary currency for all operations, including collateral provision, fee payments, and rewards for liquidity provision, staking, and clearance.
Technically any single token could be selected by the platform when it creates and used as the sole token for the collateral pool, we envisage USDC in all likely platforms as only USDC has appropriate default characteristics to date (USDXX:NASDAQ)
Using a stablecoin like USDC for collateral and settlement enhances market stability. Unlike other-coin-margined contracts, where volatility can introduce additional risk, USDC's stable value reduces such uncertainties, offering a more predictable trading environment. This means that default risk of the collateral token is not a major component in the pricing of the derivatives. Additionally, USDC as a collateral and fee token facilitates a consistent user experience across multiple blockchain ecosystems without fragmenting liquidity. CVEX leverages the Cross-Chain Transfer Protocol to enable this functionality.
The Cross-Chain Transfer Protocol (CCTP), operated by Circle, the issuer of USDC, is a permissionless on-chain utility that enables secure, native transfer of USDC across blockchains through a burn-and-mint process.
For depositing on CVEX, traders initiate a transaction on their native chain, burning their USDC tokens. Circle then provides a signed attestation for this burn. This attestation serves as proof, enabling the minting of an equivalent amount of USDC on Arbitrum, which is subsequently transferred to the trader’s CVEX account. The process is reversed for withdrawals – USDC is burned on Arbitrum and then minted on the trader’s native chain.
The withdrawal period is a notable challenge for L2 chains like Arbitrum, typically requiring a seven-day waiting period for transferring tokens back to Ethereum or other chains. This delay is inherent to L2 solutions as a security measure but can be a deterrent for traders who prefer quicker access to their funds.
The integration of CCTP on CVEX effectively addresses this issue. Using CCTP, withdrawing collateral from CVEX Platforms on supported chains, including Ethereum, Base, Optimism, and Arbitrum, is significantly expedited, typically taking only 10-30 minutes. This enhancement greatly improves trader's flexibility on the CVEX Platforms.
Using CCTP for cross-chain transfers on CVEX does not compromise trader security. Unlike third-party bridges and liquidity pools, CCTP is operated directly by Circle, the issuer of USDC. As Circle has the authority to burn and mint USDC, traders who use USDC inherently trust Circle's fairness. Hence, employing CCTP does not compromise or weaken the underlying security assumptions. This allows traders on CVEX to confidently deposit and withdraw collateral from any supported chain without additional security concerns.
