Paragon Protocol

The first stablecoin backed by tokenized equities, with liquidation-free leverage. Powered entirely by xStocks.

Paragon splits tokenized equities (xStocks) into two complementary financial primitives:

1. paraUSD — a stablecoin pegged to $1, backed by a diversified basket of tokenized equities
2. Leveraged tokens (paraSPY, paraQQQ, ...) — per-stock leveraged exposure with no liquidation, no funding rates, and no active position management

One vault. One stablecoin. Multiple leveraged tokens. All powered by xStocks as the reserve asset.

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How It Works

All deposited xStocks go into a single shared multi-collateral vault. The vault maintains internal sub-pools — one per supported xStock — each tracking its own collateral, paraUSD debt, and leveraged token supply.

The core invariant:

Pool TVL = paraUSD Supply × $1 + Σ(paraToken Supply × paraToken Price)

• When xStock prices rise → paraUSD stays at $1, extra value flows to leveraged tokens (amplified gains)
• When xStock prices fall → leveraged tokens absorb the loss, protecting paraUSD's peg (no liquidation — holders can ride it out)

Leverage per sub-pool is dynamic (target 3x, range 2x–5x) and adjusts automatically based on price movements and user activity.

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Minting & Redeeming

Action	What Happens	Effect on Leverage
Standard Mint	Deposit xStock → receive paraUSD + leveraged token (dynamic 50/50 split targeting 3x)	Pushes toward 3x
Leverage-Only Mint	Deposit xStock → receive only leveraged token	Decreases leverage (2x floor enforced)
Stable-Only Mint	Deposit xStock → receive only paraUSD	Increases leverage
paraToken Redeem	Burn leveraged tokens → receive xStock at current value	Changes leverage for remaining holders
paraUSD Redeem	Burn paraUSD → receive $1 worth of xStock (peg enforcement via arbitrage)	Increases leverage
Balanced Redeem	Return both tokens in correct ratio → receive xStock	Clean round-trip

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Fee Structure

Paragon uses dynamic fees to keep each sub-pool's leverage within the 2x–5x target range. Actions pushing leverage in the wrong direction get expensive; actions pushing it the right way get cheap.

Fee Parameters

Parameter	Value	Description
Base fee	0.5% (50 bps)	Starting fee in healthy conditions
Max fee	5% (500 bps)	Upper bound after leverage penalties and CR multiplier
Max CR multiplier	3x	Mode 1 can scale fees up to 3x as system collateral weakens
Mode 3 bounty	1%–10%	Treasury-funded reward for beneficial actions in deep stress

Fee Behavior by Leverage State

Leverage too high (approaching 5x):
  Standard mint:        HIGH   (creates more paraUSD → harmful)
  Leverage-only mint:   LOW    (adds leveraged capital → helpful)
  paraUSD redeem:       LOW    (removes paraUSD → helpful)
  paraToken redeem:     HIGH   (removes leveraged capital → harmful)

Healthy range (2x–5x):
  All fees:             BASE RATE (0.5%)

Leverage too low (approaching 2x):
  Standard mint:        LOW    (creates paraUSD → helpful)
  Leverage-only mint:   HIGH/BLOCKED (would push leverage lower)
  paraUSD redeem:       HIGH   (removes paraUSD → harmful)
  paraToken redeem:     LOW    (removes leveraged capital → helpful)

Fee Revenue Split

Recipient	Share	Purpose
Stability pool stakers	70%	Yield for staked paraUSD holders
Treasury	30%	Crisis buffer for recapitalization

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Stability Pool & Yield

paraUSD holders can stake in the stability pool to earn yield from protocol fees. Stakers receive sParaUSD (ERC-4626 receipt token) representing their pro-rata share.

Parameter	Value
Staker yield share	70% of all protocol fees
Stake lock-up	4 days (resets per stake)
Exhausted threshold	100 paraUSD

Risk: During Stability Mode 2 (CR < 115%), staked paraUSD may be converted to leveraged tokens to restore the collateral ratio. This is a pre-agreed risk/reward tradeoff, not liquidation.

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Risk Management — Stability Modes

The protocol uses a three-tier system based on the system-wide collateral ratio (CR):

System CR = Total Pool TVL / Total paraUSD Supply × 100%

Mode	CR Range	Response
Normal	≥ 125%	Base fees, normal operation
Mode 1 — Fee Controls	115%–125%	Fees scale up to 3x via continuous CR multiplier
Mode 2 — Stability Pool Drawdown	105%–115%	Staked paraUSD converted to leveraged tokens (burns paraUSD supply + adds leveraged capital)
Mode 3 — Treasury Recapitalization	< 105%	Treasury bounties for beneficial actions; direct market buys as last resort

Why Tokenized Equities Are Safer Collateral

The worst single-day NASDAQ 100 drop in modern history was ~12%. With a 125% CR threshold, Paragon has a significantly larger safety margin than crypto-native protocols like Hylo (SOL collateral, 150% threshold, worst-case 1-day drop of ~33%).

Metric	Hylo (SOL)	Paragon (SPY/QQQ)
1-day 99.9% VaR	-32.95%	-8.59%
Mathematical min CR	149.2%	109.4%
Actual CR threshold	150%	125%
Safety buffer	~0.8pp	~15.6pp

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Oracle & Pricing

• CoinGecko tracks xStock secondary market prices 24/7 (covers weekends/off-hours when traditional markets are closed)
• A keeper bot pushes prices on-chain every 60 seconds
• 72-hour staleness threshold — all mint/redeem operations halt if the keeper stops updating
• Oracle interface is abstracted (IPriceOracle) — upgradeable to Pyth/Chainlink on mainnet with a one-line adapter swap

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Deployed Contracts (Ink Sepolia)

All contracts are deployed on Ink Sepolia (Chain ID: 763373).

Explorer: https://explorer-sepolia.inkonchain.com

Collateral (MockXStock — shares-based rebasing)

Contract	Address	Explorer
SPYx	0x87182C7DB0733c82A748D8160a9F69C8b00dB603	View
QQQx	0x393970983E53B22a6CD6Ba44862f6df3356F5336	View

Oracles (CoinGecko-powered)

Contract	Address	Explorer
SPY Oracle	0xAef2ebC293d35f8987bC7D888A6D631eFe92a923	View
QQQ Oracle	0x38A05A2D3dD05F4234F2ed43Ba60F3FaeC31b3D4	View

Core Protocol

Contract	Address	Explorer
Vault	0x2d8B75B6843f342809F12F1d9bc5Cb55faFe6259	View
paraUSD	0x2E49C550bb58161627a19EE8F652dDB67244dfaC	View
Stability Pool	0x95e43D87aAdDDb819217FfD8D0910CE977C03E65	View
sParaUSD	0x13Ae5252F3fA4Da8dF1654645E14BcF9b0F0B221	View

Leveraged Tokens

Contract	Address	Explorer
paraSPY	0x1b9d0D4D5432AA77864840e0D134e34289d8E712	View
paraQQQ	0xC40e6273b445064A9895655a73608bfa8752386f	View

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Architecture

Smart Contracts

Contract	Role
Vault.sol	Holds all xStocks. Sub-pool accounting, minting, redeeming, leverage enforcement
ParaUSD.sol	Shared ERC-20 stablecoin, only vault can mint/burn
LeveragedAssetToken.sol	Base for per-stock leveraged tokens (paraSPY, paraQQQ)
FeeCalculator.sol	Dynamic fee engine — asymmetric quadratic curves around 3x optimal
StabilityPool.sol	paraUSD staking, fee distribution, Mode 2 conversions
StabilityPoolShare.sol	sParaUSD receipt token (ERC-4626)
CoinGeckoOracleAdapter.sol	On-chain oracle fed by keeper bot
MockXStock.sol	Testnet tokens replicating Backed Finance's shares-based rebasing

Frontend

• Framework: Next.js (App Router) + TailwindCSS + shadcn/ui
• Wallet: Privy auth + Wagmi + Viem
• Pages: Markets overview, individual market detail with simulator, portfolio P&L tracker, stability pool staking (earn), system dashboard, docs

Key Routes

Route	Description
/	Homepage — TVL, protocol overview
/markets	All markets — TVL, price, leverage, CR per asset
/market/[id]	Individual market — chart, mint/redeem actions, leverage simulator
/portfolio	User positions and P&L
/earn	Stability pool — stake paraUSD, view APY and fees earned
/dashboard	System-wide monitoring
/docs	Protocol documentation and contract reference

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Setup

# Frontend
cd client
cp .env.example .env.local   # fill in Privy key, Supabase, etc.
bun install && bun run dev

# Contracts
cd contracts
forge install
cp .env.example .env          # fill in PRIVATE_KEY
make build
make test
make deploy-ink-sepolia