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# System prepended metadata

title: AlgoEURS Report

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# AlgoEURS Report

## Unit protocol and liquidation protection mechanism

The idea behind Unit peg mechanism is that when total price of all collaterals go up/down so does USDP price, eventually ([link](https://hackernoon.com/were-unit-protocol-and-allow-us-to-introduce-ourselves)).

After some research I came to conclusion that using Rulers liquidation protection mechanism is incompatible with Unit mechanics, i.e. minting stablecoins for some collateral.

I'm still researching alternatives. One way of avoiding liquidation could be to borrow mehanisms from segniorage model tokens, e.g. issuing coupons in order to burn our stablecoins.

## Accepting non-fungible token as a collateral

We need some way of determining its price first. Consider two situations:
1) NFT has been traded several times. We can simply use time-weighted average price (or, perhaps, some more sophisticated measurement).
2) NFT has no price history. In that case we need some way to reliably compare it to NFTs for which we know price already.
    1) Price of collectible NFT (i.e. CryptoKitties) is often largely determined by its features (generation, mutations etc). If we know prices for some tokens of the collection, we can reason how each of the tokens features contribute to it's price. Using that, we can determine price for any token belonging to the collection, even if it has never been traded.
    2) NFT represents some position in liquidity pool (Uniswap LP position). In that case we can simply use price oracles.
    3) Some NFTs might represent real-world assets. If price of the asset has been estimated off-chain we can take the risk and use that information.

We will focus on some particular NFT collection and use time-weighted average price to determine collateralization in the final draft. We will introduce the metric between tokens of that collection, which will be the function of tokens features proportional to difference in price between tokens.

### Uniswap LP tokens

There is systematic risk in accepting LP token as a collateral.

Consider some token pair that involves EURS (our stablecoin). If we accept LP token for that pair as collateral, drop in EURS price would deterministically reduce the value of the collateral pool, which ought to lead to changes in the price of EURS, which would again reduce the value of the collateral pool, and so on.
