SOLID is a stablecoin on Terra2 that only exists because somebody locked up more value than they borrowed. There is no central issuer holding dollars in a bank account, and there is no algorithm printing tokens to defend a peg. Every SOLID in circulation is a loan against collateral that is worth more than the loan itself.
That sentence is the whole design. Everything below is detail.
How SOLID is created
SOLID is minted on demand and burned on repayment. The sequence looks like this:
- You deposit an accepted collateral asset into the protocol.
- The protocol values your deposit using its oracle and calculates your borrowing capacity.
- You mint SOLID up to that capacity. The tokens did not exist a moment earlier.
- When you repay, the SOLID you return is destroyed and your collateral unlocks.
There is no supply cap set by a founder and no pre-mine. Supply is the sum of everybody's open debt. If every borrower repaid tomorrow, SOLID's supply would be zero and nothing would be broken.
This is the same mechanism DAI popularised on Ethereum, adapted to Terra2 and to collateral that earns staking rewards while it sits locked.
What backs it
The live collateral set is built around liquid-staked LUNA — primarily ampLUNA and bLUNA. These are receipt tokens for LUNA that is bonded to validators: the underlying stake keeps earning, and the receipt token keeps trading.
Alongside them sits a set of legacy bridged assets that were onboarded in earlier eras of the protocol. Governance has been retiring those in favour of Terra-native, yield-bearing collateral. Which assets are accepted at any moment is a governance decision, not a founder decision, and the current list is always visible in the app.
The important property is not which assets are accepted but how much is required. Every position is overcollateralized: the protocol will not let you mint SOLID worth more than a fixed fraction of your deposit's value. That fraction is the loan-to-value ratio, and it is deliberately conservative.
Why this is not UST
The question is fair and it deserves a direct answer, because Terra is the chain where an algorithmic stablecoin failed at a scale nobody had seen before.
UST held its peg through an arbitrage loop with LUNA. Burning $1 of LUNA minted $1 of UST and vice versa. Nothing was locked up. The system's collateral was the market's willingness to keep believing in the system, which meant that when belief went, so did the backing — all of it, at once, in a reflexive spiral.
SOLID's backing does not depend on belief in SOLID. It depends on the collateral in the vault:
| UST (2022) | SOLID | |
|---|---|---|
| Backing | Mint/burn arbitrage with LUNA | Locked collateral, valued by oracle |
| Collateral ratio | Effectively none | Always above 100% |
| Failure mode | Reflexive spiral, unrecoverable | Individual positions liquidate |
| Who absorbs the loss | Every holder | The specific borrower who got liquidated |
That last row is the one that matters. In an overcollateralized system, a price crash does not threaten the peg — it threatens individual borrowers, who get liquidated, and whose collateral repays their own debt. Losses are contained to the position that took the risk. There is no mechanism by which one borrower's bad day dilutes everybody else.
This is not a claim that overcollateralized stablecoins cannot fail. They can — through oracle failure, through collateral that goes illiquid faster than liquidators can act, through governance error. But they fail slowly and locally, in a way that leaves the rest of the system solvent, and that is a categorically different risk profile from the one that took down UST.
Where the peg actually comes from
Overcollateralization guarantees SOLID is backed. It does not by itself guarantee SOLID trades at a dollar. The peg comes from two pressures pulling in opposite directions:
When SOLID trades above $1, minting becomes attractive. Borrowers can open a position, mint SOLID, and sell it into the market for more than a dollar. That supply pushes the price down.
When SOLID trades below $1, repayment becomes attractive. Anyone with debt can buy SOLID cheaply on the open market and use it to close a position at full face value, pocketing the difference. That demand pushes the price up.
The mechanism is arbitrage, not authority. It works as long as the collateral is real and the market believes the redemption path will stay open.
What SOLID is for
Three uses cover most of it:
- Borrowing without selling. You hold LUNA and expect it to appreciate. Selling it triggers a taxable event and ends your exposure. Borrowing SOLID against it gives you spendable liquidity while your position stays open.
- Staying long while getting liquid. Because the collateral is liquid-staked LUNA, the underlying stake keeps accruing while it is locked. You are not choosing between staking and borrowing.
- A Terra-native unit of account. Stablecoins bridged in from other chains carry bridge risk and depend on issuers who can freeze balances. SOLID is a cw20 token whose backing lives on Terra2.
The honest risks
- Liquidation. If your collateral falls in value and your loan-to-value crosses the threshold, part of your position is sold to repay your debt. This is the primary risk and it is entirely under your control through how much you borrow. See how liquidations work.
- Oracle risk. Collateral is valued by a price feed. A wrong price means wrong borrowing capacity in one direction or unfair liquidations in the other.
- Collateral risk. Liquid-staking tokens carry the risk of the staking protocol that issues them, including validator slashing.
- Smart contract risk. The contracts are deployed and immutable within the bounds governance sets. Audited code is still code.
- Peg risk. Arbitrage keeps SOLID near a dollar. Thin liquidity widens the band it moves in.
None of these are unique to SOLID. All of them are the price of a stablecoin that nobody can print at will.
FAQ
Is SOLID an algorithmic stablecoin?
No. Algorithmic stablecoins maintain a peg through supply adjustments backed by another token of the same system. SOLID is crypto-collateralized: every unit is minted against locked collateral worth more than the debt, and cannot be minted without that collateral.
What backs SOLID?
Collateral deposited by borrowers, held in the protocol's custody contracts on Terra2. The core of the collateral set is liquid-staked LUNA such as ampLUNA and bLUNA, with the accepted asset list controlled by CAPA governance.
Can the team mint SOLID out of thin air?
No. SOLID can only be minted by opening a collateralized position through the market contract, and the amount is capped by the loan-to-value ratio applied to deposited collateral.
What happens to SOLID when a borrower is liquidated?
The liquidated collateral is sold to repay that borrower's debt, and the SOLID used to repay it is burned. Supply shrinks by exactly the amount of debt closed. Other holders are unaffected.
Is SOLID the same as UST?
No. UST was algorithmic and backed by a mint-burn loop with LUNA. SOLID is overcollateralized and backed by locked assets. They share a chain lineage and nothing else.