🪙 Zero Stablecoin Protocol

A decentralized, algorithmic stablecoin system pegged 1:1 to USD, backed by exogenous collateral (wETH & wBTC) with a liquidation mechanism to maintain stability.

📋 Table of Contents

• Overview
• Features
• Architecture
• Getting Started
• Usage
• Smart Contracts
• Testing
• Security Considerations
• License

🎯 Overview

Zero is a decentralized stablecoin protocol inspired by MakerDAO's DAI architecture with key features:

• Exogenously Collateralized: Backed by wETH and wBTC
• Algorithmic Stability: Maintains peg through over-collateralization
• Decentralized: No governance, fully algorithmic
• Pegged to USD: 1 ZERO = $1 USD

The system ensures stability through a minimum 200% collateralization ratio and automated liquidation mechanisms.

✨ Features

Core Functionality

• ✅ Mint ZERO: Deposit collateral and mint stablecoins
• ✅ Burn ZERO: Burn tokens to reclaim collateral
• ✅ Deposit Collateral: Add wETH or wBTC as backing
• ✅ Redeem Collateral: Withdraw your collateral
• ✅ Liquidation System: Incentivized liquidation of undercollateralized positions
• ✅ Health Factor Monitoring: Real-time position health tracking

Price Feeds

• Chainlink oracle integration for reliable price data
• Support for multiple collateral types
• Accurate USD value calculations

🏗️ Architecture

┌─────────────────────────────────────────────┐
│              Zero Token                     │
│           (ERC20 Stablecoin)                │
└─────────────────────────────────────────────┘
                     ▲
                     │
                     │ Mints/Burns
                     │
┌─────────────────────────────────────────────┐
│              ZeroEngine                     │
│  ┌────────────────────────────────────┐    │
│  │  • Collateral Management           │    │
│  │  • Minting/Burning Logic           │    │
│  │  • Health Factor Calculations      │    │
│  │  • Liquidation Engine              │    │
│  └────────────────────────────────────┘    │
└─────────────────────────────────────────────┘
          ▲                    ▲
          │                    │
   Chainlink Oracles    wETH & wBTC

Key Components

Zero Token

• ERC20 token implementation
• Burnable functionality
• Ownable (by ZeroEngine only)

ZeroEngine

• Manages all protocol logic
• Handles collateral deposits/withdrawals
• Mints/burns ZERO tokens
• Calculates health factors
• Executes liquidations

🚀 Getting Started

Prerequisites

- Foundry
- Git
- Node.js (optional, for scripts)

Installation

# Clone the repository
git clone <your-repo-url>
cd zero-stablecoin

# Install dependencies
forge install

# Build contracts
forge build

Environment Setup

Create a .env file:

SEPOLIA_RPC_URL=your_rpc_url
PRIVATE_KEY=your_private_key
ETHERSCAN_API_KEY=your_etherscan_key

💻 Usage

Deploying

forge script script/DeployZero.s.sol:DeployZero --rpc-url $SEPOLIA_RPC_URL --broadcast --verify

Interacting with the Protocol

Deposit Collateral and Mint ZERO

// Approve collateral
IERC20(weth).approve(address(zeroEngine), collateralAmount);

// Deposit and mint in one transaction
zeroEngine.depositCollateralAndMintZero(
    wethAddress,
    collateralAmount,
    amountZeroToMint
);

Check Health Factor

uint256 healthFactor = zeroEngine.getHealthFactor(userAddress);
// healthFactor must be > 1e18 (i.e., > 1)

Liquidate Undercollateralized Position

zeroEngine.liquidate(
    collateralAddress,
    userToLiquidate,
    debtToCover
);

📚 Smart Contracts

ZeroEngine.sol

Main Functions:

• depositCollateralAndMintZero() - Deposit collateral and mint ZERO in one transaction
• redeemCollateralForZero() - Burn ZERO and redeem collateral
• liquidate() - Liquidate undercollateralized positions (earn 10% bonus)
• getHealthFactor() - Check position health
• getAccountInformation() - Get user's collateral and debt info

Key Parameters:

• Minimum Health Factor: 1e18 (200% collateralization)
• Liquidation Bonus: 10%
• Liquidation Precision: 100
• Liquidation Threshold: 50%

Zero.sol

Standard ERC20 with:

• Burn functionality
• Owner-controlled minting (only ZeroEngine)

🧪 Testing

# Run all tests
forge test

# Run with verbosity
forge test -vvv

# Run specific test
forge test --match-test testLiquidation

# Run fork tests
forge test --fork-url $SEPOLIA_RPC_URL

# Coverage
forge coverage

Test Coverage

• ✅ Unit tests for all core functions
• ✅ Fuzz testing for edge cases
• ✅ Integration tests
• ✅ Liquidation scenarios
• ✅ Health factor calculations
• ✅ Oracle failure handling

🔒 Security Considerations

Known Issues & Mitigations

1. Oracle Dependency: Relies on Chainlink price feeds

   • Mitigation: Heartbeat checks, staleness checks

2. Liquidation Risk: Users must maintain health factor > 1

   • Mitigation: Clear documentation, UI warnings

3. Collateral Volatility: Price crashes can cause cascading liquidations

   • Mitigation: 200% collateralization requirement, liquidation incentives

Audit Status

⚠️ This code is for educational purposes and has not been audited. Do not use in production without a professional security audit.

🎓 Educational Purpose

This project demonstrates the implementation of a decentralized stablecoin protocol with algorithmic stability mechanisms, collateral management, and liquidation systems.

📄 License

MIT License - see LICENSE file for details

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🤝 Contributing

Contributions are welcome! Please feel free to submit a Pull Request.

📧 Contact

For questions or issues, please open an issue on GitHub.

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Built with ❤️ using Foundry