"Smart contracts handle real value."
This simple truth drives everything I do as an engineer. When we write code for the blockchain, we aren't just pushing pixels or serving data; we are building financial structures that people need to rely on. There is no customer support hotline in DeFi. If the math is wrong, the trust is broken.
That responsibility is why I decided to tackle my milestone project: a decentralized, crypto-backed stablecoin.
Inspired by the Cyfrin Updraft curriculum and the guidance of Patrick Collins (huge shoutout to the legend himself), I wanted to go beyond just copying a tutorial. I wanted to engineer a system that embodies my core values: Reliability, Thoughtfulness, and Excellence.
This article is my engineering journal. Whether you are a total beginner or a Solidity vet, I want to take you under the hood of how a digital dollar is actually built, the security patterns that keep it safe, and the lessons I learned along the way.
The "What": 3 Big Words, 1 Simple Concept
When I started, the technical definition of this project terrified me:
An Exogenous, Crypto-Collateralized, Algorithmic Stablecoin.
It sounds complicated, but let's strip away the jargon.
- Exogenous: It is backed by assets outside the protocol (like Ethereum and Bitcoin), not by its own token. This prevents the "death spiral" we saw with Terra/Luna.
- Crypto-Collateralized: You can't just print money. You have to deposit crypto assets (Collateral) first.
- Algorithmic: There is no central bank. A smart contract does the math to decide if you are rich enough to mint more money.
The Architecture: The Cash, The Brain, and The Eyes
One of the first decisions I made was to separate concerns. Monolithic code is dangerous code. Instead, I built a modular system relying on three distinct pillars.
1. The Cash: DecentralizedStableCoin.sol
Think of this contract as the physical paper bills.
- It is an ERC20 token (like USDC or DAI).
- Key Detail: It is "owned" by the Engine. I wrote it so that no one, not even me, can mint tokens manually. Only the logic of the Engine can trigger the printer.
2. The Brain: DSCEngine.sol
This is where the magic (and the math) happens.
This contract:
- Holds the user's collateral.
- Tracks everyone's debt.
- Calculates the "Health Factor" (more on this soon).
- Enforces the rules of the system.
3. The Eyes: OracleLib.sol
Blockchains are isolated; they don't know that the price of Bitcoin changed 5 minutes ago. We need "Oracles" specifically Chainlink Data Feeds to bridge that gap. I wrapped these feeds in a custom library called OracleLib to add extra safety checks. If the Oracle goes silent (stale data), my system pauses to prevent catastrophe.
The Mechanics: How to Print Digital Money
Let's walk through a scenario. Imagine you want to borrow $100 of my stablecoin (let's call it BUSC).
The "Bank Vault" Rule (Over-Collateralization)
In traditional banking, they trust your credit score. In DeFi, we trust your assets. To borrow $100 of BUSC, the system forces you to deposit $200 worth of ETH.
Why the 200% requirement? Because crypto is volatile. If ETH crashes by 50% tomorrow, the protocol needs to ensure there is still enough value in the vault to back the stablecoin.
The Health Factor ❤️
This is the heartbeat of the protocol. I implemented a function called _healthFactor() that runs every time a user tries to do anything.
Health Factor = (Collateral Value X Liquidation Threshold) / Total Debt
- Health Factor > 1: You are safe.
- Health Factor = 1: You are on the edge.
- Health Factor < 1: DANGER. You are insolvent.
If a user tries to mint enough BUSC to drop their health factor below 1, the transaction simply reverts (fails). The code refuses to let them make a bad financial decision.
The "Necessary Evil": Liquidation
This was the hardest concept for me to wrap my head around initially, but it is the most crucial for reliability.
What happens if the price of ETH crashes? If User A has $100 of debt and their collateral drops to $90, the system is broken. The stablecoin is no longer stable.
To prevent this, we have Liquidators.
Think of Liquidators as the protocol's cleanup crew.
- They monitor the blockchain for insolvent users.
- They pay off the bad debt (burning their own BUSC).
- The Incentive: The protocol rewards them with the user's collateral plus a 10% bonus.
It sounds harsh, but it's fair. It ensures that bad debt is wiped out by the free market, keeping the protocol solvent for everyone else.
Security Patterns: Engineering for Excellence
Building this wasn't just about making it work; it was about making it secure. Here are two specific patterns I used to protect user funds.
1. The Pull-Over-Push Pattern
In early smart contracts, if the protocol owed you money, it would automatically "push" it to your wallet.
- The Risk: If your wallet was a malicious contract, it could reject the transfer, causing the entire protocol to freeze (Denial of Service).
- My Solution: I used the "Pull" pattern. The protocol updates your balance, but you have to initiate the withdrawal. This shifts the risk away from the protocol and puts control in the user's hands.
2. Staleness Checks on Oracles
What if Chainlink goes down? What if the price of ETH freezes at $2,000 while the real world crashes to $500? If I blindly trusted the Oracle, users could drain the vault.
I implemented a check in OracleLib:
// SPDX-License-Identifier: MIT
pragma solidity ^0.8.28;
import { AggregatorV3Interface } from "@chainlink/contracts/src/v0.8/shared/interfaces/AggregatorV3Interface.sol";
/**
* @title OracleLib
* @author Obinna Franklin Duru
* @notice This library is used to check the Chainlink Oracle for stale data.
* If a price is stale, functions will revert, rendering the DSCEngine unusable - this is by design.
* We want the DSCEngine to freeze if prices are not accurate.
*
* If the Chainlink network explodes and you have a lot of money locked in the protocol... too bad.
*/
library OracleLib {
error OracleLib__StalePrice();
uint256 private constant TIMEOUT = 3 hours; // 3 * 60 * 60 = 10800 seconds
function staleCheckLatestRoundData(AggregatorV3Interface priceFeed)
public
view
returns (uint80, int256, uint256, uint256, uint80)
{
(uint80 roundId, int256 answer, uint256 startedAt, uint256 updatedAt, uint80 answeredInRound) =
priceFeed.latestRoundData();
if (updatedAt == 0 || answeredInRound < roundId) {
revert OracleLib__StalePrice();
}
uint256 secondsSince = block.timestamp - updatedAt;
if (secondsSince > TIMEOUT) {
revert OracleLib__StalePrice();
}
return (roundId, answer, startedAt, updatedAt, answeredInRound);
}
}
This is thoughtfulness in code. I'd rather have the protocol stop working temporarily than function incorrectly.
Testing: The "Aha!" Moment
I didn't just write unit tests. I learned Stateful Invariant Fuzzing.
Standard tests check: "Does 1 + 1 = 2?"
Fuzz tests scream: "What happens if I send random numbers, empty data, and massive values all at once?"
I wrote a test called invariant_protocolMustHaveMoreValueThanTotalSupply. It runs thousands of random scenarios: deposits, crashes, liquidations and constantly checks one golden rule:
The value in the vault MUST always be greater than the total supply of stablecoins.
Watching those tests pass was the moment I realized: This system is actually robust.
Final Thoughts
This project was more than just a repo on my GitHub. It was a masterclass in risk management, system design, and the ethos of Web3.
We are building the future of finance. That future demands reliability: systems that don't break when the market panics. It demands thoughtfulness: code that anticipates failure. And it demands excellence: refusing to settle for "good enough."
I am excited to take these lessons into my next project. If you want to see the code, break it, or build on top of it, check out the repo below.
Let's build something you can trust.
📚 The DeFi Glossary (For the Curious)
If you are new to Web3, some of these terms might feel like alien language. Here is a cheat sheet I wish I had when I started:
- Smart Contract: A digital agreement that lives on the blockchain. It executes automatically, no middlemen, no "I'll pay you Tuesday."
- Stablecoin: A cryptocurrency designed to stay at a fixed value (usually $1.00), avoiding the wild price swings of Bitcoin or Ethereum.
- Collateral: Assets (like ETH or BTC) that you lock up to secure a loan. Think of it like pawning a watch to get cash, but you get the watch back when you repay.
- Peg: The target price of the stablecoin (e.g., "Pegged to $1.00").
- Minting: The act of creating new tokens. In this protocol, you "mint" stablecoins when you lock up collateral.
- Burning: The opposite of minting. It permanently destroys tokens, removing them from circulation (usually when you repay a debt).
- Liquidator: A user (usually a bot) who monitors the system for risky loans. They pay off bad debt to keep the system safe and earn a profit for doing so.
- Solvency: Being able to pay what you owe. If the protocol has $100 of assets and $90 of debt, it is solvent. If it has $100 of debt and $90 of assets, it is insolvent.
- Oracle: A service (like Chainlink) that fetches real-world data (like the price of Gold or ETH) and puts it on the blockchain for smart contracts to read.
Top comments (1)
It's good. Thank you for sharing!