Crypto Gloss

Bucket Protocol

Bucket Protocol is Sui’s primary decentralized stablecoin protocol modeled after Liquity — users lock SUI or Sui liquid staking tokens (afSUI, stSUI) as collateral in “Buckets” to mint BUCK, a USD-pegged stablecoin, while a Stability Pool of BUCK holders absorbs liquidations at a discount, and a Tank redemption mechanism provides arbitrage-enforced price stability without relying on interest rate management.

Overview

Bucket Protocol launched on Sui mainnet in 2023, adapting Liquity’s elegant CDP-stablecoin design for Sui’s object-centric execution model. The core insight from Liquity that Bucket carries forward: governance-minimized stablecoin issuance — BUCK’s peg is enforced algorithmically through stability pool liquidations and hard redemptions, not by a governance committee adjusting risk parameters. The protocol replaces Liquity’s ETH collateral with SUI (and Sui LSTs), and adapts the stability pool/SP token mechanics to Move. Bucket is the foundational stablecoin layer for Sui’s CDP ecosystem.

Core Mechanism: Buckets (CDP Vaults)

A “Bucket” is a collateralized debt position (CDP) on Sui:

  1. Deposit collateral — SUI, afSUI (Aftermath), stSUI (Haedal/Volo), or other approved assets
  2. Mint BUCK — up to the collateral’s maximum BUCK issuance (minimum 110% collateralization ratio)
  3. Repay BUCK to retrieve collateral — burned BUCK releases locked collateral
  4. One-time borrowing fee — small fee at time of BUCK minting (like Liquity’s fee model, not ongoing interest)

Minimum Collateralization Ratio

  • 110% minimum for SUI-backed Buckets (same as Liquity’s ETH threshold)
  • Higher ratios for riskier LST collateral types
  • Protocol maintains a system-level minimum collateralization above 150% via recovery mode

Recovery Mode

If the protocol’s Total Collateral Ratio (TCR) drops below 150%, Recovery Mode activates:

  • Liquidation threshold lowers — any Bucket below 150% can be liquidated
  • Designed to force the system back above 150% TCR quickly
  • Recovery mode is self-extinguishing once TCR recovers

BUCK Stability: Three Mechanisms

The following sections cover this in detail.

1. Stability Pool (Primary)

The Stability Pool is a reserve of BUCK holders who volunteer to absorb liquidations:

  • BUCK depositors provide liquidity to the Stability Pool
  • When a Bucket falls below minimum collateralization → liquidated automatically
  • Stability Pool BUCK is burned to repay the debt
  • Stability Pool depositors receive the collateral at a ~10% discount to market price
  • Net result: BUCK depositors earn discounted SUI/LST; BUCK supply contracts; collateral ratio improves

SBUCK: Staked BUCK in the Stability Pool — earns fees from liquidations and potentially BKT emissions.

2. Redemptions (Peg Floor)

Hard redemptions enforce BUCK’s floor at $1.00:

  • Anyone holding BUCK can redeem directly against the protocol for $1.00 of SUI
  • Redemption opens against the lowest-collateralized Buckets first (FIFO)
  • BUCK burned → redeemer receives $1.00 of SUI per BUCK
  • Floor enforcement: if BUCK < $1.00, arbitrageurs buy BUCK cheap → redeem for $1.00 of SUI → pocket spread
  • This mechanism is borrowed directly from Liquity’s design

3. Minting Ceiling (Peg Ceiling)

BUCK ceiling at $1.00:

  • If BUCK > $1.00, arbitrageurs open Buckets → mint BUCK → sell BUCK for > $1.00 → pocket spread
  • This increases BUCK supply, pushing price back to $1.00
  • Ceiling is enforced by free-market arbitrage, not governance

BKT Token

BKT is Bucket Protocol’s governance token:

  • Governance — new collateral type additions, risk parameters, protocol fee rates
  • Revenue sharing — BKT stakers receive a portion of minting fees and redemption fees
  • Stability Pool bonuses — additional BKT rewards for Stability Pool participants
  • BKT does NOT serve as the stablecoin’s backing (unlike DAI’s MKR model) — collateral only is SUI/LSTs

Liquid Staking Integration

Bucket’s integration with Sui LSTs is a key innovation:

  • afSUI (Aftermath) and stSUI/haSUI (Haedal) accepted as collateral
  • Users stake SUI → receive LST → deposit to Bucket → mint BUCK
  • The SUI collateral inside Bucket continues to earn staking yield even while collateralizing BUCK
  • Effective borrowing cost = minting fee – staking yield accrual (can be near-zero or even negative)

Sources

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