How Dollar Protocol Works
Dollar Protocol is a decentralized elastic supply experiment. Specifically, Dollar Protocol takes inspiration from the original paper “Seigniorage Shares” by Robert Sams.
Dollar Protocol is a dual token system where SHARE represents a fixed supply governance token (21M) and USD represents the object of stabilization. The reason this is interesting is that until this point, many elastic projects like AMPL or ESD have been limited to a singular token system, which in our opinion limits the flexibility and resiliency of a money protocol.
Dollar Protocol uses this core concept and has adapted it to the 2020 cryptocurrency landscape and beyond.
Key Features
1: Fully Decentralized and governed by on-chain Share voting
- All upgrades and functionality in Dollar Protocol are controlled via our governorAlpha, which is forked from Compound.Finance (gov alpha creation tx).
2: Bonding System for stabilizing USD
- Dollar Protocol has a unique bonding system that allows users to lock USD in exchange for xBond. xBond are fungible tokens that can be slowly redeemed for locked USD. xBond also receive 50% of seigniorage at the time of this writing.
- One strategy for compounding ownership is to take your rewards every rebase (LP or SHARE) and rebond them. As more users do this, your ownership stake should increase with time and give you larger payouts in the future.
3: On-chain governed Seigniorage
During positive rebases, new USD seigniorage is paid to 3 parties:
- xBond holders (50%)
- Liquidity Providers (40%)
- Share governance token holders (10%)
For example, if 100,000 USD is minted by the protocol during a positive rebase, 50,000 USD would get paid pro-rata to xBond holders, 40,000 USD would be split across the Liquidity Provider pools and 10,000 USD would be split evenly across the 21M Share tokens.
xBond holders must redeem manually via the dashboard (https://dollarprotocol.com/#/bond)
LP Providers must redeem manually via the dashboard (see below)
Share tokens holders receive USD automatically to their wallet (the protocol has some fancy math to do this without initiating a transaction). Make sure you add the USD token to the wallet to see the seigniorage accrue.
How Rebases Work
As per governance, every 12 hours at 5:30am UTC and 5:30pm UTC, a rebase is able to be triggered via the dashboard. The rebase takes the past 12 hour TWAP (time weighted averarge price) of USD.
If USD > $1.05, a positive rebase is triggererd.
If USD < $0.95, a negative rebase is triggered.
Anything in the middle is a neutral rebase.
Scenario #1: Positive Rebase
During positive rebases, the supply delta of new USD is calculated by taking the TWAP price and calculating the supply percent increase.
For example, is TWAP USD = $1.50, this is a 50% increase in USD. If the current USD supply is 1,000,000 USD, then the protocol determines the supply delta to be 1,000,000 USD * 50% = 500,000 USD.
Supply Delta = 500000 USD
The protocol also adds a rebaseLag, which is a variable that is also controlled by governance. This rebaseLag divides into the supplyDelta during rebase to smooth the rebase.
For example, if the rebaseLag = 10, then the new supply delta is 500,000 USD / 10 = 50,000 USD total.
Think of the rebaseLag as a time-averaged price so as to reduce extreme supply volatility shocks.
This 50,000 USD would be then split across the users above (50% to xBond, 40% to LPs, 10% to Share token holders).
Scenario #2: Negative Rebase
During negative rebase, USD supply needs to contract. If the protocol needs to remove 50,000 USD at a negative rebase, it will automatically reduce the number of USD tokens in all wallets.
You can escape the negative rebase by locking your USD and receiving bonds. The only catch is that you need to wait until the next positive rebase to start getting paid back. For longer-term users, this would be the ideal path.
Locked USD are NOT affected by the negative rebase
Scenario #3: Neutral Rebase
No USD is issued, no USD is burned
RoadMap
The current system is very stable. Community sentiment has been strong about potentially launching new algorithmic currencies pegged to EUR. Tentatively speaking, EUR will work exactly the same as USD, but both currencies will use the same governance token of SHARE. EUR will have a EUR bond as well.
The timeline for launching other algorithmic currencies will depend on voting by Share via our on-chain compound governance voting system.
Conclusion
Dollar Protocol represents an interesting experiment in DeFi that aims to test the viability of a fully algorithmic stablecoin. It is unique in that all seigniorage is paid to stakeholders of the system and is governed and run solely by Share token holders.
twitter: https://twitter.com/@dollarprotocol
telegram: https://t.co/Jsk1rD9JpD
discord: https://t.co/egR0fpDPzk
