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Dynamic Set Dollar have just released their V2 incentivised protocol for creating a DeFi token that is a USD PEG - an incentivised DeFi stable coin. It uses rewards to incentivise holders to PEG the price to $1.
Let’s go a bit further into what it is and how it achieves this now.
What Are The Mechanics of DSD?
If you use the DSD dApp, or read the V2 Medium or FAQ, you might get a bit overwhelmed by all of the options, features and mechanics. I’m going to break this all down simply now. Once you read the below, you will know everything you need to know to understand the platform enough to use it to its full potential and maximise your gains.
DSD aims to PEG itself against USD. It does this by offering incentives to holders.
If the price of DSD is <$1, you are rewarded for burning and locking away your DSD, reducing circulating supply and increasing the price of DSD.
If the price of DSD is >$1, you are rewarded for releasing DSD back into circulation, increasing circulating supply and reducing the price of DSD.
This is the core algorithm of DSD and what the entire platform is built around. To achieve this goal, the platform uses a partner token called CDSD - we’ll come to this down below.
Let’s go deeper into the incentives now.
DSD is <$1
This is called a “Contraction” phase (see glossary). The platform decides the price of DSD needs to go up and offers rewards to users to achieve this. To do this, the protocol in this phase seeks to contract or reduce the supply (hence the name “Contraction”).
You have three options to be rewarded:
Bonding (think of this as staking) your DSD.
Burning DSD for CDSD. Then bonding your CDSD.
Liquidity pool bonding rewards.
These sound complicated initially, but they are not. Let’s look at each one in turn.
Bonding DSD:
You get a 25% APR by bonding/staking your DSD into the DAO/dApp contract. Simple: https://dsd.finance/app/#/wallet/
Click Unlock on the Stage box.
Stage the amount you wish to bond: Choose the amount and click Deposit.
Bond: Choose the amount you wish to bond and click Bond.
Burning DSD for CDSD. Then bonding your CDSD:'
You can get huge APR if you burn your DSD for CDSD, then bond/stake your CDSD: https://dsd.finance/app/#/cbond/
Click Unlock on the BURN DSD FOR CDSD box.
Enter the amount and click Burn & Bond
*NB
The earnable is elastic based on the price difference between CDSD and DSD -> the larger the difference, the higher the earnable. Your earnable goes up when you burn DSD, earnable goes down each epoch that your bonded CDSD earns interest.
Liquidity Pool Bonding:
Create CDSD — USDC, then bond/stake that liquidity: https://dsd.finance/app/#/cpool/
Only do this if you are already familiar with creating liquidity on Uniswap or similar:
Add liquidity to the CDSD-USDC Uniswap Liquidity Pool: https://app.sushi.com/pair/0x4a4572D92Daf14D29C3b8d001A2d965c6A2b1515
Stage the amount you wish to bond: Choose the amount and click Deposit.
Bond: Choose the amount you wish to bond and click Bond.
How to Claim Rewards
Firstly, you can see the awards being added each Epoch, so don’t worry if you don’t see them ticking up in real time.
Ok, so now let’s look at how you get the rewards and what options you have.
If you bonded DSD: Simply unbond your DSD and sell it, or hold it longer to compound your interest before selling.
If you bonded CDSD:
Wait until an expansion phase happens, then redeem a portion of your bonded CDSD at a 1:1 ratio for DSD.
Unbond your CDSD at any time and sell it here: https://1inch.exchange/#/USDC/0xDe25486CCb4588Ce5D9fB188fb6Af72E768a466a?network=1
If you bonded liquidity: Claim and sell LP rewards, or unbond and remove your LP.
DSD > $1
This is called a “Expansion” phase (see glossary). The platform decides the price of DSD needs to go down and offers rewards to users to achieve this. The protocol in this phase seeks to expand the supply (hence the name “Expansion”).
Basically, everything is flipped on its head vs the above and the hard work you put your DSD, CDSD doing during the contraction phase is now rewarded. Congratulations, you are now entering a very lucrative phase.
The expansion rewards are split between four groups: (1) DSD bonded in the DAO, (2) DSD-USDC liquidity provider on Sushiswap, (3) bonded CDSD, (4) treasury.
Here’s the split:
Bonded CDSD: 50%, distributed pro-rata (goes to DAO w/o CDSD outstanding)
Bonded DSD: 12%, distributed pro-rata
Bonded DSD LP: 35%, distributed pro-rata
Treasury: 3%
Ok, But What Does This Mean For Me?
It means that you can start redeeming a portion of your CDSD for DSD at a 1:1 ratio.
Considering you would have doubled the amount of CDSD you bonded initially, and if you are in this phase it means the price of DSD has increased significantly since the time this article was published, we are talking about considerable gains here.
The protocol does not let you redeem all of your CDSD at DSD for once. This makes sense - if everyone liquidated all of it at once, then it wouldn’t be very stable would it?
How is DSD different from other stablecoins?
There are a number of stable coins. You will have seen USDT before, a stable coin that is backed by a centralized treasury. Then you have coins like DAI or sUSD which are collateral backed and are collateral intensive. Some other players like Ampleforth (AMPL) and Based (BASED) which do not have any voluntary incentive like DSD has.
Finally, you have Empty Set Dollar (ESD) which inspired DSD. However, ESD responds more slowly to the market (less frequent Epochs - see glossary), their supply is less elastic and flexible, and their supply expansion/contraction algorithm is less refined than with DSD.
Final Thoughts
We like a few things about DSD. It is a complex set of mechanics and terms, but we hope that once you read this article, it should explain everything you need to know.
To summarize it again simply: When the price of DSD is below $1 I will want to burn DSD to get CDSD (decreasing supply and driving the price up), when it is above $1 I want to redeem my CDSD for DSD which increases supply again and drives the price down.
Dynamic Set Dollar is capturing the essence of DeFi towards achieving the goal of a stable coin by taking an incentive system and allowing investors to earn as the price drifts from the USD PEG.
V2 is very new right now, and not a lot of people understand it yet. As the messaging, UI, marketing and communications improve we believe people to start seeing the vision more clearly. We have the early mover advantage here.
Building out such a complex algorithm and launching it as smoothly as they have done takes a serious team with a strong vision, and a lot of skill. The team is one of the things we look at when picking a gem.
It should also be noted that the treasury does not get filled until the protocol enters the expansion phase. This means that the team is 100% motivated to get DSD to $1, and everyone is working towards that same shared goal.
The above coupled with the community governance in place - voting on every release and marketing proposal, we believe this project to be built in the right way and having all the fundamentals it needs to succeed.
CeltyCrypto
Glossary of terms:
Epoch - a 2 hour time period within which the token price will be measured in order to decide if a supply extension or supply contraction is necessary.
TWAP - Time-weighted average price. The average price of DSD within an Epoch.
Bonding - think of this as staking - adding or locking your tokens into the contract.
PEG - the mechanics of fixing the price of one currency to that of another currency.
Contraction - When DSD is <$1 based on the TWAP of the previous Epoch. This is when the platform decides to incentivise users to increase the price of DSD.
Expansion - When DSD is >$1 based on the TWAP of the previous Epoch. This is when the platform decides to reward users to release DSD back into circulation.
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