Nov 28, 2020

5 min read

Debase v88: New Dawn


In this article, we explain our stabilizer pool design and introduce Debaseonomic’s first governance partner. Stabilizer pools (s-pools) are a central idea in Debaseonomics which allows for external stabilization of DEBASE and solves the problems faced by current algorithmic stable coins. For a brief primer on s-pools and the design considerations behind them, please refer to our previous articles.

There are two conditions to consider when designing s-pools:

  1. Expansion (Positive rebase cycles)

Keeping these three factors in mind we propose the following three s-pools. With s-pool 1 intended to stabilize DEBASE during expansion and s-pool 2/3 to manage contraction.

S-Pool 1 : Randomized Threshold Counter

Positive rebase cycles are relatively easy to stabilize. This pool will take in DEBASE/DAI liquidity, and simply count the number of positive rebase cycles (n). When n>=k (where k is a positive integer threshold determined by a random number generator), the pool releases rewards in Debase which should bring Debase price to stability. The randomness ensures there is good amount of liquidity provided, to avoid supply shocks even as rewards are given out.

S-Pool-2/3 : Debt issuing burn pools

Negative rebase cycles are where most elastic tokens suffer and therefore requires careful consideration as it is necessary to incentivize people to hold through contraction cycles. Since simple supply contraction does not seem to work, a more sophisticated method is necessary.

Therefore, Debase builds upon the work already done by Empty Set Dollar by incorporating and significantly modifying their token burn design. To summarize how ESD works, a burn pool issues debt as a function of supply delta which would stabilize the price back to target price.

This debt can be bought off by the users using the ESD tokens. Sold-off ESD tokens are burnt by the protocol while the users who bought the debt are issued coupons which can eventually be traded for a greater number ESD tokens, when the price of ESD from the supply contraction goes above its target price. This method of burning supply works well in practice as ESD has managed to stabilize on it’s peg a lot longer than Ampleforth has.

While the ESD design is simple has two major shortcomings. The activity of burning ESD to contract supply requires active participation from the users and it can be argued as demand for ESD as a stable coin increases, less technically sound users can come up whom aren’t aware of/won’t use the burn mechanism. This puts into question the long term stability of ESD. In other words, this is a passive pool, while an active pool maybe necessary to manage contractions.

Secondly, ESD design doesn’t allow for the incentivization of contraction and expansion of Uniswap liquidity during the respective cycles as a means to further stabilize their price. Thus keeping the general idea of burn pools in mind and these two shortcomings, Debase proposes the following two pools working together to stabilize DEBASE's price during a price contraction.

s-pool 2 gives out debt in relation to the supply contractions during negative rebase cycles. This debt bought up for DEBASE by the users and in doing so, they are awarded coupons which can be redeemed for more Debases during expansion. Finally, as a sequence of positive rebases happen, users can redeem a greater amount of the coupons they were issued for buying debt. With the supply for the coupon reward coming from the stabilizer fund. This is a modification of the ESD pool.

s-pool 3’s purpose is to take in DEBASE/DAI liquidity tokens and return an APY on the DAI component of the LP, as well a guarantee of more Debase during expansion. The DAI in LP used to maximize capital (for instance, using a yield farm). Part of the profits from the farm will be used to buy more DEBASE. The DEBASE that is bought from the profits and the DEBASE in LPs can be used to buy debt issued by s-pool 2. When s-pool 2 buys this debt it will issue coupons. These coupons can be traded in for DEBASE when positive rebases happens, which can then be rewarded to users proportional to how much LP they had staked.

In other words, users are incentivized to provide LPs to this pool, especially during a negative rebase cycle for an APY in DAI, and a guarantee of more Debase tokens during a positive expansion cycle. The portion of the DAI APY given back to the pool will fluctuate depending on whether DEBASE is in expansion or contraction, with the protocol retaining a larger portion of profits during contraction. Nevertheless users staking LPs will not only earn Debase, but also APY on their DAI, with the protocol minimizing the yield farming gas fees costs for users.

Conclusion: The Beginning

Whatever ESD’s efficacy in finding stabilization maybe, its utilization as a stable coin is low (Ampleforth’s low efficacy in finding stability through naive supply change methods is not worth mentioning anymore). The utility of such tokens is in their stabilization with adoption left up to the market; given the competition in stable coins, this leaves any algorithmic stable coin with an uphill task. On the other hand, Debaseonomics, having an open-ended governable design merges stabilization and utilization; by onboarding crypto interests onto governance who can benefit from stabilizing Debase by utilizing it into their own protocols and being rewarded for staking governance tokens for stable rebase cycles.

To this end, we are happy to announce our first partner: 88mph. They will be on-boarded to governance with voting power that will allow them to make governance proposals; i.e, they have voting power to propose future stabilizer pools. Furthermore, Debaseonomics will be using their protocol as a base layer to help stabilize DEBASE, as the source of capital generation in the 2 pool system mentioned above. This is the first in a series of partners to be on-boarded to governance.

It should be noted that in the near future, governance tokens holders will be able to stake their governance tokens into a contract to earn protocol fees for the rebases that do not change supply, during the staking period. This be another s-pool that will incentivize the stabilization of DEBASE by DEGOV holders. For now, let’s us just say, welcome to Debaseonomics, 88mph.

by: anon18382 X punkUnknown