DSD — What happens after bootstrap?
The bootstrapping period can be considered as the initial kickstart period that brings DSD to a minimum supply from which it can organically grow.
During bootstrap, the supply growth per epoch is fixed at 4.5% per epoch for 150 epochs.
The bootstrapping period was meant to get early community members on board, seed the liquidity pool and to implement important DIPs (Dynamic Improvement Proposals) to help DSD become a widely adopted stablecoin in the future — all of that has been achieved.
Now the question is, what happens after epoch 150?
This quick explanatory article should answer all your related questions, and help you understand how you can participate in DSD after a successful bootstrapping period.
Once the bootstrapping period is over, the supply regulation solely depends on the Uniswap TWAP (Time-Weighted-Average-Price) of DSD. This leaves us with two scenarios, supply expansion, or supply contraction.
Expansion:
Expansion means that the supply of DSD will grow, issuing new DSD. The supply expansion will distributed to DAO bonders and bonded LPs in a ratio of 60% DAO and 40% to LPs. Max. supply expansion is capped at 10% (TWAP= 2.20$) per epoch.
To determine the supply expansion, check out the supply delta formula for expansion below:
Example:
Let’s assume the current TWAP price of DSD is at 1.50$ at a supply of 1.000.000 DSD.
supply: 1.000.000
price: 1.50$
=1.000.000 * ((1.50$-1.00$)/12)
= 1.000.000 * (0.50/12)
= 1.000.000 * (0.0416)
= 41.666
By filling in the variables, you will see that the current expansion will be 4.16% which will mint 41.666 new DSD.
To benefit from the supply expansion, you can either bond your DSD inside the DAO, or bond your LP tokens.
DAO:
During expansions, the DAO receives 60% of the total supply expansion. These 60% are then distributed among all bonded addresses in the DAO according to share in the DAO.
As there are usually much more people bonded in the DAO than providing liquidity, your share dilutes more compared to the LP pool.
This is why, although DAO gets the overall higher reward allocation (60%), your yield for bonding in the DAO will usually be lower than if you provided liquidity.
LP:
During expansion, the LP Pool receives 40% of the total rewards which are then distributed among all bonded LPs according to their LP share. As already mentioned, it is very likely that there is less than 40% of DSD supply in the pool, which is why the yield for LPs is usually higher. (During bootstrap, LPs on average received nearly 3x more than DAO bonders).
Contraction
Supply contraction will happen once TWAP price is <1$. In that scenario, debt is minted according to the supply delta formula for contraction.
If DSD faces contraction (debt cycle), the DAO and LPs will stop earning rewards as the supply is not increasing.
To determine the supply contraction, check out the supply delta formula for contraction below:
Example:
Let’s assume the current TWAP price of DSD is at 0.90$ at a supply of 1.000.000 DSD.
supply: 1.000.000
price: 0.90$
=1.000.000 * (0.90$-1.00$)
= 1.000.000 * (-0.10$)
= 100.000
By filling in the variables, you will see that the current contraction will be -10% which essentially means that 100.000 coupons will be issued. Keep in mind, that the max. contraction is 10%.
To bring back the peg to 1$ and benefit from a debt cycle, the occurring debt can be purchased via so called coupons. Coupons are financial instruments representing debt that can be purchased by burning DSD from your wallet. Once, there is an epoch with a TWAP >1$ again, coupons can be redeemed for DSD until the entire debt in the system is cleared. Important to note is that coupons expire after 360 epochs (30 days).
Coupons always carry a discount depending on the debt ratio at the time where they are bought (debt/supply), which is capped at 35%. Consecutive epochs with a TWAP <1$ increase the debt ratio, and hence the coupon discount. Once the debt ratio hits 35%, the coupon discount will be approx. 45%.
This is how to calculate the coupon premium given R (debt ration = debt/supply):
After hitting a TWAP >1$, the amount of coupons redeemable per epoch is equivalent to the supply expansion. This means that e.g. the supply increases by 50.000 DSD, 50.000 coupons will be redeemable. Only if all coupons are redeemed, DAO & LPs will start earning rewards again.
You should now be aware of the two possible scenarios, and know how you can participate in them. In case you have any further questions, feel free to ask inside our community channels.
