Is CDSD The Missing Piece For Algorithmic Stable Coins?

Out with the old, in with the new

Algorithmic stablecoins started with the revolutionary idea of rebasing, allowing for dynamic contraction and expansion of the total supply of coins, also called elastic supply. For the first time, rebases enabled viable non-collateral backed stablecoin designs. Direct rebasing has two main problems: it’s not composable and it’s confusing to see your wallet balance increase or decrease. The debt-coupon system employed by the most successful next generation of algorithmic stable coins improved upon the rebase mechanic by making rebases driven by market participants. The debt-coupon mechanic created voluntary elastic supply, where market participants were incentivized to contract the token supply. This worked wonderfully for a while, helping many coins to achieve large market caps.

CDSD is the keystone in DSD V2’s new set of contraction incentives.

CDSD, the next evolution in Algorithmic Stablecoins

DSD V2 eliminates the debt-coupon mechanic. Expansion and contraction cycles remain, but those cycles are now achieved through CDSD. CDSD is an ERC20-compatible token that will be obtainable by burning free-floating DSD for CDSD 1:1. Unlike coupons, CDSD will be freely tradable and transferable without expiry. Users can lock their CDSD into the DAO to receive contraction rewards. Contraction rewards are the replacement for debt and come in the form of newly minted CDSD. CDSD can be redeemed during expansion cycles 1:1 for DSD. Only bonded CDSD can be redeemed. To encourage participants to bond DSD even during contractions, there is a capped 25% APY incentive that pays out in CDSD. This is a 40,000ft overview of CDSD, for all of the details of how CDSD works, see this DIP-10 article.

The first fully DeFi compliant USD stablecoin.