For the DeFi ecosystem to flourish we need a separate store of value or other safe long-term investment that leverages all means of decentralization and growth available in a safe and sustainable way. In the past projects like Olympus DAO tried to tackle the problem but haven fallen short of actually providing a store of value.
With the DRCS (Deviant Reserve Currency System) we look at the problem from a new angle without rebases while learning from the past. Our system, which we call a value-bound reserve provides more stability and sustainability while also gaining intrinsic value under challenging market conditions.
Basics
The Deviant Reserve Currency System (DRCS) is backed by various assets that give it every token an intrinsic value. The Minting and Exiting functions outlined below also give the token’s market price a soft lower and upper bound around its intrinsic value. If someone chooses to use the minting or exiting functionality, which is only profitable around the aforementioned lower and upper bounds, they forfeit the difference to the intrinsic value which is left in the protocol for all holders to enjoy.
What’s up with Intrinsic and Extrinsic?
Intrinsic value is basically what the assets behind every token are worth and thus represent what each token also should be worth. However, it is still an open market which gives every token also an extrinsic value which is the difference to market price and intrinsic value.
So this basically leaves us with a free-floating store of value that can leverage all means in the DeFi space to maintain and grow wealth. Exact investments decisions will in the future be made by democratic community votes.
Buy & Sell (Extrinsic)
Buying and Selling is something that our protocol can simply not control. It is up to our users to buy and sell reasonably. However, with Minting and Exiting we can provide a rough upper and lower bound as we will explain below.
Minting & Exiting (Intrinsic)
Minting is when you provide assets to our reserve and in return get our token at a discount. Exiting on the other hand is when you turn in our token and reserve assets at a discount. This discount only applies at an offset to intrinsic value and isn’t always profitable as it is designed to set boundaries.
Defining fair Mint and Exit pricing is a topic of its own and is a place where our team is putting in a lot of effort. In fact we have a distinctive paper which is currently being written to outline our plans around how it effects the fundamentals and dynamics of our reserve.
Value & Assets
The way to describe the value of our reserve isn’t as easy as it may seem. Depending how you count LPs and our own tokens you may end up at different values. Furthermore, what we do with our assets is another aspect for debate as it may lead to high intrinsic volatility, growth or even unnecessary risk and at worst permanent loss. It is especially detrimental to see OHM forks in particular building on USD-pegged assets (DAI, MIM, USDC) while neglecting the powerful tools like Ampleforth which we have in DeFi. We are planing to at the start be more USD dependant to provide a more stable investment in relation to USD pricing, however, this can evolve over time to react to changes in the DeFi space or in the world wide economy.
What are the benefits?
Without rebases we are able to achieve a more stable price which is the most important aspect for building a store of value. Furthermore, with better pricing of our Mints and the introduction of the Exit we can provide holders with a known lower bound (and upper bound) on market price. This and reducing complexity every step of the way will make it easier for holders to profit from our offering. To read everything in more detail you can read our full paper on our mechanics which goes in depth with Market Dynamics and much more.