DAIQUILIBRIUM — ALGORITHMIC STABLECOINS AND DAIQ — 101 GUIDE

12 min readJan 24, 2021

The purpose behind this article is to help you understand 1. The very basic mechanisms of algorithmic stablecoins 2. What Daiquilibrium(DAIQ) is, 3. How the coupon system works, and 4. How you can master this system in order to maximize your possible earnings.

This article is split into two sections.

The first section provides information about the project itself, its uniqueness, and how you can use strategies to maximize profits.

The second section is intended to be a guide and walkthrough on how to buy DAIQ, provide LP and the contents of the website.

Section 1:

Daiquilibrium: A dynamic and Interactive Ecosystem, Not A Rebase Token

How Do Algorithmic Stablecoins Work?

*Expansion & Debt cycles.

How is DAIQ different from its competitors?

*The Importance of CHOICE

*The Launch

*DAIQ’s Coupon system

*How Do I Buy Coupons?

*Dynamic Epochs

*How Does The Coupon System Work? And how is it profitable?

Section 2:

Step-By-Step Walkthrough of the Website

*How To Buy DAIQ

*How To Provide Liquidity

*LP Rewards

*Regulation

*Governance

*Coupons

Daiquilibrium: A Dynamic and Interactive Ecosystem, Not A Rebase Token

You may have participated in rebase tokens, those are a certain type of Algorithmic Stablecoins, where having positive and negative rebases is the concept. In these coins, positive rebase means tokens are printed and added to your wallet, negative rebase means that tokens are taken away from your wallet. DAIQ does NOT have this rebase system. You will not lose any of your tokens.

However, you have the option to manually burn them by purchasing coupons. These coupons will give you additional tokens if the price gets above 1$ or 1 DAI.

DAIQ is an interactive ecosystem in contrast to traditional rebase tokens such as AMPLEFORTH and Base Protocol. With DAIQ, you can manually partake by buying coupons when the price is below peg(increasing your rewards when the price hits peg), and add liquidity when the peg is reached, to gain additional rewards. It’s a continuous game where you can manage risks at a much higher level than other Algorithmic Stablecoins. Of course, if you prefer to just hold that is also a possibility. DAIQ is a versatile ecosystem where everyone can partake in a multitude of different strategies.

How Do Algorithmic Stablecoins Work?

To completely grasp this protocol, we need to clear up some details. First of all, let me roughly explain how Algorithmic stablecoins work. Algorithmic stablecoins, in the case of DAIQ, DSD, and ESD, have 2 cycles worth noting:

Expansion 2. Debt

Expansion happens when the price is above peg, debt happens when the price is below peg. In Daiquilibrium or DAIQ’s case, the peg is 1 DAI, which equates to $1.
During debt cycles(below peg) people can burn their tokens and get coupons as a reward. 1 token equals 1 coupon, but when buying coupons you also get a premium.
Coupons can be redeemed during expansion cycles(over peg), the higher the price the more coupons become redeemable.
During expansions, people also get rewards by staking (bonding) their native tokens or LPs.

A simplified version, and example of a valid strategy:

Buy coupons in debt cycle(below peg).
Push price to peg.
Add liquidity for staking/bonding rewards.

In other words, you’ll get increased rewards by buying coupons in a debt cycle and providing LP in the expansion cycle. Of course, partaking in such a strategy is not for everyone. But being aware of how the ecosystem works can be beneficial if you simply want to hold it as well.

(If you wish to purchase coupons but don’t know how, scroll down to the “How Do I Buy Coupons?” to learn how.)

How is DAIQ different from its competitors?

The Importance of Choice

DAIQ fully lets the community choose their own destiny within the ecosystem. This is demonstrated through Dynamic Epochs, customizable coupons, and a fair launch. The key with DAIQ is that you the holder have the choice to do whatever you want, instead of being forced to lose your tokens. Any changes to the ecosystem can be proposed through our governance page.

The Launch

When algorithmic stablecoins launch they usually have a bootstrapping period, which is a time period where the price the contracts see is fixed. The first tokens are minted through advances, so basically people get the first advances and exponentially multiply their tokens until bootstrapping ends. This ended up being fine for DSD and ESD as they were still a new concept, but other forks got destroyed because of bots calling advances and ending up with 70% of the total supply.

To prevent this, DAIQ launched with a TGE. As a result, everyone could mint DAIQ 1:1 with DAI. This allowed us to get a better initial distribution and move this DAI to the treasury. Additionally, bots are getting paid in DAI to advance, not DAIQ, reducing the selling pressure of the native token.

The Coupon System

ESD and DSD’s coupon system lacks the variable function that DAIQ has. I.e DSD coupons have a fixed expiration, if the token doesn’t get to 1$ before that they expire worthlessly.

DAIQ instead allows people to choose their own expiration period, ranging from 3 epochs to 100k epochs(at the current price this is 7 years). If you choose a short expiration period the higher premium you get. The higher the risk, the bigger the rewards.

This is good both for buyers (as they can customize their risk) and for the protocol. You see, DSD and ESD whales are constantly under pressure, if coupons expire before the token goes back to 1$ they get a massive hit, both because they lose their investment but also because people consider coupons expiring before the next expansion a failure of the protocol (and they are right)

Dynamic Epochs

DAIQ aims to return to the peg as soon as possible, while at the same time stimulating the rate of transactions. DAIQ can rubberband even more effectively than its predecessors ESD and DSD by dynamically changing epoch duration according to how far the current price is from the peg price. In essence, the epochs get shorter the further the price strays from 1$, allowing a faster return to peg.

The max amount of epochs, 100k, equates to currently 7 years. That’s because DAIQ also has dynamic epochs. 1 epoch in DSD is 2 hours, in DAIQ epoch length is calculated based on the token’s price, the further away from 1 dollar the token is, the shorter the epochs are (minimum is 30 minutes, maximum is 2 hours). This is done to return to peg faster

DAIQ’s Coupon system

How is it profitable?

Let’s repeat the most important part of the coupon system:

During debt cycles(below peg) people can burn their tokens and get coupons as a reward. 1 token equals 1 coupon, but when buying coupons you also get a premium.
Coupons can be redeemed during expansion cycles(over peg), the higher the price the more coupons become redeemable.

But how is this profitable?

A hypothetical example of how the coupons can profit you:

If you purchase DAIQ at around 50 cents and subsequently change them to coupons that last for 101 epochs — you will receive a 180% premium. This means that you will get the 2x from your initial DAIQ buy, in addition to the 180% premium if you redeem your coupons after a sufficient expansion. The lower the price of DAIQ, the higher premium you’ll receive.

So, obviously, you would like the price to hit peg if you buy coupons. Let us take a look at the potential strategy once more.

Buy coupons in debt cycle(below peg).
Push price to peg.
Add liquidity for staking/bonding rewards.

This strategy seems simple enough. But if you have the resources and capabilities, you can take it a step further to maximize the profits:

Buy coupons at HIGH RISK(3–100 epochs) in the debt cycle(below peg). Keep in mind, the lower the price of DAIQ when you buy coupons, the higher the premium.
Lower liquidity to push price more easily to peg.
When the price has reached peg, add liquidity for staking/bonding rewards.

Having customizable expiry lets you adjust your own risk. It is completely up to you — high risk, medium risk, and low risk.

In simple terms:

Low risk = Long expiration date, lower premium(additional rewards).

High risk = Small expiration date, high premium.

The premium % that you receive will vary. It is based on three formulas to calculate what you’ll receive, shown in the pictures below. There are 3 different variables to take into consideration. We have debt ratio, TWAP, and epochs. The debt ratio is R. This is found by debt/supply. The TWAP is P and is the Uniswap Time-Weighted-Average-Price. The epoch variable is custom, and the purchaser decides the length.

High risk: 3–100 epochs premium from ≈ 360% to around 160%

Medium risk: 101–1000 epochs ≈ 160% to around 60%

Low risk: 1001–100 000(≈7 years) epochs ≈ 40–50%

TLDR: You can simply go to the website and hover the “purchase coupons” to see how much premium you will receive in real-time. If you want an additional overview of how the formula works, you can read this article:

https://daiquilibrium.medium.com/development-update-2-3a16391dbbab

How Do I Buy Coupons?

To buy coupons, simply write your intended amount of DAIQ and press “purchase”.

2. Here you can see our Dynamic Epoch in action. Set your intended amount of epochs(30 min — 2hr per epoch), see your premium, and press “purchase”.

Based on the formula and its specific variables, 300 epochs will currently give you a 75% premium, in addition to the price growth.

4. After the transaction is complete the website provides you with detailed information of what epoch you bought, your coupon balance, and the expiration epoch.

As you can see, the balance shows 35.06 instead of 20. That’s simply because 75% more than 20 results in 35.06.

This section will provide a guide on 1. How to buy DAIQ 2. How to provide LP and 3. Step-By-Step guide of the website

1. How To Buy DAIQ:

Go to the DAIQ “trade” page: https://daiq.io/trade

2. Go to Uniswap by pressing “trade” on the DAIQ sidebar and menu.

3. Ensure that the contract address for DAIQ is correct: 0x73d9e335669462cbdd6aa3adafe9efee86a37fe9

4. Enter the amount you want to buy. Press “swap”, set the appropriate gas fees, and press “confirm” on the Metamask notification.

Congratulations! When the transaction completes, you will receive your DAIQ tokens.

2. How to provide LP and receive UNI-V2 tokens with DAIQ-DAI pair:

In order to provide liquidity for DAIQ, you will need DAI and DAIQ pair.

Go to the DAIQ “trade” page again: https://daiq.io/trade

2. Press “supply” to add liquidity.

3. Set your intended amount. If you have DAI and DAIQ in your wallet, Uniswap will automatically split 50% DAIQ and 50% DAI to provide the proper UNI-V2 tokens in return. Press “Approve DAIQ and DAI”

4. Press confirm on both.

5. When you have approved DAIQ and DAI on Uniswap, you need to press “supply” and “confirm supply”. Again, confirm on Metamask.

In this case, 38.39 DAIQ is being pegged to 20 DAI based on the current price.

After the transaction is completed, you will get a confirmation of your funds being sent/received. Great job! You have successfully contributed liquidity to the DAIQ-DAI Uniswap LP. In exchange for liquidity, you will receive UNI-V2 tokens that reflect the liquidity you contributed.

The next step would be to “Stage and Bond” your tokens in the LP Rewards section.

3. Step-By-Step Walkthrough of the Website:

https://daiq.io/

Wallet:

https://daiq.io/wallet

In the wallet section, you can see your balance, staged, and bonded DAIQ.

Stage: You can stage your DAIQ tokens here. You’ll have to do that before you can bond.

Bond: You can bond/stake your DAIQ tokens here.

LP Rewards:

https://daiq.io/rewards

Stage: When you have added liquidity through uniswap, you can “stage” your UNI-V2 tokens, adding them to the system.

Bond: After you have “staged” your tokens, you can stake/bond your LP or UNI-V2 tokens.

Claim: Get your DAIQ LP rewards.

Provide: Supply more Liquidity from your rewards.

Regulation:

https://daiq.io/regulation

On the sidebar, you’ll find “regulation”. Here you can find a complete overview of the token distribution, DAO, pool, and debt.

Under token distribution, you can see that currently, 80% of the supply is circulating. In this case, 80% of 11,974,254 makes it 9,579,403. This will always vary.

So why does the supply vary?

What you have to understand is that Daiquilibrium is a complete ecosystem. The tokens are not static with a one-dimensional purpose. You can stage and bond tokens, some of the supply goes to the pool as liquidity, and if you buy coupons, you essentially burn the supply 1:1 until you redeem your coupons.

Governance:

https://daiq.io/governance

The purpose of this page is simply governance and proposals. The key to successful governance is to make decisions in the best interest of as many people as possible, initiating proposals to make the DAIQ protocol better for the community. An example of this is the proposal to make coupons customizable.

Coupons:

https://daiq.io/coupons

In the coupons section, you can burn DAIQ tokens 1:1 for coupons. The website will automatically use the formula to calculate your premium percentage.

TWAP(Time-weighted average price) needs to be above 1$ to redeem coupons. Only a small number of coupons will be redeemable per epoch, and this number will increase as the price rises.

Additionally, the “redemption penalty” at the bottom right, is a percentage of your coupons that gets burnt. It starts off at approximately 50% at the start of every epoch and gradually decreases to 0 when reaching half the epoch length. The reason for this is to prevent bots from redeeming their coupons immediately at the start of an epoch so the majority of the community has a chance to do it instead of bots.

Active contracts in the DAIQ ecosystem: