Daiquilibrium

Jan 11, 2021

4 min read

Introducing Daiquilibrium

Daiquilibrium (DAIQ) is an algorithmic stablecoin forked from code written by the Empty Set Dollar (ESD) and Dynamic Det Dollar (DSD) devs.We’ve implemented a few custom features with original code, as well as a redesigned bootstrapping method which gives everyone the opportunity to buy at the same price, maximally reflexive to demand.

For a bulleted summary, please visit the TL;DR at the end.

What’s the issue?

ESD introduced the concept of a non-collateralized stablecoin but carries design elements that seem intended to benefit earlier adopters at the expense of maintaining its peg. DSD refined some issues by improving reflexivity, but maintains a slow response to demand due to overly long lockups. Both rely on centralized, freezable USDC in their design, with ESD going so far as to maintain a USDC treasury, arguably eroding its status as a pure non-collateralized stablecoin.

The advance bootstrapping method of launch, ineffective at distributing tokens fairly based on demand, leads to unnecessary price fluctuations and bloated rewards for early DAO holders. It is unnecessary and counterproductive to limit supply so tightly at launch, which results in early holders massively in profit and capable of singlehandedly impacting the price beyond the bounds of acceptability for a useful stablecoin. This problem is magnified by the extraordinarily over-incentivized early advance calls, and the hoarding of the rewards from those calls out of general circulation, and into the DAO. The competition and massive gas wars around early advances benefit no one but ETH miners and bot makers. It doesn’t have to be this way.

Why DAIQ?

We built Daiquilibrium hoping to solve the issues we see in ESD and its derivatives. We introduce a new launch method, the initial swap offering, allowing anyone to purchase DAIQ in exchange for 1 DAI prior to the start of bootstrapping. Proceeds from the initial swap will fund advance callers to the tune of 150 DAI per epoch. This approach to launch has two key advantages: it tempers the typical price spike at launch, and curbs the fluctuations afterwards by providing a launch method that is reflexive to initial demand.

We’ve introduced a dynamic bootstrapping length which targets a supply of 25m tokens at a fixed rate of 4.5% inflation per epoch, corresponding to a fixed time weighted average price (TWAP) of 1.54 DAI:DAIQ. Please see our bootstrapping length visualizations:

A dynamic bootstrapping length lets our protocol be reflexive to initial demand, without minting an oversupply of tokens, all while staying closer to peg.

Our second change to launch is to pay advance callers in DAI, saving liquidity providers from impermanent loss. Each successful advance call will be paid 150 DAI from the reserves built up during the initial swap. Once the DAI from the swap is exhausted, the protocol will switch to rewarding 100 DAIQ per advance. We believe this is sufficient to incentivize development of automated protocol management, without being overcompensated at the expense of regular users. After all, the protocol is hiring for a job, and holders pay the salary, so best be frugal.

The Daiquilibrium protocol is designed to be more reflexive to demand by varying the length of each epoch depending on the TWAP, between a minimum of 30 minutes and a maximum of 2 hours. A projection of epoch length vs. TWAP is provided below:

Epoch length is calculated using this formula:

let normalizedPrice;

if price > peg

normalizedPrice = peg / price;

else

normalizedPrice = price;

Epoch duration =Min Period + normalized price*(Max Period — Min Period)

with an initial maximum period of 7200 seconds (2 hours) and a minimum period of 1800 seconds (30 minutes).

Active contracts are located at:

  • 0x0aF9087FE3e8e834F3339FE4bEE87705e84Fd488 DAO (DAIQS)
  • 0x73D9E335669462Cbdd6aa3AdaFe9efeE86a37Fe9 DAIQ
  • 0x362f5F2C5855Ff09e542e89b8Ab7f7d0928C62da Oracle
  • 0x26B4B107dCe673C00D59D71152136327cF6dFEBf UniswapV2 DAI:DAIQ Pair
  • 0x7D9A429e8EBecD2726BD2bc0B843864ba075F0b4 LP Incentivation Pool

TL;DR

  • Initial swap offering lets anyone buy DAIQ at $1
  • After conclusion of the swap, bootstrapping begins at a fixed 4.5% inflation targeting 25m supply
  • Epoch duration is dynamic, and varies between 30 minutes and 2 hours, getting shorter the further it is away from the time weighted average price (TWAP)
  • Supply is distributed 40% DAO / 60% LP (favoring liquidity providers)
  • Advance callers are paid 150 DAI, transitioning to 100 DAIQ after bootstrap
  • DAO exit lockup 24 epochs, LP exit lockup 12 epochs
  • After bootstrapping, a maximum supply change of 10% takes effect
  • DAIQ keeps the DIP-2 coupon redemption penalties introduced by DSD
  • 360 epoch coupon expiry
  • Full governance integration
  • Custom unit tests to accommodate the changes, including the DAI oracle (i.e. no ZAI bug)
  • No team tokens, no premine, everyone acquires tokens the same way during the initial swap

Website : https://daiq.io/

Twitter : https://twitter.com/daiquilibrium

Telegram : https://t.me/daiquilibrium

Github : https://github.com/daiquilibrium