BASD: Why is this stable coin not so stable?
Many of the BASD community are new to algorithmic stable coins. So, the question has been asked: “Why is this stable coin, not so stable?”
We want to provide an overview for the community on the power of compounding, the intention of BASD and why the price will fluctuate if the intention is to create a “stable coin”.
Example compounding
You’re probably familiar with ESD…the ESD model relies on the power of compounding and so does BASD. It essentially creates an environment whereby locking funds into the DAO allows you to auto-compound your rewards over time. It also provides you with voting rights on future developments of the protocol.
The more engaged and aligned the community are with the long-term goal of establishing a stable and evolving asset, the larger the ecosystem will become. This, in turn, provides you with significant voting rights, creating a community owned and run protocol.
Below is an example to demonstrate that whilst the reward percentage may not increase, the effects of compounding ensures that your rewards will both continue to accumulate and grow with each epoch.
The graph is based on 3% compounding per epoch (1hour) over the course of 10 days. You can see that the longer you remain bonded to the DAO the more drastic the increase to the rewards with each epoch.
Please note that this is JUST AN EXAMPLE and the max expansion for BASD is 4.5%.
Intention/ Objective
The intention of BASD is to create a stable coin pegged to $1 that grows with the community long-term.
You may find that there is an adjustment period when trying to understand the mechanics of BASD. However, the concept will become clear as you engage with the protocol and begin to understand the working functionality of the compounding and reward system. As always, don’t be afraid to reach out to community members with questions and consult our articles for further reading.
Cycles:
The BASD model revolves around two cycles: expansion and debt.
During the expansion phase which is determined by BASD fluctuating over $1, it is normal to see the price increase well over it’s intended $1 long term peg.
This is a direct result of new buyers entering the market, after being attracted by the high APY reward system, when funds are bonded to the DAO and LP pool.
Eventually these rewards create enough sell pressure to push the price below $1. This signals the beginning of a new phase; debt.
During the debt cycle, rewards stop being distributed to the DAO and LPs and users will be incentivized to burn their BASD for coupons at a discounted price (based on the debt ratio).
Once enough BASD has been burnt for coupons (effectively reducing the supply) the buy pressure will being to outweigh the sell pressure. This pushes the price of BASD back over $1 and into the expansion phase once again.
In the proceeding expansion cycle users who burnt their BASD supply for coupons at a discounted price will be able to redeem these coupons for BASD.
Coupons expire after 360 epoch = 15 days.
The intention of the BASD reward system is to enable users to grow their holding alongside the growth of the protocol via bonding and participating in the DAO, or bonding to the LP.
This differs from centralized protocols such as BUSD where the only benefit is the provision of a stable asset.
Below is a chart demonstrating the intended trajectory model of BASD in the coming months. As you can see the expansion and debt cycles become less volatile until BASD eventually stabilizes at it’s intended $1 peg.
Official links:
Website: https://basd.finance/
Github: https://github.com/basdollar
Twitter: https://twitter.com/agilesetdollar
Medium: https://basdollar.medium.com/
Announcements: https://t.me/BASDAnnouncements
