Freq Set Dollar — FAQ
What is Freq Set Dollar?
Freq Set Dollar (FSD) is an ERC-20 self-stabilizing decentralized censorship-resistant non-collateral backed USD stablecoin.
How is FSD different from other stablecoins?
FSD is inspired by Empty Set Dollar(ESD) and Dynamic Set Dollar(DSD), with the similar mechanism, yet its major difference is the frequency, as its name says, with faster response to market demand through more frequent epochs, shorter lock period in DAO and LP, and more aggressive incentives to Liquidity Providers.
Who created Freq Set Dollar?
The original founding team is anonymous, with experienced solidity developers, professional traders on Wall Street and early investors in basis.io.
Who controls Freq Set Dollar?
Since launch Freq Set Dollar has had on-chain governance. This means that any changes or upgrades to the protocol need to be voted on by the community of token holders before they are enacted.
Mechanics
*We just put focus on the FSD specifics in this section, and for mechanics basics please refer to ESD/DSD documents.
What’s the difference in parameters with ESD/DSD?
- Epoch Length: 1 hour
- Advance() incentive: 100 FSD
- Bootstrap expansion ratio: 5% per epoch
- Bootstrap period: 168 epochs (7 days)
- DAO Lockup: 12 Epochs
- LP Lockup: 6 Epochs
- Bond rewards to DAO/LP: 50%:50%
- Maximum Debt Ratio: 50.00%
- Maximum Coupon Premium: 100.00%
- Maximum Coupon Redemption Penalty: 65%
- Coupon expiry: 720 epochs
What is happening during Bootstrap?
We have a bootstrap period of 168 epochs, i.e. 7 days, and the price is fixed at 2.2 to make the expansion ratio at 5%.
What is the Supply / Reward Mechanism?
Supply Elasticity in FSD is formulated in a similar way to DSD, and the change in demand formula is:
A positive number indicates supply should be increased by that amount. For example, if the TWP is $1.24 then the supply difference will be 1%, i.e. 1% of the total token supply is added to the total supply in order to devalue the high price.
How does FDS make a fairer coupon redemption?
Our goals is to:
- Give older coupons an advantage over newer ones, so people are incentivized to buy coupons early
- Prevent a gas-war at one specific point in time as every epoch has a different time where the penalty approaches 0 and every holder a different urgency to redeem (penalty he is willing to accept)
- Newer epochs can still redeem before older ones, but need to pay a penalty to all other holders.
We leveraged the coupon redemption mechanism from DSD and optimize the ratios.
The penalty is starting at65% / COUPON_EXPIRATION_EPOCHS * (COUPON_EXPIRATION_EPOCHS - COUPON_AGE) and is decaying linearly over30 min / COUPON_EXPIRATION_EPOCHS * (COUPON_EXPIRATION_EPOCHS - COUPON_AGE)
This gives older coupons a lower penalty at the beginning of the epoch and a faster decay than newer epochs.
How does Voluntary Elastic Supply work?
To meet the optimal market demand, FSD’s total supply can either expand or contract. These mechanisms are mandatory in order to counteract the scenarios of having FSD trading above or below 1$.
FSD trading <1$
If the token price is below the peg, token holders must be incentivized to contract the token supply as doing so will help to get the spot price back towards the peg. To do so, the DAO issues so-called Coupons (debt). To purchase Coupons, users burn their FSD, thereby reducing circulating supply. This is incentivized as you always purchase Coupons with an added discount which depends on the debt ratio (Debt/Circulating supply) in the system. Once there is a positive rebase event, the DAO mints a programmatically sufficient amount of new FSD. In this case, an equal amount of Coupons will be redeemable for FSD. Important to note is that Coupons face an expiry of 360 epochs after purchase.
The debt ratio in FSD is capped at 35% which implies a max. premium of ≈46%.
FSD trading >1$
We must also consider what happens when the price of FSD goes above its $1 peg. As the token price moves above the peg, the token supply needs to expand in order to push it back down. In a positive rebase event, the DAO mints an appropriate amount of new FSD. In this case, the equal amount of Coupons will be redeemable for FSD and the remaining Coupons (debt) will automatically be cleared. If any FSD remains after all existing Coupons have been redeemed, the bonded FSD holders and liquidity providers (LPs) will be rewarded. After all existing Coupons have been cleared, the entire supply extension will go towards bonded FSD holders and LPs.
