Freq Set Dollar — Yet Another Algorithmic Stablecoin?
Overview
Freq Set Dollar builds upon successful primitives from existing stablecoin projects, including Empty Set Dollar & Dynamic Set Dollar. Despite their huge success in total value locked and market cap, we do see significant challenges in those experiments:
Time to market
Introducing longer epoch intervals may seem more stable, but like ESD’s 8-hour epoch, its price stayed far from one dollar for such a long time, as it can not reflect the needs of the market in time. DSD tried to fix it by shortening one epoch to 2 hours, which indeed increased supply more effectively, but the new supply was locked for three days, causing an even more severe liquidity crisis during the expansion. When came to contraction, all of the accumulated new supply suddenly flooded the market, triggering another debt crisis.
FSD believes that timely reflecting supply to market demand is the key to the Voluntary Elastic Supply mechanism. In addition to market cap and total value locked, the trading volume is even more critical. The more frequent the fluctuation, with more trades, the more stable it is. Thus, FSD shortens the epoch duration and DAO lockup time significantly to encourage both value bet and speculative trading. In this case, the price fluctuates frequently in short term, leading to a “stable” pegging to 1 dollar in the long-term.
Fairness to community
Everybody in the community should have the opportunity to contribute to and benefit from the historical creativity in DeFi. While in ESD we see whales dominating the coupon purchase and redemption, some even invented bots, and thus manipulating the market price.
To make it fairer to the community, FSD is ZERO pre-mined from the team or developers, and introduces One-Click Advance, so everyone in the community— not only skilled developers — has a chance to get the rewards, almost for free besides the Eth gas. FSD also leverages DSD’s coupon system and has set a more aggressive strategy in coupon premium and redemption penalty to give users more incentives to buy coupons early.
As an introduction, the following chart provides a simplistic overview of the major differences between FSD and other stablecoins:
Major Improvements
Instead of reinventing the wheel, FSD leverages most of the codes from ESD and DSD which has been proved reliable and robust in past experiments, and to bring minimum unknowns to the community.
- Shortened epoch duration to 1 hour.
- Shortened DAO/LP lock period to 12 epochs and 6 epochs.
- Extended coupon expiry to 720 epochs.
- FSD rewards 50% to bonded holders and 50% to liquidity providers to incentives a deep liquidity pool.
- Aggressive coupon system with 100% max premium and 65% redemption penalty.
- More resilient supply moving by 1/24% of price difference.
Here is the code diff with ESD’s DAO and LP contracts for a quick review.
