Why do we need TiPiDao in the first place?¶
Dollar-pegged stablecoins have become an essential part of crypto due to their lack of volatility as compared to tokens such as Bitcoin and Ether. Users are comfortable with transacting using stablecoins knowing that they hold the same amount of purchasing power today vs. tomorrow. But this is a fallacy. The dollar is controlled by the US government and the Federal Reserve. This means a depreciation of dollar also means a depreciation of these stablecoins. TiPiDao aims to solve this by creating a free-floating reserve currency, TPD, that is backed by a basket of assets. By focusing on supply growth rather than price appreciation, TiPiDao hopes that TPD can function as a currency that is able to hold its purchasing power regardless of market volatility.
Is TPD a stable coin?¶
No, TPD is not a stable coin. Rather, TPD aspires to become an algorithmic reserve currency backed by other decentralized assets. Similar to the idea of the gold standard, TPD provides free floating value its users can always fall back on, simply because of the fractional treasury reserves TPD draws its intrinsic value from. TPD is backed, not pegged. Each TPD is backed by 1 BUSD, not pegged to it. Because the treasury backs every TPD with at least 1 BUSD, the protocol would buy back and burn TPD when it trades below 1 BUSD. This has the effect of pushing TPD price back up to 1 BUSD. TPD could always trade above 1 BUSD because there is no upper limit imposed by the protocol. Think pegged == 1, while backed >= 1. You might say that the TPD floor price or intrinsic value is 1 BUSD. We believe that the actual price will always be 1 BUSD + premium, but in the end that is up to the market to decide.
How does it work?¶
At a high level, TiPiDao consists of its protocol managed treasury, protocol owned liquidity (POL), bond mechanism, and staking rewards that are designed to control supply expansion. Bond sales generate profit for the protocol, and the treasury uses the profit to mint TPD and distribute them to stakers. With liquidity bonds, the protocol is able to accumulate its own liquidity. Check out the entry below on the importance of POL.
What is the deal with (3,3) and (1,1)?¶
(3,3) is the idea that, if everyone cooperated in TiPiDao, it would generate the greatest gain for everyone (from a game theory standpoint). Currently, there are three actions a user can take: Staking (+2)Bonding (+1)Selling (-2)Staking and bonding are considered beneficial to the protocol, while selling is considered detrimental. Staking and selling will also cause a price move, while bonding does not (we consider buying TPD from the market as a prerequisite of staking, thus causing a price move). If both actions are beneficial, the actor who moves price also gets half of the benefit (+1). If both actions are contradictory, the bad actor who moves price gets half of the benefit (+1), while the good actor who moves price gets half of the downside (-1). If both actions are detrimental, which implies both actors are selling, they both get half of the downside (-1). Thus, given two actors, all scenarios of what they could do and the effect on the protocol are shown here: If we both stake (3, 3), it is the best thing for both of us and the protocol (3 + 3 = 6).If one of us stakes and the other one bonds, it is also great because staking takes TPD off the market and put it into the protocol, while bonding provides liquidity and BUSD for the treasury (3 + 1 = 4).When one of us sells, it diminishes effort of the other one who stakes or bonds (1 - 1 = 0).When we both sell, it creates the worst outcome for both of us and the protocol (-3 - 3 = -6).
Why is PCV important?¶
As the protocol controls the funds in its treasury, TPD can only be minted or burned by the protocol. This also guarantees that the protocol can always back 1 TPD with 1 BUSD. You can easily define the risk of your investment because you can be confident that the protocol will indefinitely buy TPD below 1 BUSD with the treasury assets until no one is left to sell. You can’t trust the FED but you can trust the code. As the protocol accumulates more PCV, more runway is guaranteed for the stakers. This means the stakers can be confident that the current staking APY can be sustained for a longer term because more funds are available in the treasury.
Why is POL important?¶
TiPiDao owns most of its liquidity thanks to its bond mechanism. This has several benefits: TiPiDao does not have to pay out high farming rewards to incentivize liquidity providers a.k.a renting liquidity. TiPiDao guarantees the market that the liquidity is always there to facilitate sell or buy transaction. By being the largest LP (liquidity provider), it earns most of the LP fees which represents another source of income to the treasury. All POL can be used to back TPD. The LP tokens are marked down to their risk-free value for this purpose.