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.
The Black DAO aims to solve this by creating a non-pegged stablecoin called BLKD. By focusing on supply growth rather than price appreciation, The Black DAO hopes that BLKD can function as a currency that is able to hold its purchasing power regardless of market volatility.
No, BLKD is not a stablecoin. Rather, BLKD aspires to become an algorithmic reserve currency backed by other decentralized assets. Similar to the idea of the gold standard, BLKD provides free-floating value its users can always fall back on, simply because of the fractional treasury reserves BLKD draws its intrinsic value from.
Each BLKD is backed by 1 DAI, not pegged to it. Because the treasury backs every BLKD with at least 1 DAI, the protocol would buy back and burn BLKD when it trades below 1 DAI. This has the effect of pushing BLKD price back up to 1 DAI. BLKD could always trade above 1 DAI because there is no upper limit imposed by the protocol. Think pegged == 1, while backed >= 1.
You might say that the BLKD floor price or intrinsic value is 1 DAI. We believe that the actual price will always be 1 DAI + premium, but in the end that is up to the market to decide.
At a high level, The Black DAO consists of its protocol managed treasury, protocol owned liquidity, bond mechanism (bonding), and high staking rewards that are designed to control supply expansion.
Bonding in the "Bond" page generates profit for the protocol, and the treasury uses the profit to bond BLKD and distribute them to stakers. With LP bond, the protocol is able to accumulate liquidity to ensure the system stability.
Staking and bonding are considered beneficiary to the protocol, while selling is considered detrimental. Staking and selling will also cause a price move, while bonding (bonding) does not (we consider buying BLKD from the market as a prerequisite of staking, thus causing a price move). If both actions are beneficiary, 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 (Ⅹ). If both actions are detrimental, which implies both actors are selling, they both get the worst possible outcome (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 (both users gets the The Mad Hatter's hat).
- If one of us stakes and the other one bonds, it is also great because staking takes BLKD off the market and put it into the protocol, while bonding provides liquidity and DAI for the treasury!
- When one of us sells, it diminishes effort of the other one who stakes or bonds.
- When we both sell, it creates the worst outcome for both of us and the protocol (1, 1)
As the protocol controls the funds in its treasury, BLKD can only be bonded or burned by the protocol. This also guarantees that the protocol can always back 1 BLKD with 1 DAI. You can easily define the risk of your investment because you can be confident that the protocol will indefinitely buy BLKD below 1 DAI 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.
Rebase is a mechanism by which your staked BLKD balance increases automatically. When new BLKD are bonded by the protocol, a large portion of it goes to the stakers. Because stakers only see staked BLKD balance instead of BLKD the protocol utilizes the rebase mechanism to increase the staked BLKD balance so that 1 staked BLKD (sBLKD) is always redeemable for 1 BLKD.
Reward yield is the percentage by which your staked BLKD balance increases on the next epoch. It is also known as rebase rate. You can find this number on the Blk Finance staking page.
APY stands for annual percentage yield. It measures the real rate of return on your principal by taking into account the effect of compounding interest. In the case of Blk Finance, your staked BLKD represents your principal, and the compound interest is added periodically on every epoch (8 hours) thanks to the rebase mechanism.
One interesting fact about APY is that your balance will grow not linearly but exponentially over time! Assuming a daily compound interest of 2%, if you start with a balance of 1 BLKD on day 1, after a year, your balance will grow to about 1377.
The APY is calculated from the reward yield (a.k.a rebase rate) using the following equation:
It raises to the power of 1095 because a rebase happens 3 times daily. Consider there are 365 days in a year, this would give a rebase frequency of 365 * 3 = 1095.
Reward yield is determined by the following equation:
The number of BLKD distributed to the staking contract is calculated from BLKD total supply using the following equation:
Note that the reward rate is subject to change by the protocol.
As illustrated above, your BLKD balance will grow exponentially over time thanks to the power of compounding. Let's say you buy a BLKD for $400 now and the market decides that in 1 year time, the intrinsic value of BLKD will be $2. Assuming a daily compound interest rate of 2%, your balance would grow to about 1377 BLKD by the end of the year, which is worth around $2754. That is a cool $2354 profit! By now, you should understand that you are paying a premium for BLKD now in exchange for a long-term benefit. Thus, you should have a long time horizon to allow your BLKD balance to grow exponentially and make this a worthwhile investment.
There is no clear answer for this, but the intrinsic value can be determined by the treasury performance. For example, if the treasury could guarantee to back every BLKD with 100 DAI, the intrinsic value will be 100 DAI. It can also be decided by the future DAO. For example, if the DAO decides to raise the price floor of BLKD, its intrinsic value will rise accordingly.
Let’s say the protocol targets an APY of 100,000%. This would translate to a rebase rate of about 0.6328%, or a daily growth of about 2%. Please refer to the equation above to learn how APY is calculated from the rebase rate.
If there are 100,000 BLKD tokens staked right now, the protocol would need to bond an additional 2000 BLKD to achieve this daily growth. This is achievable if the protocol can bring in at least 2000 DAI daily from bond sales. If the protocol fails to achieve this, the APY of 100,000% cannot be guaranteed.
No. Once you have staked BLKD with Blk Finance, your staked BLKD (sBLKD) balance will auto-compound on every epoch. That increase in balance represents your rebase rewards.
You can track your rebase rewards by calculating the increase in your staked BLKD balance.
1. Record down the Current Index value on the staking page when you first stake your BLKD. Let's call this the Start Index.
2. After staking for some time, if you want to determine by how much your balance has increased, check the Current Index value again. Let's call this the End Index.
3. By dividing the End Index by Start Index, you would get the ratio by which your staked BLKD balance has increased.
Blk FInance is currently unaudited! It is a fork of Olympus DAO. Audits will occur at a later stage. Stay cautious!