DUSD & Earn

What is DUSD?

DUSD is the USD-pegged stablecoin issued in DeFi Dollar. It’s fully decentralized, over-collateralized and backed by collateral in the protocol.

In contrast to most of its competitors, DUSD is a resilient stablecoin by design:

• only backed by crypto assets (no real world assets or custody by centralized players)

• not subject to collateral changes and protocol upgrades (immutable)

• directly redeemable (always convertible in a fast and liquid way)

What are DUSD's main benefits compared to other stablecoins?

• DUSD uses only the most decentralized assets as collateral - like LINK, UNI and AAVE

• It is always redeemable for the underlying assets, meaning you can always swap it as if worth $1, for the collateral backing it

• The contracts used to issue DUSD are immutable, not allowing any changes and significantly reducing attack vectors

• DUSD has native incentives via Protocol Incentivized Liquidity directed by governance, ensuring that there will always be sufficient liquidity to handle transactions

What is DUSD’s peg mechanism?

DeFi Dollar's market-driven monetary policy through user-set interest rates enables DUSD's peg to dynamically respond to situations where the token is above or below $1.

When DUSD trades above $1, borrowers tend to reduce their rates due to lower redemption risk, making borrowing more and holding DUSD less attractive. This helps correct the price downwards.

In contrast, when DUSD trades below $1, arbitrageurs will initiate redemptions to restore the peg. Moreover, borrowers' exposure to redemption risk prompts them to increase interest rates, boosting demand for DUSD (and Earn deposits) and pushing its price upward.

How can I earn with DeFi Dollar?

• Stability Pool deposits (Earn): Earn protocol revenue by depositing DUSD into the various Stability Pools.

• Protocol Incentivized Liquidity (PIL): Supply liquidity for DUSD onto the incentivized external DEXes.

Where does the yield for Earn come from?

The yield comes from two sources:

• Interest payments: Each borrow-market funnels 75% of the of its revenue to its Stability Pool depositors (Earners). This is paid out in DUSD.

• Liquidation gains: Your DUSD will be used to liquidate under-collaterized loans, effectively buying their collateral with a ~5% discount. This is paid out in (staked) collateral token.

All the yield is fully sustainable, scalable and “real”, with no token emissions and lockups.

Is there a lockup period?

There is no lockup period. Users are free to withdraw their DUSD deposits whenever they want.

What is the estimated yield on Earn?

The yield is a representation of the rates borrowers are paying. Since 75% of the borrowers’ interest payments go to Earn, the effective yield can exceed the average interest rate paid in a borrow market if less than 75% of the DUSD supply is deposited to the respective Stability Pool. This yield amplification sets DeFi Dollar apart from competitors and money markets where lending rates cannot be higher than borrow rates.

Check historic rates our Dune Dashboard (currently in preparation).

Why are there multiple Stability Pools?

The goals are to:

• Establish separate borrow markets for different collateral assets with their own market driven interest rates, using the Stability Pool backing to dynamically split redemptions across the available collaterals.

• Compartmentalize the risks as much as possible when depositing to the respective Stability Pools (Earn) by giving the depositors control over which collateral assets they want exposure to in case of liquidations.

How do risks differ for the different Stability Pools?

Users can deposit their stablecoins into the Stability Pool of their choice, aligning with their risk preference and the types of collateral they're comfortable being exposed to. By selecting pools associated with specific collateral tokens, participants can tailor their risk exposure and potential reward profile.

By offering separate pools for different collateral types, the system allows users to choose their exposure based on the perceived risk and potential return. This compartmentalization helps manage systemic risk, ensuring that impacts from liquidations in one asset class don't disproportionately affect the entire ecosystem.

It is important to note that all DUSD holders including depositors still remain dependent on DUSD to keep its peg, remaining exposed to the collateral tokens.