VTD Challenges the Status Quo
Coupons are an Outdated and Static Concept
ESD, DSD and most of the forks have a static coupon system that faces a severe stress test currently because a significant part of the community does not believe in a sustained move above the peg of 1 USD. The current protocols do not incentivize investors enough to burn their coins, which is a significant risk to the whole project.
Liquidity pool providers and DAO investors should benefit from price volatility below the peg. While scalpers — trading between 0 and the peg — should not benefit from pure speculation and short-term holdings.
The Variable Time Dollar (VTD) team has been the leading innovator in the algorithmic stablecoin space (by first introducing variable epoch periods) and continues to do so by being the first to adopt a floating peg instead of being pegged to $1 Dollar.
Therefore we argue that we are no longer a “stablecoin” but instead an “Algorithmic Convergence Coin”, the first of our kind. We think a dynamic peg is revolutionary and will optimize the contraction cycle of VTD materially.
The Main Problem with the Current Algorithmic “Stablecoin” Ecosystem
The current coupon mechanism focuses on rewarding burning to get closer to $1, but it does nothing to punish selling below $1. Scalpers are accumulating below $1 (say 50 cents) and selling at $1 without the need to bet on an expansion cycle.
In the case of DSD and ESD, there’s not a good enough coordinated absorption of price suppressors to push into expansion, because those who are betting on expansion need to push the price above 1 and sustain it (which is nearly impossible at high market caps). They are fighting the entire market that has lost faith in the coupon system. This is a huge tail risk for the ecosystem as a whole.
VTD’s Solution: Lose the $1 peg and Change the Expansion/Contraction Mechanisms
While other projects try to solve the coupon problem by changing the coupon premium or how the premium is achieved or when coupons are minted, the VTD team thinks beyond this static view and solves the coupon problem by addressing the fundamentals of the system.
Protocol supporters (e.g. Dao and LP bonded tokens) should benefit from the price fluctuation from 50 cents to $1 dollar instead of scalpers. Therefore VTD will adopt a floating peg against the momentum of the price change of VTD itself to determine if we go into expansion or contraction.
VTD’s Floating Peg Example
For example, with ESD and DSD currently in debt cycles, scalpers make money buying below $1 and selling at $1 (or close to it), which Hodlers and bonders lose out. In VTD’s floating peg mechanics, an increase in price from 50 cents to 90 cents will automatically send VTD into expansion and reward protocol bonders. There’s no need for intensive capital to pump the token above $1 dollar and maintain it. The act of buying from scalpers or participants will send the protocol into expansion, rewarding those who believe in the project.
From a game theoretical point of view, a dynamic peg will disincentivize short-term investors and scalpers to implement a buy-low and sell-higher strategy, because it is unknown when the protocol will shift to an expansionary phase. This will even incentivize short-term investors and scalpers to hold their coins, because of the rewards during the next expansion phase.
What if the current price is above $1? The same principles apply. As long as the current TWAP is higher than the weighted average historical TWAP — VTD will go into expansion. Theoretically VTD may never drop below $1. Following this implementation VTD could expand and contract above $1 dollar. Which begs the next question…
Are We Still a Stablecoin?
Do we even want to be a stablecoin? Traditional algorithmic stablecoins have demonstrated key weaknesses during the contraction cycle. Investors have learned that there is no guarantee the protocol will move to expansion again — we think a dynamic peg is a game changer and it’s time for a paradigm shift, for a protocol completely out of the box that it creates its own token category.
We think that having a dynamic peg, market forces will eventually let it converge to a stable price point. One that isn’t forced to be $1 and can adjust dynamically depending on supply and demand of the ecosystem.
We have no doubt our peers will copy us and new projects forked from VTD’s floating peg mechanics will appear. But those who have been with us, believed in us, and continue to support us will reap the rewards of our first mover’s advantage.
