How It Works
Centralized versus decentralized
Central banks back their currencies using their reserve assets. In the same way, D3 Protocol will back DEFI using crypto reserve assets. Unlike crypto-native stablecoins such as BUSD, which are pegged to the U.S. dollar, D3 Protocol holds DeFi 3.0 yield bearing crypto assets as reserves in the treasury (constantly generating additional returns to back DEFI and reward DEFI stakers).
Economics of the DEFI token
The DEFI token is therefore not pegged to any fiat currency, it is free-floating. This means that it is backed by the protocol’s supply of BUSD (and other yield bearing crypto assets) held in the treasury. Each DEFI is backed by a minimum of 1 BUSD, and if DEFI ever trades below 1 BUSD the treasury buys back and burns DEFI, reducing supply and bringing the price of DEFI back to 1 BUSD.
When DEFI trades above 1 BUSD the protocol increases supply by minting and selling new DEFI tokens in exchange for different yield bearing DeFi 3.0 assets. The buyer receives vested DEFI at a discount versus the market price. This builds the treasury, to increase the backing DEFI and pay staking rewards (DEFI holders stake their tokens in order to receive auto-compounding rewards).
Backed not pegged
It is important to understand that whilst DEFI is backed by BUSD, it is not pegged. 1 BUSD is the minimum price that DEFI will trade at, and there is no upper limit. The DEFI token price will equal 1 BUSD plus premium. The premium is decided by the market (fair market value) meaning that there is no upper limit on price - making DEFI a “stable” free-floating currency.
The base price backing of DEFI will increase over time as the treasury grows. It is important to understand that D3 Protocol has an innovative auto-investing treasury securing yield bearing DeFi 3.0 assets through transaction taxes and mints, that immediately start generating revenue for the treasury, and increasing the backing price of DEFI.
Last modified 3mo ago