Author: DeFiChain Official

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Grand Central Hardfork

On-Chain Governance & Corsortium

The Grand Central Hardfork is the final update for DeFiChain this year, and is one of the biggest and most monumental updates of 2022. This Hardfork comprises of 4 main features:

  • On-chain governance
  • Token consortium framework
  • Support for masternode parameter updates (owner, operator, reward address)
  • Pool commission and reward fixes

Upon closer examination, it includes notable features such as the long-awaited on-chain governance and consortium. This Hardfork addresses some of the long-awaited product debt and prepares the DeFiChain community for more explosive growth in 2023. In this blogpost, we will share more details about some of the more significant features in this Hardfork.

What is DeFiChain On-Chain Governance and how does it benefit the community?

To make changes in the DeFiChain ecosystem, we can submit proposals (3 types) to be voted on by masternode owners:

  • Community development fund request proposal (also known as Community Fund Proposal; CFP)
  • Vote of confidence (also known as DeFiChain Improvement Proposal; DFIP)
  • Block reward reallocation proposal

What is On-Chain Governance about: Currently, the process of creating the proposal and voting is largely done off-chain. Moving forward, with On-Chain Governance (OCG), it means that any proposal for change which requires voting by community (via masternodes) can be conducted on the blockchain.

Value to DeFiChain community: This new proposal will offer 2 distinct benefits to the community:

  • This strengthens our governance structure, and ensures that there is perfect transparency in the entire voting process for the DeFiChain community.
  • The voting results will now be available real-time on a dashboard (see image 1) on defiscan.live, which makes tracking the results much easier. For masternode owners, they will be able to generate a script to vote for each proposal via the dashboard, which reduces the effort required for voting. Overall, we expect this to result in higher levels of participation in the voting of proposals.
Image 1: Interface for On-Chain Governance

User Flow in On-Chain Governance: The table below shows the broad user flow for the (1) proposal creation, and (2) voting process with the introduction of OCG.

What is DeFiChain Consortium and how does it benefit the community?

In DeFiChain, tokenized digital assets (see the table below) are meant to be backed 1:1 by the actual asset in its respective ecosystem (e.g. BTC). However, this backing is currently not enforceable via the blockchain.

While DeFiChain has been fortunate that no bad actors have yet to abuse the current gap, there needs to be a proper structure governing the backing of tokens to ensure that all digital assets are backed. This is especially since DeFiChain is expected to continue scaling – and therefore have an increased number of participants in the ecosystem.

What is Consortium about: To address the current gap, it is proposed to set up a Consortium – where members of Consortium (e.g Cake DeFi) will have their own dedicated key for the minting and burning of tokenized digital assets. Under this structure:

  • Each member is required to back any digital assets which they mint (regardless whether they are minting for themselves or on behalf of users of their platform)
  • Each member will be required to pledge 2 days worth of collateral (in DFI/dUSD) that will be locked up in a smart contract. This collateral will determine how many digital assets a member can mint each day.
  • For example, if a member puts up $100,000 worth of collateral, they will be allowed to mint $50,000 worth of digital assets each day
  • This collateral is required on top of the backing of the tokenized digital assets
  • The function of this collateral is meant to (1) deter members from engaging in activities that are contrary to the interests of the community, and (2) to pay for damages in the event where a member overmints digital assets or is unable to provide backing for tokenized digital assets
  • A dashboard will be made available on DeFiScan, for the DeFiChain community to track the collateral against the minted tokenized digital assets for each member (see image 1. Data is redacted for now as the dashboard is not live yet)
Image 2: Dashboard for DeFiChain Consortium

Value to DeFiChain community: The Consortium provides several benefits:

  • Enhances the governance structure and transparency in the DeFiChain community.
  • Provides a mechanism for the DeFiChain community to monitor the backing of tokenized digital assets, which deters overminting
  • In the event of foul play by any member, the collateral will provide some form of recourse.

Operation Flow in DeFiChain Consortium: The table below shows the broad operation flow for (1) minting transaction, and (2) burning transaction.

Conclusion

The Grand Central Hardfork comprises 4 main features:

  • On-chain governance
  • Token consortium framework
  • Support for masternode parameter updates (owner, operator, reward address)
  • Pool commission and reward fixes

The upgrade is set to take place on 8th December, and it will be an important update given the numerous improvements to quality of life for the DeFiChain community.

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News

Solving the DUSD peg

This blog article is a copy (& translation) of the reddit article by Kügi following the results of this twitter space and a lot of previous discussions.

The current discount in DUSD is a result of excess DUSD within the DeFiChain ecosystem. DUSD was designed to NOT have an immediate arbitrage system such as UST, in order for it not to have detrimental effect on either DFI or DUSD in the long term. Those excess DUSD were added via the DFI payback (burning DFI for DUSD). Going forward, we suggest having a mathematical balance between crypto-backed DUSD and algorithmic DUSD.

This will be achieved with the following four mechanisms in a fast blockchain upgrade scheduled for the first week of July 2022:

  1. Increasing the utility of DUSD by converting interest rates for dTokens and liquidation penalties to DUSD before burning them. (right now they are swapped to DFI and then burned)
  2. Making the DUSD fee on the DUSD-DFI pair asymmetric: only when going from DUSD to DFI.
  3. Until the DEX fee and dynamic interest rates get implemented, which will be discussed in detail below, the Ticker Council will follow the same process manually. Before each update, Ticker Council pre-announce a rate that will become active at least 24 hours prior. This is similar to the mechanics of DeFiChain pricing oracles with the purpose to allow the users to react to it rather than getting a sudden rate change without warning.
  4. Until the DFI-FutureSwap is part of the automatic consensus (see below), the DFI payback premium is increased to 5%, which incentivises arbitrage traders to buy up the discount all the way. This will also lead to less algorithmic DUSD created.

All four measures could be introduced rapidly within the next few weeks and would have an instant positive impact on the DUSD price

The next three will take a bit more development time, as they will automate the dynamic processes mentioned above. They could get included in a blockchain upgrade a bit further down the line. There is no fundamental change to the processes described above, they are just implemented for automation:

  1. Introducing a dynamic, DEX stabilization fee for DUSD on the DUSD-DFI pair. The size of the fee is determined by the ratio of algorithmic DUSD to the total amount of outstanding DUSD.
  2. Dynamic interest rates on DUSD loans, based on the current discount/premium of DUSD, evaluated with the DFI price oracle.
  3. Introducing FutureSwaps for DFI -> DUSD (only one way: burning DFI for DUSD). Same mechanics as the dToken FutureSwap, but the DFI FutureSwap works at 1% premium and is executed every 960 blocks (roughly 8 hours). With this, the DFI payback of DUSD loans is deactivated completely.

We will create separate DFIPs for each point (except point 3, which doesn’t need a DFIP) so MNs can vote on them separately.

DUSD loan interest rate

In case of a DUSD premium, reduced interest rates should incentivize additional DUSD loans. With a minimum base-interest rate of 5%, a DUSD interest rate of -5% means netto 0% interest. It is to be noted that if a vault is on a loan scheme with 3%, and the DUSD interest rate is -5%, the DUSD loan is interest free, i.e. 0%, but not negative interest rate. Net interest rate is always >= 0%.

In case of a DUSD discount, increased interest rate will incentivize DUSD loans to be closed.

The interest rate will be adjusted every 2880 blocks (~24 hours) based on the moving average of the DUSD price.

Calculation of the interest rate should follow the following formula:

Let DUSD_DEX_price = (DFI reserve at DFI-DUSD DEX pool / DUSD reserve at DFI-DUSD DEX pool) * active oracle DFI price
Let COEFFICIENT_DISCOUNT = 500
Let COEFFICIENT_PREMIUM = 3.4

If DUSD_DEX_price < 0.99
   DUSD loan interest rate = (COEFFICIENT_DISCOUNT ^ (0.99 - DUSD_DEX_price)) - 1
Else If DUSD_DEX_price < 1.01
   DUSD loan interest rate = 0
Else If DUSD_DEX_price < 1.05
   DUSD loan interest rate = 1 - (COEFFICIENT_PREMIUM ^ (DUSD_DEX_price - 1.01))
Else
   DUSD loan interest rate = -0.05

Sample rates:

  • DUSD_DEX_price 1.05 results in -5%
  • DUSD_DEX_price 1.04 results in -3.7%
  • DUSD_DEX_price 1.03 results in -2.4%
  • DUSD_DEX_price 1.02 results in -1.2%
  • DUSD_DEX_price 1.01 results in 0%
  • DUSD_DEX_price 0.99 results in 0%
  • DUSD_DEX_price 0.98 results in 6.4%
  • DUSD_DEX_price 0.97 results in 13.2%
  • DUSD_DEX_price 0.95 results in 28.2%
  • DUSD_DEX_price 0.90 results in 74.9%
  • DUSD_DEX_price 0.80 results in 225.6%
  • DUSD_DEX_price 0.70 results in 500.6%

DEX stabilization fee

The stabilization fee is based on the ratio of algorithmically created DUSD. It is changed every 2880 blocks (~24 hours) based on the moving average of this ratio.

If the ratio is below 50%, there is no additional DEX stabilization fee.

Above 50%, the fee increases exponentially according to the following formula

Let ALGO_DUSD_RATIO = 1 - (Loan DUSD / total DUSD supply)
Let COEFFICIENT = 1.8
If ALGO_DUSD_RATIO > 0.5
   DEX stabilization fee = (COEFFICIENT ^ (ALGO_DUSD_RATIO - 0.5)) - 1
Else
   DEX stabilization fee = 0%

sample results:

  • When ALGO_DUSD_RATIO is 0.5, DEX stabilization fee is 0%
  • When ALGO_DUSD_RATIO is 0.51, DEX stabilization fee is 0.59%
  • When ALGO_DUSD_RATIO is 0.52, DEX stabilization fee is 1.18%
  • When ALGO_DUSD_RATIO is 0.55, DEX stabilization fee is 2.98%
  • When ALGO_DUSD_RATIO is 0.60, DEX stabilization fee is 6.05%
  • When ALGO_DUSD_RATIO is 0.65, DEX stabilization fee is 9.21%
  • When ALGO_DUSD_RATIO is 0.75, DEX stabilization fee is 15.8%
  • When ALGO_DUSD_RATIO is 0.90, DEX stabilization fee is 26.5%

How the DFIPs turned out

summarized by U-Zyn Chua on 6/23/22, explaining:

Special voting round of @defichain DUSD proposals has concluded with 6 passing proposals.

The node release supporting the upgrade is scheduled over the new few days, which means @defichain will be able to support approved $DUSD by early July with a minor upgrade.

The Ticker Council would reiterate that:

  • There are no DEX fee changes before the upgrade;
  • Fee changes before DUSD is at $1 will be gradual;
  • That there are no raising of DUSD loan interest rates until DUSD is at $1.
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News

How Will The AMZN Stock Split Affect DeFiChain Users

Early in March, AMZN announced a 20-for-1 stock split. Though it will ultimately take place on 3 June 2022, it has already sent the stock on a rally not seen in recent months. In theory this should not happen, because a split doesn’t affect a company’s business fundamentals. Yet such splits often cause day traders to pile in, fueling rallies like these.

However, there is no change in the fundamentals that would justify such an increase, rather, the only thing that will happen is that each shareholder of AMZN in the traditional stock market will receive 20 shares for every 1 share of AMZN they currently own.

The distribution from the stock split will take place at the close of business on Friday, 3 June 2022, and trading will begin on the split-adjusted basis on Monday, 6 June 2022, at 9.30 am ET (1.30 pm UTC).

How does this affect dAMZN on DeFiChain?

Since the minting of dAMZN is dependent on the price oracles of AMZN, a split without an adjustment on DeFiChain’s side would cause severe issues causing dAMZN tokens that were previously minted at a different price to be evaluated at a new price as a result of the updated oracles. As such, it would be sensible to also have dAMZN split in accordance with AMZN.

These are the key changes DeFiChain users will observe as a result of the stock split:

  • dAMZN token owners will have 20 tokens for every 1 token they own before the split
  • Updated price from oracles
  • Updated dAMZN Token ID: A new token ID will be assigned to the post-split dAMZN token. (If you are not familiar with this attribute, it likely will not affect you)

These changes are primarily implemented on the consensus layer, and little needs to be done by users of DeFiChain.

How will the stock split be executed on DeFiChain?

In order to implement this adjustment as smoothly as possible, DeFiChain will take the following steps: DEX, vaults and systems interacting with dAMZN will undergo a process called the lock, which is a mechanism meant to serve as protection from any unstable prices from the oracles during the transition period. The lock will last 3 hours before the split and 3 hours after the split. After the lock is lifted, vaults will be halted for 1 hour before they become operational again. This halt is in accordance with our protocol and serves as a safety mechanism for DeFiChain users.

As this is the first stock split event encountered on DeFiChain, the 6-hour lock period serves as a conservative buffer. Once the community gains a better understanding of how oracles would behave in such events, the lock period can be shortened in the future. 

To understand the technical design behind the stock split, you may also watch the May 2022 Tech Talk episode:

Summary

Due to the upcoming AMZN stock split, DeFiChain’s dAMZN token has to be adjusted and such as split as well. As a result, DEX users will experience a 6-hour lock, 3 hours before and after the stock split. During this time, it will not be possible to interact with dAMZN at all.

Please be also aware of the fact that dAMZN vault owners will experience an additional 1-hour halt on top of the 6 hour lock period.

However, there are no actions required on the users’ part, except to take note of the 3-hour lock window before and after the stock split (6 hours in total, and an additional hour for dAMZN vault owners).

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News

The Differences Between UST on Terra And DUSD on DeFiChain

After the recent turbulence surrounding the Luna ecosystem, we would like to have a closer look into what has happened there and explain the differences between the DeFiChain ecosystem and its different approach when it comes to the utility of the DeFiChain stablecoin DUSD.

What has happened to the Luna ecosystem

Over the last couple of days, Luna, one of the leading EVM blockchains, experienced a sharp decrease in the $LUNA price. As a result, its algorithmically pegged stablecoin called $UST lost its peg to the US dollar. Let us quickly have a look at what exactly has happened there:

$UST stabilizes its peg by allowing anyone to redeem 1 $UST for $1 worth of $LUNA or 1 $LUNA for its equivalent value in $UST. To incentivise arbitrageurs, $UST must possess true utility. The main utility in the Luna ecosystem is derived from the Anchor protocol, which guarantees a 19.5% yield and is currently responsible for more than 50% of $UST’s circulating supply. However, Anchor’s dominance over $UST is also an issue, as it has lost more than half of its total TVL this week. If $UST leaves Anchor and is swapped for other assets, then this creates sell pressure on $UST.

Unfortunately this is a major issue for $LUNA, because whenever $UST is minted, the equivalent dollar value of $LUNA is burnt. This is great for $LUNA as it reduces the total supply. But it also works the other way: Whenever $UST supply reduces, $LUNA is minted. If more $LUNA is minted, then this increases the total supply, resulting in more tokens entering the market and driving down the price of $LUNA. This is exactly how the death spiral started in the last 24 hours and kicked off  a whole cascade of events including FUD and people panicking out.

Why DUSD and the DeFiChain ecosystem work differently

he DeFiChain ecosystem and here in particular $DUSD has by design much broader utility applications, and thus real value. But before we jump into that, we should have a look into how value is created –– value is a function of three variables: value = “utility” x “scarcity” x “the number of people using it”.

So when utility drops, the value drops. We have already learned that $UST only had one single utility – its promise to yield you 19.5% in APR. DUSD on DeFiChain on the other hand has three distinctive utility applications:

  • The first one is similar to the Luna ecosystem and revolves around the possibility to generate APRs.
  • The second use case is that all dTokens are traded against DUSD and
  • The third application is that DUSD can be used as collateral for setting up Vaults.

When it comes to scarcity, then there is also a clear distinction between the $LUNA and the DeFiChain ecosystem. There is simply no way how you can create DFI with DUSD. This is a design feature and was implemented on purpose, preventing a hypothetical scenario where the stablecoin is dragging down the price of $DFI. Even in times where dTokens decreased by high percentages, the inherent DUSD mechanism reduces the DUSD supply and increases the scarcity.

Summary

Our engineers put utmost importance into designing a thought-through system, built on solid game theory principles. Thus, the wider DeFiChain community should not be worried about any similar occurrences that happened in the Luna ecosystem. The DeFiChain system by design is resilient enough to withstand similar events. In case you have any questions, please feel free to ask them on our social media channels, first and foremost Twitter.

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General Information

How DeFiChain’s Future Swap Feature Brings Down The dToken Premium

Since the launch of dTokens in the last quarter of 2021, dTokens have become everyone’s darling with rewards north of 100% APR. These dTokens can be minted directly on the DeFiChain blockchain by utilizing the loan and vault features or by buying them directly on the DeFiChain DEX on the mobile app.

Due to the underlying architecture of these dTokens and the way investors used them so far, most dToken prices showed a consistent spread between oracle price and the price they have been trading for on the DEX.

With DeFiChain’s new DFIP, the leading #nativeDeFi blockchain will be introducing a future swap feature. This feature will introduce a new economic mechanics that introduce more utility to the revolutionary dToken. Economically, it is predicted that dToken price will trend closer to the oracle price despite it being not a peg nor cap.

Unlike traditional futures contracts where the price is predetermined, this feature on DeFiChain determines the settlement price (i.e. the oracle price) on the block height where the futures contract is to be executed (roughly every 7 days), hence the term Future Swap.

Future swap users will stand to gain if the dToken prices continue to deviate beyond 5% by the settlement block (i.e. extreme premium/discount). If the expected premium/discount is <5%, users will be better off swapping instantly.

With this feature, users will be able to:

  • Buy dtoken with DUSD at oracle price of dToken + 5%
  • Sell dToken and get DUSD at oracle price of dToken – 5%

Most importantly, regardless of the direction (dToken -> DUSD or DUSD -> dToken), the future swap should always result in a lower dToken price on the DEX.

How future swap is meant to close the premium/discount gap on the DEX

We distinguish between two cases:

In the event of dToken premium > 5%:

  • Those holding on to dToken will want to swap it instantly to DUSD to gain more (rather than wait for the premium to go back to only 5% at the future settlement block) — this selling action will push the price down.
  • Those holding on to DUSD will prefer to enter into a future swap instead as they only have to pay a 5% premium rather than the current price. This scenario only plays out if they assume that the premium is staying at ≥5% by the settlement block.

In the event of a dToken discount >5%:

  • Those holding on to dToken will prefer to enter into a future swap instead so that their damage is capped to 5% (that said, they still lose out because they are getting 5% less than what they paid). This scenario only plays out if they assume that the discount is staying at ≥5% by the settlement block.
  • Those holding onto DUSD will capitalize on the discount and swap immediately to the dToken (rather than wait for the discount to reduce to only 5%) — this buying pressure will drive the dToken price up, hence reducing the discount.