A new crazy idea for Zero and DLLR

General Commons
1

I want to open this post by saying that I am not a blockchain developer in any capacity so everything I say from here onwards could be 100% wrong and ridiculous. If this is the case, I encourage anyone that is more knowledgeable to let me know where my mistakes lay, and what things I am not thinking correctly. I hope that at the very least this can ignite some more ideas on how to approach the DLLR/Zero situation.

It seems to me the problem with the Zero protocol is that the demand for opening an LOC will always be higher than the demand for holding the stablecoin it produces. A 0% interest on BTC has almost infinite demand (as Zero shown, Bitcoin backed stable coins, not so much for now).
Like the team has explained very well, this is a two sided market, some people want cheap loans, other want a stablecoin, there is a clear imbalance in this marker which resulted in the halt of the Zero protocol. So far we’ve addressed this imbalance by rising the origination fee of the LOCs from the original 0.5% to 99%. This successfully manages to lower the newly minted DLLR, but does very little to incentivize its adoption. It does help the peg hold closer o $1, but we are operating under the assumption that people will flock to DLLR as they see that the peg is stable and therefore adoption will happen.

We can look at DOC here, this token has been successfully doing this very thing for a long time. With a very active LATAM community, and a team that is based in Argentina (the place where it is needed the most) and yet the number of DOCs in circulation are relatively similar to DLLR (if our assumptions are correct, why is DOC not being adopted in larger numbers?).

I’ve hosted a Spaces on Tuesday with the two main co founders of the Money on Chain protocol (that issues DOC), Manu Ferrari and Max Carjuzaa. One of the things that they told me that surprised me was that they were saying how they overestimated the demand for DOC. The protocol still has enough liquidity to function and be reliable. But it was designed by allowing users to mint DOC and these DOCs give benefits to the liquidity providers that hold Bpro (their other main token).
Meaning that the system, again, provides no inherent benefit to the Stablecoin holders. It is expected that people will find a decentralized Bitcoin backed stablecoin inherently desirable. And while some people do, turns out, not that many, compared to the people who want to hold Bpro in Money on Chain, or the ones who want a Zero Line of Credit in Sovryn.

I see a fundamental problem with this model. And. it is my belief that this need to be changed for us to see larger adoption.

We should create a system where the incentives are the opposite. People want cheap loans, we know this, zero has proven this. However, not that many want to hold Bitcoin backed stable coins… So, why not make the side of the equation that is easier to grow, subsidize the side that it is harder to grow? (easy to get people to open LOC, hard to get DLLR holders, therefore LOC’s should incentivize DLLR adoption).

Right now the only subsidies that DLLR gets are from the Sovryn protocol’s own token emissions. This is not sustainable long term. We are hoping that demand will naturally and organically grow. This could happen or maybe it does not in time.

We know that people will open a 0% interest loan with a 5% origination fee (we’ve seen this). I would argue, if this is true, people would also be open to pay a 2% interest on a loan with say 0.5% origination fee paid to stakers (like we used to have in the beginnings of Zero). Why not then pay this interest to DLLR holders and make it a stablecoin backed by bitcoin that generates a 2% yield just by holding it?

We still get a valuable product on one end with a very cheap 2% interest (though admittedly not AS good as a 0% one, but yet desirable), and we get a much better product for stablecoin holders. Effectively even the balance and reward for all actors of the equation accordingly (this is the meat of the issue, DLLR holders are not getting as much value out of the protocol as LOC holders who never wanted to hold DLLR and sold as soon as they minted them).

These rewards can be given out in RBTC, creating the only bitcoin backed stablecoin with passive sats earning mechanics. By all means an amazing product! and a 2% flat, consistent and reliable, very cheap and competitive lending product on the other end.

Moreover we would now actually have a reason for people to put DOC into Mynt (which right ow there isn’t much incentive), in order to earn some interest. If this happens though, the rewards would dilute (as there would be more DLLR issued than the ones created through the LOCs who are paying the interest rate). We could let this happen and let the market adjust naturally. But this could put us again in a position where DLLR holders are not incentivized enough to hold as much as people borrow. Creating another imbalance.

Another way to go would be to automatically set so that this 2% in sats, automatically are used to buy DLLR from the AMM pool, and rewards are distributed in DLLR to DLLR holders.
The prospect of having a stablecoin that pays automatically in more stablecoins is still a very good one (even if it is just 2%), moreover this means there would be constant buying pressure in the AMM pool, helping the peg remain strong. If this buying pressure would take the price of DLLR above $1 then we would need a system that instead of using the RBTC from the LOCs to buy and distribute DLLR, it should instead mint DOC in Money on Chain for $1, use Mynt to convert it into DLLR and sell it in the AMM pool for a profit until the value goes back to $1. This would create more revenue that can be distributed to DLLR holders. In addition, all this trading will also increase revenue for SOV stakers and activity in the dapp. Ideally all would happen automatically, though I don’t know how difficult this would be to set up.

Again, I am not a technical person so I can be way, way off here, and if so I encourage anyone that knows more than me to tell me why this is not a good idea.

I understand that this means changing a lot of what Zero is and was supposed to be. I simply don’t see that the demand for DLLR can grow as high as to sustain the demand for 0% interest rate loans. I really like the idea, but unless there is a true incentive for people to adopt the stablecoin, it will be very difficult to achieve a balance between the two sides of the market.

I think ultimately, a 0% loan may in fact be “too good to be true”, as its demand is almost infinite and we may never find enough people who would like to simply hold DLLR to make it sustainable. In fact in talking about Zero to many people outside the Sovryn and the Rootstock bubble, many times I heard that people where very suspicious of a 0% interest, and they told me that they would prefer to pay at least “some” interest, if that could make the protocol more secure and reliable.

Once again I urge the community to look at DOC. It does what DLLR promises, holds the peg 100% of the time, completely backed by Bitcoin, secure and decentralized as can be. The team is based in Argentina, in the middle of one of the regions of the world that needs this kinds of stablecoins the most. And they can’t get more adoption than what DLLR has right now. I have no doubt that these stablecoins will grow in popularity in the future, I just think that it would take a long time. We need to create the incentives for people to adopt them, just being decentralized and backed by bitcoin might not be enough for the time being. And a 0% interest lending protocol, might be too ambitious, as it transfers the cost to the DLLR holders without enough benefits to balance it.
With a little tweak I think we can still get a good lending protocol, solid reliable and extremely competitive, and the best stablecoin anyone can ever have. Backed by bitcoin, decentralized and with passive income attached to it.

I hope this at the very least can generate some new discussions and ideas for the community.

Stay Sovryn everyone!

6 Likes
3

Thanks for starting the discussion ArtofTomas. Agree with the underlying concerns here. Unfortunately my sentiment reading through your suggestions was that it is too late to trace back the steps we have already taken and to start again here. I have nothing to suggest from a product or technical perspective, but adding my 2 cents, which admittedly are biased currently given DLLR is holding up the entire protocol draining everyone’s pockets and providing no value whatsoever:

  • Everything we have built would be ready and we would be taking off right now, if it weren’t for DLLR

  • DLLR is virtually entirely ZUSD if I’m not mistaken; DOC seems to be redundant which plainly speaking will dampen the user experience until resolved, which may be never; of course, this also means more bitcoin backed stablecoins need to launch, gain traction and reach a point of readiness for inclusion, which is likely to be years and in any case is just another indefinite waiting period for now; it also means marketing jargon like “DLLR is composed of a number of bitcoin backed stablecoins” just look a bit silly. You read those and you look at the aggregator and see it’s just Zero with DOC thrown in but not in active use, and you just think to yourself, ah OK they’re still working this out, I’ll come back later.

  • If we had just led with Zero and the decentralised governance of a new bitcoin backed stablecoin we could still have made that our flagship stablecoin, used all the same “unstoppable censorship resistance” in our marketing jargon, it’s not like it would have been any less compelling than Sovryn dollar (???); also we seem to have promising hopes that various new 3rd party frontends for zero will be built further decentralising what seems to me to be secure enough in and of itself, again, without Sovryn DLLR

  • Sovryn DLLR cannot be made native to the platform until the transaction routing logic for our smart contracts is changed to allow direct swaps between DLLR and other tokens on the platform; until such time, it is DLLR > RBTC > YOUR TOKEN; the smart contract level changes required are likely intensive changes that the team does not have capacity for in the short or mid term. Maybe we would have the same challenges making ZUSD more native to our platform, but we certainly wouldn’t be having many of the other issues DLLR has brought us

4 Likes
4

Nice observations, Tomas. You’ve highlighted some intriguing points.

There are a couple of challenges with the approach you’re suggesting. One significant issue is the need for a constant influx of new users who open new Lines of Credit and mint new ZUSD/DLLR tokens. This setup could potentially resemble a Ponzi scheme, where incentives for DLLR holders depend on the continuous creation of new stablecoins - although in this scenario those stablecoins are backed by best possible crypto asset - BTC.

Moreover, imagine a scenario where no new LoCs are being opened and no new ZUSD tokens are minted for a certain period. In such a case, it becomes unclear where the funds for incentives would come from. While the concept of yield-bearing stablecoins is appealing, relying solely on a fixed APY model might not be sustainable in the long run.

Perhaps a more viable approach could involve introducing a variable APY for DLLR holders who participate in specific stability pools (assuming that we want to have multiple pools). One possibility is to allocate a portion of the new LoC’s fees and a portion of trading fees, generated from transactions involving DLLR, as rewards. This way, the more trading activity that involves DLLR, the greater the fees generated for the dedicated stability pool, creating a self-sustaining mechanism.

Ultimately, your insights raise important considerations for further discussion and exploration.

3 Likes
5

Thank you for your reply Hyde I see your point.
I am fully aware that what I described would be very difficult to implement, and as such I don’t expect it will ever come to be. But I think we need to address a structural problem that there are 2 actors in this play, LOCs and DLLR holders. In Zero, LOC’s had a massively great product, but DLLR holders didn’t get enough value out of it. This caused an imbalance, and now the protocol has effectively been paused.
If we don’t change this dynamic, I am afraid that there will never bee enough DLLR holders to sustain such a desirable product as a 0% interest loan on your Bitcoins.

I don’t think what I’m describing resembles a ponzi scheme, in fact I think what we have now is more akin to it than what I described. In the current state of Zero (before the pause) people where opening tons of LOCs and dumping DLLR in the AMM as soon as they got it. This requires an ever growing DLLR holder base (unrealistically high I would argue), which didn’t grow as fast, as such it had to be paused.

In the system I describe, LOCs pay the DLLR holders. This makes it more expensive to open an LOC, damping the creation of DLLR and also incentivizes DLLR holding via the rewards. So it is a much more self sustaining system. LOCs collateral will be constantly shrinking, since they pay 2% a year to DLLR holders. When their collateral drops below 110% they get liquidated. This ensures that there will never be too many DLLR and not enough BTC collateral. LOC will only be opened when people can offset that 2% flat interest, making it much more realistic and tied to market dynamics, incentivizing people to be more productive with their capital.

And yes, this system requires LOCs to be opened at all times, but Zero as we have it now also requires this, that is where Zusd comes from after all, which is always around 90-100% the DLLR composition. Where I’m getting at is that we need people opening LOC no matter what, with 0% interest is too cheap, and too many stablecoins are created. We tried rising the origination fee, but this does not create more incentives to hold DLLR, only makes more expensive to open an LOC. So instead of paying a big lump in the beginning, charge a small fee (interest) and pay the holders over time.

In my scenario, DLLR supply would shrink and find an equilibrium between people who want a cheap loan (2% is better than anything I’ve seen other than the 0% which was not sustainable and triggered the pause in the protocol), and the people who want to hold a stablecoin that earns passive interest without entering into any pools, which would be more attractive for non-DeFi savvy people (most of the world).

Looking at some of the lending pools in Sovryn and Tropykus (another lending platform in Rootstock) I have yet to find a single day where there are no LOCs opened at all times paying interest to the lenders. And a 2% interest fee is a better product than all of them, so I always expect there will be demand for such a product. Not as much as a 0% interest loan obviously, but then again, that was our problem, there was too much demand for Zero and not so much for DLLR.

I think the easiest way to explain my thinking is this: Zero users get an amazing product effectively for free. I don’t think this is very sustainable, services, value gained, tools, they need to come with a price, we can’t get something for nothing. I suggest LOC should pay for what they get, and pay to those who make it work, the DLLR holders.

I’m sure I’m wrong in many things, but I think we need to start thinking this way. Otherwise I’m afraid we are stuck in a place where everyone will want a 0% interest and quickly sell of their newly minted DLLR to buy other stuff. Only a handful of people will hold DLLR and carry the burden of this deal.
Sovryn will then have to continually stimulate DLLR demand through SOV emissions, and that again is not sustainable long term.

This is what I’m thinking. I will ask again to look at DOC, how much demand has it gotten through its years. Is older than DLLR, has a stronger peg, much more collateral (more that $20 dollars of BTC per DOC in circulation) it does everything DLLR promises that “at some stage” will do… and right now there’s only slightly above 2.3 million DOCs issued.

I just don’t understand how we will get enough DLLR holders to sustain a 0% interest loan. Specially when people searching for a BTC-backed stablecoin can simply adopt DOC. But I would love to know how I’m not thinking these things correctly, and really valued that you took the time to answer and give me more things to think about :slight_smile:

3 Likes
6

I didn’t see this until today. I’m a little surprised you haven’t gotten more engagement on this because I think you’ve made some really astute, clear observations. Your solution makes sense economically as well.

Now, the big challenge is that Zero is, um, Zero. We’ll have to launch a whole new protocol called Two. :joy:

I’m being funny and serious at the same time. Serious because we really can’t change Zero as you’ve suggested. We can’t change it because the name would have to be different. But we can’t change it because the people who have taken out loans and have collateral in the system did so with the disclosure that they would have zero interest.

Your proposal brings a more doable plan to mind. What if we adjusted the origination fee to something fairly high and then put half of it in a pool to be paid to DLLR stakers (staking would make it easier to keep track and pay and could be implemented as a separate system from Zero) over time? If redemptions started to occur, the origination fee would increase through some formula. As long as people kept borrowing, this would increase the payout and help reduce redemptions.

If the fund started to run out, more redemptions might occur at that point. But the origination fee would go up and would eventually equalize supply and demand.

I think this basically addresses the problem in a similar way but doesn’t require borrowers to pay ongoing interest. It also could be implemented as an add-on to the system rather than a fundamental change. The only change to the original system might be to the redemption and origination fee calculation formulas.

I’ve probably overlooked something, so please dissect this for me.

3 Likes
7

I think your idea is the one that makes sense to me the most. And I hope more people chime in.

Just some stats to contemplate:

-There are currently more than 11.34 Million DOC’s available for minting. BTC backed, always keeping peg and can offer 6.5% interest in Tropykus (interest paid in DOC).

-There are currently 2.29 million minted DOC.

I think this is an interesting metric in regards of demand for a Bitcoin backed stablecoin. Considering that in order to re-open Zero we need demand for DLLR which has worked (so far) essentially as a less reliable version of DOC.

I think this is important because if we have a high origination fee, then we are asking people to open LOC’s for a long time, and this means you need to be able to predict what Zero would do into the future (otherwise its too much risk). So far, this has not been possible to do.

And once again, I look into what Money on Chain is doing. I’ve been a user of them the same time I’ve used Sovryn. Since I interacted with the protocol, it has always worked the way it was supposed to. There was only one fee adjustment to make the protocol more sustainable (and it was a very small increase), other than that everything worked always the same.

Their protocol is designed in such a way that it constricts its growth and ties it with its demand. This makes it grow at the same speed as people adopt its technology. Even when DOC has very little demand, Money on Chain adapts to this demand, and grows with it.

If you had Bpro during all this time. You are OK, things are going as planned and as expected (and you are up in BTC terms!). If you had an LOC, things didn’t go as expected (and you are probably down in BTC terms), this is not good.

If we are asking people to lock Bitcoin for years, in order to have a high origination fee and 0% interest. Then we need to guarantee that everything will go according to plan, always, no matter what. Like Bitcoin, that also adapts perfectly to supply and demand. If you held Bitcoin, you are ok, because the protocol works the same with low demand or with high demands.

Sovryn must behave this way too. That is the whole point of slowfi. There are some products from Sovryn that are like that. We have legacy lending and borrowing. Specially the Bpro pools (which most people don’t use). Those ones have been remarkably useful and reliable!

We need more of that, and yes, they are products with very low demand. Sovryn needs to adapt to its actual demand, Instead of building something that will attract more demand. We need solid tools that work, charge for those services, and generate profits. Then use those profit to grow.

I honestly think, we should focus on lending, borrowing and trading. And do those simple things right. I’d rather have something useful and small that works, than building something that its unpredictable.

I think experimentation is great, once we are established and running smoothly. I would like to see experimentation in tokens allowed for trading. Money on Chain created Bpro, a really solid option which generated a lot of profit for them and the users (Bpro has outperformed Bitcoin by 18% so far!) and they charge a fee for minting and redeeming. We need more things like this, that make solid profits for the protocol, users and investors. And then having them all be tradeable. If Sovryn does this, then I think it will be successful.

Then as more time passes we can compound on this small successes and generate trust in our protocols, I believe at the moment we are hurting the Sovryn brand (I think we are in time to head in a different direction). I think this might be the best way to build on Rootstock.

2 Likes
8

I think the reason why my post didn’t have as much interactions is because I write very long posts haha

2 Likes
9

Quick question here:

since fees from Zero are SOV stakers’ biggest source of passive income - by cutting them and redistributing them to DLLR stakers (if that exists) - I dare say that most stakers would be more than annoyed with that as SOV would lose the last bit of hope and credibility to flourish again.
Or did I simply misunderstand your point?

1 Like
10

You didn’t misunderstand my point. I’ve already written the smart contract and deployed it, so the discussion is over. :rofl:

But seriously, I was just throwing out ideas (and numbers). I imagine SOV stakers would prefer to get half of a generous fee rather than no fees at all (the current situation). Once we grew a thriving ecosystem with demand for DLLR, we could use governance to reduce the fee. But this does seem like a reasonable path toward incentivizing simply holding DLLR and absorbing some of the supply without causing redemptions.

2 Likes
11

I noticed that. :rofl:

(This one was so short that it wouldn’t let me post it unless I added something, so I’m adding this. :slightly_smiling_face:)

2 Likes
12

The lesser of two evils - understood. If this is the only way, then do what you do. It seems Sovryn is cornered completely and the only way out is sacrifice and relinquishment, “we have to abandon this, we have to stop that, we have to reduce here, we have to cut in half there”.
I guess Sovryn really is in survival mode. What scares me a bit is, how the heck are we supposed to convince anyone to become a new Sovryn in that kind of environment?

2 Likes
13

Perhaps i missed the key facts around this but are we therefore very certain that letting the DLLR peg balance itself out naturally and “run free” wouldnt work, ie as we have speculated that this would destroy the peg?

Perhaps it would now, but if (after we reduce origination fee again) we actually open the doors to zero and terminate the gated release, would this not help generate new demand for LOCs and DLLR minting balancing out the peg with natural forces, while the team works on building out the ecosystem? I have no idea if this makes sense im just sensing myself that preventing the public from generating demand for DLLR become more of a bug than a feature

1 Like
14

We shouldn’t, aren’t supposed to. I know thats blasphemous from a community and growth perspective but i would rather sell it when its ready to be sold

I even had a long cross country transit shared with a seat next to an OG developer at Dash, one of the oldest DAOs formed, who honestly lamented the whole space and felt that crypto was destined to fail without a truly crypto backed stablecoin, he had his arms up in despair about it and seemed like he had lost faith if i am honest. Hate to say it but I didnt even once mention DLLR. I listened to what i could understand from his musings and determined that DLLR was everything he wanted but just nowhere near ready. I honestly felt with my guage of his stance in this space that he could be converted to RSK pre-trustless peg, but just that we were nowhere near ready

2 Likes
15

I personally supported letting the protocol run. I could be wrong about that. Reasonable people can disagree.

Opening the protocol definitely won’t create new demand though. By demand we mean the willingness to hold DLLR, not the willingness to mint it. Anyone who mints DLLR is increasing the supply, not the demand. Anyone who mints DLLR intends to sell it. Otherwise, it does absolutely nothing for you except cost you fees. For every DLLR that’s minted the ecosystem needs users willing to hold a DLLR.

2 Likes