To help us think rationally about our DLLR strategy, SOV rewards and staking and SOV pricing, I have been working on some analysis and modeling. The work ended up being quite extensive, so I am publishing my current results in a few parts.
While this is just a model, i think it is pretty packed with interesting tidbits and the results surprised me.
TLDR - quoting from the summary: For me the biggest takeaway is that we have significant leverage to use SOV wisely to provide DLLR demand. Indeed, the model suggests that we can afford to offer extensive SOV rewards to DLLR holders and do so in a way which is: 1. Net-neutral in terms of circulating SOV 2. Leads to an increase in core metrics such as TVL, Circulating DLLR and protocol revenue. 3. Actually leads to significant and sustainable increase in SOV value
Hi Yago, I have carefully read the result of your research model. I think I have followed your calculations and analysis to understand the conclusions. The mathematics are correct.
My main question is essential: Why for every $1 of ZUSD issued, we need to generate $0.05 (5%) return? This rule of thumb conditions the whole analysis.
I have doubts about the commitment to the Stability Fund. I would consider an incentive of less than double digits insufficient, if most of those who open the LOC do so with consumption objectives (mortgages, house, household expenses) or investment in assets from which they expect much higher returns.
As for the rest, I consider it as a whole logical, coherent, and a good way to calculate the value of sov according to the simulated ZUSD issues. And the need to incentivize the demand for DLLR is demonstrated.
As you point out at the end, there are some assumptions that you are considering, which I believe are excessively prudent. But this is the way to do it.
We are looking forward to the next part of your research…
Thank you Yago for this analysis, the idea of incentivizing users to keep DLLR in the stability pool which already offers great returns is a good one.
Because the returns by closing lines of credits is not even and hard to calculate most people are unaware of it.
A steady return would give users the ease of mind that their funds are not idle while waiting for liquidations to occur.
I think it would make Zero, DLLR and the Stability Pool an incredibly attractive product (perhaps the most attractive out there).