Euphoria
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Using Euphoria
Protocol Mechanics
FAQ
Protocol Mechanics
WAGMI is an algorithmic reserve currency protocol that aims to hold its purchasing power regardless of market volatility via focusing on supply growth rather than only focusing on price appreciation.
- The protocol is the only actor that can mint or burn supply, in contrast to other algorithmic reserve projects or algo-stablecoins that allow market participants to regulate the supply via e.g. arbitrage incentives.
- The supply isn’t expanded or subtracted based on arbitrary algorithms — it’s backed by actual market activities carried out by the protocol and its treasury: - When WAGMI is >$1 (DAI) the protocol will create new supply via direct sales into the market - When WAGMI is <$1 (DAI) the supply will be burned by the means of direct purchases from the market
- As such, WAGMI will always be backed by real assets in its treasury
New reserves are acquired by the protocol's treasury by the means of selling discounted WAGMI tokens to market participants that decide to bond assets for WAGMI. Market participants can bond tokens such as DAI, UST, or LP tokens in return for discounted WAGMI tokens.
Another way to look at this is that participants can actively mint WAGMI at a discount by selling e.g. DAI or WAGMI/DAI LP tokens to the protocol for a larger amount of WAGMI than what can be acquired via the open market.
Protocol managed treasury, protocol owned liquidity (POL), the bonding mechanism, and staking rewards are all designed to control supply expansion.
Bond sales generate profit for the protocol, allowing the treasury to use the profit to mint WAGMI and distribute them to stakers. With liquidity bonds, the protocol is able to accumulate its own liquidity.
What's the deal with (🤝,🤝) and (✌️, ✌️)?
(🤝, 🤝) is the idea that, if everyone works together, it would generate the greatest gain for everyone (from a game theory standpoint). Currently, there are three actions a user can take:
- Staking
- Bonding (Minting)
- Selling
Staking and bonding are considered beneficial to the protocol, while selling is considered detrimental. Staking and selling will also cause price movement, while bonding (minting) will only cause a price movement if purchasing WAGMI to add to LP tokens (we consider buying WAGMI from the market as a prerequisite of staking, thus causing a price move). If both actions are beneficial, the actor who moves price also gets half of the benefit (+✌️). If both actions are contradictory, the bad actor who moves price gets half of the benefit (+✌️), while the good actor who moves price gets half of the downside (👊). If both actions are detrimental, which implies both actors are selling, they both get the worst possible outcome (👊)!
Given two actors, all scenarios of what they could do and the effect on the protocol are shown here:
- If we both stake (🤝, 🤝), it is the best thing for both of us and the protocol (we're all gonna make it).
- If one of us stakes and the other one bonds, it is also great because staking takes WAGMI off the market and put it into the protocol, while bonding provides liquidity and stablecoin reserves for the treasury!
- When one of us sells, it diminishes the efforts of the other one who stakes or bonds.
- When we both sell, it creates the worst outcome for both of us and the protocol (👊, 👊)
Importance of Protocol Controlled Value (PCV)
As the protocol controls the funds in its treasury, WAGMI can only be minted or burned by the protocol. This also guarantees that the protocol can always back 1 WAGMI with 1 DAI. You can easily define the risk of your investment because you can be confident that the protocol will indefinitely buy WAGMI below 1 DAI with the treasury assets until no one is left to sell. You can't trust the FED but you can trust the code.
As the protocol accumulates more PCV, more runway is guaranteed for the stakers. This means the stakers can be confident that the current staking APY can be sustained for a longer term because more funds are available in the treasury.
Importance of Protocol Owned Liquidity (POL)
Euphoria owns most of its liquidity thanks to its bonding mechanisms. This has several benefits:
- Euphoria does not have to pay out high farming rewards to incentivize liquidityproviders (a.k.a renting liquidity), as is the case with traditional DeFi 1.0 yield generating protocols.
- By being the largest LP (liquidity provider), it earns most of the LP fees whichrepresents another source of income to the treasury.
- All POL can be used to back WAGMI.
- Euphoria guarantees the market that the liquidity is always there to facilitate asell or buy transaction.
One of the biggest pain points in DeFi 1.0 is that liquidity providers can remove their liquidity at any time, resulting in poor execution for market participants.
If the market participants own the majority of the liquidity they might act irrational in times of high volatility and extended drawdowns. They might set off a negative spiralling effect where they pull their liquidity, further expanding volatility and extending drawdowns, which might entice other participants to do the same. And eventually you end up with a significantly reduced token price and a greater risk to the viability of the protocol to work as it’s intended.
When the protocol own the majority of liquidity it completely alleviates this problem, and provides comfort that there will always be sufficient liquidity for market participants.
What is a rebase?
Rebase is a mechanism by which your staked WAGMI (sWAGMI) balance increases automatically. When new WAGMI are minted by the protocol, a large portion of it goes to the stakers. Because stakers only see their sWAGMI balance instead of WAGMI, the protocol utilizes the rebase mechanism to increase their sWAGMI balance so that 1 sWAGMI is always redeemable for 1 WAGMI.
The reward yield is the percentage by which your sWAGMI balance will increase at the next epoch. It is also known as the rebase rate. You can find this number on the Euphoria staking page.
Rewards are auto-compounded at every Epoch and you do not need need to unstake and stake again to receive them. The increase of your sWAGMI balance represents your rebase rewards.
Rebases occur at 00:00, 08:00, and 16:00 UTC.
What is APY?
APY stands for annual percentage yield. It measures the real rate of return on your principal by taking into account the effect of compounding interest. In the case of Euphoria, your sWAGMI represents your principal, and the compound interest is added periodically on every epoch (8 hours) thanks to the rebase mechanism.
One interesting fact about APY is that your balance will grow not linearly but exponentially over time! Assuming a daily compound interest of 2%, if you start with a balance of 1 WAGMI on day 1, after a year, your balance will grow to about 1377 WAGMI.
How do I track my rebase rewards?
You can track your rebase rewards by calculating the increase in your staked WAGMI balance.
1. Note the Current Index value on the staking page when you first stake your WAGMI. Let's call this the Start Index.
2. After staking for some time, if you want to determine by how much your balance has increased, check the Current Index value again. Let's call this the End Index.
3. By dividing the End Index by Start Index, you would get the ratio by which your staked WAGMI balance has increased.
Last modified 3d ago