Float is not anchored to a dollar. Like most major legal tenders, it floats and changes value over time.
Original title: “FLOAT-a new generation of purchasing power parity currency”
Source: Flying Little Big Toe
“Algorithmic stablecoin is the holy grail of the cryptocurrency field” (Blue Fox notes). With the continuous development of DeFi, USDT, USDC (and BUSD/HUSD, etc.) and DAI, which are currently responsible for basic settlement currencies, have obvious problems. To create a purely algorithmic stable currency, which completely decentralizes the entire monetary system through mechanisms and arbitrage, is an intuitively optimal solution; moreover, becoming a Defederal (DeFi’s Federal Reserve) is still very exciting.
Moreover, as MMT is popular today, and tomorrow when the global asset bubble will eventually burst, the reflection and optimization of the global currency system will continue to be raised in the next ten years, and attention to algorithmic stablecoin projects will not stop.
Since Ampl in the second half of 20 years, algorithmic stablecoin projects have emerged in an endless stream. At present, they can be roughly divided into the following categories:
Although the model of ampl and its imitators has been criticized by many people, and the imitators have basically died, ampl is still the most successful project in the field of algorithmic stablecoins;
esd and its imitators, the model has basically been declared dead;
Basis and its imitators, the bdo (sbdo) of bsc and the bag (bags) of heco currently survive well, but all the items on the eth chain are very bleak. At present, it seems that the “seemingly deflationary but actually inflation” scheme in the original bond mechanism of the basis is a culprit, and solving the problem of sheung shui is the key to sustainable survival.
In addition, there are Frax and its imitators, which are between mortgages and algorithmic stablecoins. Although the development is relatively stable, the ceiling is relatively low.
Recently, as the reflexer and Float protocol began to enter the mining stage, the concept of “ETH-based non-collateralized low-volatility currency” began to become popular.
Project specific introduction
Float defines itself as a web3-based floating, low-volatility currency (Floating, Low-volatility Currency for Web3), and the team is an anonymous team.
There are two tokens in the project, Float and bank, among them:
Float is a “stable currency”, but the team claimed that Float is not anchored to 1 US dollar, but floats. “It, like most major legal currencies, is designed to float and change value over time.” The initial target price is US$1.618, and the target price will change with market conditions.
Bank is responsible for the stable value of Float (including reducing the value of Float during inflation and boosting the value of Float during deflation) and governance functions.
Every 24 hours, the system will trigger a rebase to re-stabilize the Float price through rebase. The process of rebase is that the user pays ETH (v1, v2 plans to introduce other assets, but v1 only has eth, which will be replaced by eth below) and BANK Come to the agreement to obtain a new Float (when inflation), or the agreement uses ETH and BANK to buy back Float (when deflation)
If the price of Float deviates from its target price:
During inflation, the system changes the supply and affects the price by casting Float. The specific realization form is a Dutch auction (arbitrageurs have the opportunity to buy a new Float at a price lower than the market price). The BANK received by the system will be destroyed, and ETH will be destroyed. Enter the vault
During deflation, the system changes the supply chain by buying and burning Floats to affect prices. The specific realization form is a reverse Dutch auction (arbitrageurs have the opportunity to sell Floats at a price higher than the market price), and the repurchased Floats are destroyed at the same time.
In this way, arbitrageurs can change the supply on the market and achieve stability.
Examples of inflation cycles
Assume that the current target price of Float is $1.50 and the market price is $2.00. In this case, the new Float will be put on the market at a decreasing price (starting at US$2.00 and gradually decreasing to a starting price of US$1.50).
Logically, the arbitrageur will obtain enough Float through auction and sell it to the market to bring the price closer to the target price.
When buying Float, arbitrageurs need to pay ETH and BANK. Normally (the treasury adequacy ratio is 100%), they pay 1.50 US dollars at the price of ETH, and the remaining 0.50 US dollars (market price-target price) are paid in BANK:
The ratio of ETH / BANK depends on whether there is a surplus or deficit in the vault factor during expansion (the vault factor will be described in detail later). In the case of surplus, some extra ETH will be stored in the “rainy fund” to support Float in extreme distress (vault factor <50%).
Examples of deflationary cycles
Assume that the current target price of Float is US$2.00 and the market price is US$1.50.
In this case, the agreement will purchase Float from the market at an increasing price (from 1.50 USD to 2.00 USD).
Logically, the arbitrageur will buy Float from the market and sell it to the agreement, so that the market price is closer to the target.
The agreement will pay ETH and BANK to purchase Float:
The ETH used to purchase Float comes from the vault;
The BANK used to purchase Float was cast out of the agreement;
Similarly, the ratio of ETH/BANK depends on whether there is a surplus/deficit of ETH in the Vault;
The Float purchased by the agreement is immediately destroyed.
In particular, if vault factor <50%, it will trigger the rainy day fund to repurchase Float
In the Float mechanism, ETH (or other basic “collateral” planned to be introduced in v2) is locked in the vault. In the initial stage, this part of the ETH in the contract will not be used for other things, just waiting for the Float to be repurchased during the deflation phase (it does not mean that it will not later). The vault is a key reserve that can pull Float back to the target price during the deflation phase. .
Through the ETH locked in the vault and using Float’s stabilization mechanism, there is a layer of “ambiguity” between “air” Float and “value coin” ETH:
In an ideal state (ie target price = current price), the market value of ETH in the vault and the float in circulation are the same, so the anchor of the total market value of Float is the market value of ETH locked in the vault.
Float is like a horse, and locked ETH is like gold on a carriage. The horse will continue to pull the carriage forward, whether it is forward or backward; the value of the horse itself may not be paid attention to by everyone, but everyone in the gold wants it, so the horse has value.
Moreover, from the current mechanism, the ETH locked in VAULT may only be released when Float enters the deflation phase, which will further increase the coupling between Float and ETH: a non-collateralized tight coupling.
In the initial stage of the project, if the strategy is appropriate, the high-priced Float will stimulate arbitrage demand, and then deposit a large amount of ETH into VAULT, which becomes the cornerstone of VAULT’s value.
VAULT FACTOR (Treasury Adequacy Ratio)
VAULT FACTOR = the market value of ETH locked in the vault / the market value of the target price of Float in circulation.
The following table describes the changes in the BANK value and VAULT FACTOR during the auction when the superimposed treasury adequacy ratio itself is in a state of surplus or insufficiency in the inflation phase and the deflation phase:
Assuming that the current vault factor is a, then when a-1>0, the vault factor is in a surplus state, otherwise it is in a insufficient state
It can be seen that only in the state of inflation and surplus (upper left), VAULT FACTOR will decrease; in the other four cases, VAULT FACTOR will increase.
The one that is slightly difficult to understand is in the state of deflation and surplus (upper right). Although the current VAULT FACTOR itself is already surplus, the occurrence of rebase will still increase the VAULT FACTOR.
In view of the role of VAULT on the anchor point of the entire system, the concept of VAULT FACTOR is actually very important. A surplus VAULT will make the entire system very healthy (over-collateralized). Therefore, in most cases, the system hopes that VAULT FACTOR can Elevated
The following figure is the official price backtesting situation in 2020: ETH price vs target price deviation ratio vs treasury adequacy ratio
Team member Paul gave a presentation at the hackclub, back-testing the daily price change percentage of ETH and Float:
Comparison of daily Float target price and ETH price changes & Float target price and anchored USD stablecoin:
Token distribution plan
The project adopts the form of democratic distribution, and unlike most projects, Float Protocol first started single currency mining for the governance token BANK (rather than digging stable coins first), and then start after the BANK distribution is basically completed. Float is cast.
The specific information distributed by BANK is as follows:
A total of 168,000 BANK will be minted in the first year. The expected distribution is as follows:
Community distribution: 50%, of which 37.5% is allocated in phase 1 and 12.5% is allocated in phase 2
Team tokens: 5% (distributed after the initial coin minting ceremony, and locked for 12 months).
Ministry of Finance (treasury): 10% (minted at the beginning of the second phase of community distribution and controlled by DAO).
Liquidity incentive measures after issuance: 35% (5% of the initial circulation is minted, 30% is controlled by DAO, and the goal is to carry out various liquidity incentives and partnerships).
After 1 year, BANK may have inflation, which will be controlled by DAO at that time.
Phase 1 (starts at 22:00 UTC on Sunday, February 7th, lasts for 6 weeks, and ends on March 21st)
The project adopts a whitelist system. Currently, the whitelist consists of representatives of addresses that participate in the off-chain governance of any agreement on Snapshot.page and/or Compound, MakerDao or MolochDao on-chain governance addresses, and delegates of Year, UMA, YAM, and Curve. Whether it is in the whitelist can be checked after linking the wallet through the official website.
1,500.00 BANK will be allocated every day. A total of 10,500 BANK will be distributed every week, and a total of 63,000 BANK will be distributed on 6 Mondays.
Phase 2 (starts at 22:00 UTC on Sunday, March 21, and lasts for 2 weeks)
The second phase aims to provide extensive distribution to the top DeFI protocol community and realize the initial price discovery of BANK tokens.
Compared with the first stage, there will be no more whitelist restrictions. In addition, a new non-stable currency pool will be added, and a total of 1500 BANK (all pools) will be distributed every day
The full announcement will be provided one week before the start of Phase 2 (ie March 14).
In addition, in the second stage, the system will also incentivize the liquidity pool of BANK-ETH in order to better discover the price.
Initial Float Mint
After the audit of the agreement is passed, and after an 8-week distribution period, the initial Float minting will be held. During this period, users can use ETH to purchase Float, and the agreement will use 5% of the total BANK to incentivize purchases.
One week before the end of the 8-week initial distribution period (i.e. March 28), more detailed information about the number of floats that can be purchased and the exact mechanism of the initial coinage ceremony will be released.
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