Algorithmic stablecoins are one of the hot spots of Defi this year, and the innovation iteration speed is extremely fast. From the first generation of AMPL to the second generation of ESD, to the third generation of Basis and Mith, each has created countless myths.
In mid-January, FRAX became the leader in algorithmic stablecoins. First, its price was strictly anchored to one dollar, becoming the first veritable algorithmic “stable currency”. Secondly, the price of its equity tokens was also the same. It has risen, so it has received widespread attention, but what Defi Master wants to introduce in this issue is not Frax, but Fork's Pegs.Cash from Frax.
This issue first analyzes the innovation of Frax, then introduces the difference of Pegs, and finally explains how to participate
(The price of Frax bites a dollar firmly)
01
Frax's innovation
There are two types of tokens in the Frax ecosystem, one is the stable currency Frax anchored to one dollar, and the other is the equity token FXS. Unlike fully unsecured algorithmic stablecoins, Frax intends to start with fully secured stablecoins, gradually reduce the mortgage rate, and finally realize partial algorithms and partially mortgaged stablecoins. The name also comes from the word fraction (part).
Initially, when Frax was minted, USDC was required to be mortgaged 1:1. If the price of Frax is greater than one U.S. dollar for a period of time, the agreement will reduce the mortgage rate. On the contrary, when the price of Frax is less than $1 for a period of time, the agreement will increase the mortgage rate. Assuming that the mortgage rate at a certain point in time is 97%, the conditions at the time of casting and redemption are as follows:
When casting: 3% of FXS+97% of USDC is required to mint FRAX. For example, if you want to mint 100Frax, you need 97 USDC and 3 USD worth of FXS. FXS will be destroyed during casting.
When redeeming: When redeeming 100 Frax, the system will give users 3 USD worth of FXS (newly issued) and 97 USDC.
After a period of operation, Frax's casting volume has increased to more than 100 million pieces. As its demand continues to rise, the mortgage rate has steadily decreased, and currently reaches 83.75%. In addition, USDC-FRAX market-making mining still has an annualized rate of 80%, which is also a high-yield and long-lasting mine.
We have been looking forward to the advent of real algorithmic stablecoins, but from the current experiments, most currencies have attracted attention mainly because of their "rich-making myth", and algorithmic stablecoins that can truly "stable" have not yet appeared. And Frax has changed this. It has been stubbornly biting the price of one dollar since its launch, which not only helps investors build confidence quickly, but is also very beneficial to the expansion of its application scenarios.
02
Pegs.Cash difference
The innovation of Frax is undoubted. Defi Master is very optimistic about its future development, but why is the recommended mining in this issue not Frax but Pegs?
First of all, Pegs is still in the early stage and has not many followers. In the short term, its annualization is much higher than Frax. In addition, Pegs has some different characteristics compared to Frax. Defi Master is also optimistic about its short-term development, so I want to recommend it to brothers who missed Frax.
(1) Fair distribution method When Frax first went online, its price performance was not excellent, because 35% of its coins are owned by investors and the team, and naturally tend to sell when the opening price is high:
Even if it now appears that the total amount of Frax is 100 million, the fully circulating market value still has close to 2 billion US dollars, and the selling pressure for investors to unlock in the future is still not small.
(FXS price trend)
In contrast, the total number of Pegs is 30 million, no private placement or pre-mining, 80% of the mining rewards, and the remaining 20% belong to the team, but the team part must be unlocked after one year, and the unlocking period is 12 months. It can be seen that the team The determination of long-term operation. In addition, the team will also charge 5% of the current mining output as operating expenses.
The fair distribution method is one of the important drivers of this Defi boom. Forking the king of the project and distributing it in a fair manner has become a major entrepreneurial direction in the Defi field, such as Fork Curve's Swerve and Fork Uniswap's Sushiswap.
Defi Master is the earliest miner of these two projects. From past experience, generally the first imitation disk will survive for a period of time. Although it is likely to fail the main body in the end, the initial high profit can still last for a period of time.
(2) Improvement of economic model Frax charges 0.45% minting fee and 0.45% redemption fee. It has accumulated a lot of income, but these incomes do not directly empower Fxs.
Pegs improved on this. Pegs charges a minting fee of 0.3% and a redemption fee of 0.3%. 30% of this money will be used as a capital reserve. For example, in the future, it can be repurchased when Pusd is less than one dollar, and 70% will be directly allocated to PEGS (equity Token holders, holders can share this part of the income by staking PEGS. This directly empowers PEGS.
Today Pegs’ total lock-up volume has just exceeded 10 million U.S. dollars. The lock-up volume of popular algorithm stablecoins is generally between 50 million and 100 million U.S. dollars. If PEGS can reach tens of millions of U.S. dollars, it is expected to accumulate a considerable amount of protocol income.
03
way of participation
Before explaining how to participate, let's talk about security first. We must remind everyone that Pegs is not audited! No audit! No audit! You must not invest more than you can afford. The reason why Defi Master participates by itself is because the amount of locked-up funds is already large, and at the same time, it has logged into the Matcha exchange on January 15th. The risk of direct running away is relatively low. In addition, Defi Master also checked the risk of flash loans, so Choose to invest a small amount of money to participate.
There are currently three ways to participate 1. PUSD-USDC trading pair market making, pledge lp, annualized about 450% 2. PEGS-PUSD trading pair market making, pledge lp, annualized about 4500% 3. Pledge PEGS sharing agreement income
Among them, Defi Master recommends the first one with the lowest risk. There is no need to increase the risk exposure to PEGS. The latter two mining methods are not recommended because the current price of PEGS is not low, and the fully circulating market value has reached 400 million. Around the dollar.
Lightning protection guide: Big funds recommend to make PUSD by themselves to make the market instead of buying PUSD directly. There will be a 2% spread between the two. In addition, you need to buy some PEGS first, and you need to buy PEGS directly with USDC. The slippage is extremely high. You need to buy some PUSD on UNISWAP, then use PUSD to buy PEGS, and use these PEGS with USDC to cast PUSD yourself for mining.