There is a demand for a decentralized reserve currency. Dollar-pegged stablecoins have become an essential part of crypto due to their lack of volatility as compared to tokens such as Bitcoin and Ether. Users are comfortable with transacting using stablecoins knowing that they hold the same amount of purchasing power today vs. tomorrow. But this is not exactly true. The dollar is controlled by the US government and the Federal Reserve. This means a depreciation of the dollar also means a depreciation of these stablecoins.
Infinity aims to solve this by creating a free-floating reserve currency, IND, that is backed by a basket of assets. By focusing on supply growth rather than price appreciation alone, Infinity hopes that IND can function as a currency that is able to hold its purchasing power regardless of market volatility.
Nope. IND is not a stable coin. Rather, IND aspires to become an algorithmic reserve currency backed by other decentralized assets. Similar to the idea of the gold standard, IND provides free floating value its users can always fall back on, simply because of the fractional treasury reserves IND draws its intrinsic value from.
Each IND is backed by 1 USDT, not pegged to it. Because the treasury backs every IND with at least 1 USDT, the protocol would buy back and burn IND when it trades below 1 USDT. This has the effect of pushing IND price back up to 1 USDT. IND could always trade above 1 USDT because there is no upper limit imposed by the protocol. Think pegged == 1, while backed >= 1. You might say that the floor price or intrinsic value of IND is 1 USDT. We believe that the actual IND value will always be 1 USDT + premium, but in the end that is up to the market to decide.
At a high level, Infinity consists of its protocol managed treasury, protocol owned liquidity (POL), bond mechanism, and staking rewards that are designed to control supply expansion and .
Bond sales generate profit for the protocol, and the treasury uses the profit to mint IND and distribute them to users. With liquidity bonds, the protocol is able to accumulate its own liquidity. Check out the entry below on the importance of POL.
(3,3) is an achievable dream for the IND protocol. Is the idea that, if everyone cooperated in IND, it would generate the greatest gain for everyone (from a game theory standpoint). Currently, there are three actions a user can take:
· Staking (+2)
· Bonding (+1)
· Selling (-2)
Staking and bonding are considered beneficial to the agreement, while the sale has no effect. Staking and selling will also cause IND changes, while bonding will not (we believe that buying IND from the market is a prerequisite for staking, thus causing a price move). If both actions are beneficial, the actor who moves the price gets half of the benefits (+1). If both actions are contradictory, the bad guy who moves the price will get half the benefits (+1), and the good guy who moves the price gets half the benefits (-1). If both actions are harmful, which implies both actors are selling, they both get half of the downside (-1).
Thus, given two actors, all scenarios of what they could do and the effect on the protocol are shown here:
- If we both stake (3, 3), it is the best thing for both of us and the protocol (3 + 3 = 6).
- If one of us stakes and the other one bonds, it is also great because staking takes IND off the market and put it into the protocol, while bonding provides liquidity for the treasury (3 + 1 = 4).
- When one of us sells, it diminishes the effort of the other one who stakes or bonds (1 - 1 = 0).
- When we both sell, it creates the worst outcome for both of us and the protocol (-3 - 3 = -6)
As the protocol controls the funds in its treasury, IND can only be minted or burned by the protocol. This also guarantees that the protocol can always back 1 IND with 1 USDT. You can easily define the risk of your investment because you can be confident that the protocol will indefinitely buy IND below 1 USDT 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, a longer 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.
IND owns most of its liquidity thanks to its bond mechanism. This has several benefits:
- IND does not have to pay out high farming rewards to incentivize liquidity providers a.k.a renting liquidity.
- IND guarantees the market that the liquidity is always there to facilitate sell or buy transactions.
- By being the largest LP (liquidity provider), it earns most of the LP fees which represents another source of income to the treasury.
- All POL can be used to back IND. The LP tokens are marked down to their risk-free value for this purpose.
Fractional reserve banking works because depositors don’t withdraw their funds all at once. A depositor’s faith in the banking system rests on regulations and agencies like Federal Deposit Insurance Corporation (FDIC). IND does not have FDIC insurance, but it has an incentive structure that protects stakers. Let’s take a look at how it performs during a hypothetical bank run. In this scenario, we assume the majority of stakers would panic and unstake their tokens from IND - the staking percentage which stands at 92% now quickly collapses to 3.3%, leaving only 55,000 IND staked. Next, we assume the Risk-Free Value (RFV) inflows to the treasury completely dry up. For context, RFV is currently growing at about $1 million every 2 days. However, during a bank run this growth will likely stop.
Finally, we assume that those last standing stakers bought in at a price of $500 per IND. The initial investment of these stakers would be:
Let's suppose, the total IND supply is 2,082,553 and the RFV is $47,041,833. Remember that 1 IND is backed by 1 USD (USDT). By subtracting these two numbers, we know 44,959,280 $IND will eventually get issued to the remaining stakers. In roughly a year, these stakers who are holding 55,000 IND will have:
$27.5 million investment made by these stakers will turn into about $45 million based on cash flow alone if they stay staked (recall that 1 IND is backed by 1 USD). In this bank run scenario, the stakers who stay staked not only get their money back, but also make some profit. Therefore, (3,3) isn’t just a popular meme, it is actually a dominant strategy.
The above scenario is unlikely to play out because when other people find out that extremely high rewards are being paid to the stakers, they will copy the strategy by buying and staking IND. This is also why the percentage of IND staked in IND has consistently remained over 90% since launch.
It is extremely important to understand how early in development the Infinity DAO protocol is. A large amount of discussion has centered around the current IND and the expected stable value moving forward. The reality is that these characteristics are not yet determined. The network is currently tuned for expansion of IND supply, which when paired with the staking, bonding, and yield mechanics of Infinity DAO, result in a fair amount of volatility. IND could trade at a very high price because the market is ready to pay a hefty premium to capture a percentage of the current market capitalization. However, the price of IND could also drop to a large degree if the market sentiment turns bearish. We would expect significant IND volatility during our growth phase, so please do your own research on whether this project suits your goals.
When you buy and stake IND, you capture a percentage of the supply (market cap) which will remain close to a constant. This is because your staked IND balance also increases along with the circulating supply. The implication is that if you buy IND when the market cap is low, you would be capturing a larger percentage of the market cap.
Rebase is a mechanism by which your staked $IND balance increases automatically. When new IND are minted by the protocol, a large portion of it goes to the stakers. Because stakers only see staked $IND balance instead of $IND, the protocol utilizes the rebase mechanism to increase the staked $IND balance so that 1 staked IND is always redeemable for 1 IND.
Reward yield is the percentage by which your staked $IND balance increases on the next epoch. It is also known as rebase rate. You can find this number on the IND staking page.
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 Infinity DAO, your staked IND represents your principal, and the compound interest is added periodically on every epoch (36,000 Binance Smart Chain, or around 8 hours) thanks to the rebase mechanism.
The APY is calculated from the reward yield (a.k.a rebase rate) using the following equation:
It raises to the power of 1095 because a rebase happens 3 times daily. Consider there are 365 days in a year, this would give a rebase frequency of 365 * 3 = 1095. Reward yield is determined by the following equation:
The number of IND distributed to the staking contract is calculated from $IND total supply using the following equation:
Note that the reward rate is subject to change by the protocol. For example, it has been revised due to this latest proposal.
As illustrated above, your IND balance will grow exponentially over time thanks to the power of compounding. Let's say you buy an IND for $400 now and the market decides that in 1 year time, the intrinsic value of IND will be $2. Assuming a daily compound interest rate of 2%, your balance would grow to about 1377 INDs by the end of the year, which is worth around $2754. That is a cool $2354 profit! By now, you should understand that you are paying a premium for IND now in exchange for a long-term benefit. Thus, you should have a long time horizon to allow your IND balance to grow exponentially and make this a worthwhile investment.
There is no clear answer for this, but the intrinsic value can be determined by the treasury performance. For example, if the treasury could guarantee to back every IND with 100 USDT, the intrinsic value will be 100 USDT. It can also be decided by the DAO. For example, if the DAO decides to raise the price floor of IND, its intrinsic value will rise accordingly.
Let’s say the protocol targets an APY range of 1,000% to 10,000%, this would translate to a minimum reward yield of about 0.2105%, or a daily growth of about 0.6328%. Please refer to the equation above to learn how APY is calculated from the reward yield. If there are 100,000 of IND staked right now, the protocol would need to mint an additional 632.8 IND to achieve this daily growth. This is achievable if the protocol can bring in at least $632.80 of daily revenue from bond sales. Even if the protocol doesn't bring in that much revenue, it can still sustain 1,000% APY for a considerable amount of time due to the excess reserve in the treasury.
No. Once you have staked IND with IN DAO, your staked IND balance will auto-compound on every epoch. That increase in balance represents your rebase rewards.
You can track your rebase rewards by calculating the increase in your staked IND balance.
- 1.Record down the Current Index value on the staking page when you first stake your IND. 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 IND balance has increased.
In this example, the IND balance has grown by 1.5 times.