Algorithmic stablecoins dynamically adjust the money supply to meet changes in money demand.
When demand is rising, the blockchain will create more stablecoin. The expanded supply is designed to bring the price down.
When demand is falling, the blockchain will buy back stablecoin. The contracted supply is designed to restore the price.
Algorithmic stablecoins are designed to expand and contract supply similarly to the way central banks buy and sell fiscal debt to stabilize purchasing power. For this reason, we refer to Basis as having an algorithmic central bank.
Read the Basis Whitepaper for more details.
YFL USD differs from the original Basis Project in several meaningful ways:
Rationally simplified - several core mechanisms of the Basis protocol has been simplified, especially around bond issuance and seigniorage distribution. We've thought deeply about the tradeoffs for these changes, and believe they allow significant gains in UX and contract simplicity, while preserving the intended behavior of the original monetary policy design.
Fairly distributed - community members can earn the initial supply of YFL USD by helping to contribute to bootstrap liquidity & adoption of YFL USD.
There exists three types of assets in the YFLUSD system.
YFL USD ($YFLUSD): a stablecoin, which the protocol aims to keep value-pegged to $1 ETH.
YFL Bonds ($bYFL): IOUs issued by the system to buy back YFL USD when price($YFLUSD) < $1. Bonds are sold at a meaningful discount to price($YFLUSD), and redeemed at $1 when price($YFLUSD) normalizes to $1.
sYFL ($sYFL): receives surplus seigniorage (seigniorage left remaining after all the bonds have been redeemed and percentage of seigniorage sent to YFL Treasury).
Token contract addresses:
YFLUSD functions similarly to historic algorithmic stablecoins, but with a few tweaks that will aid price stability over time. Of particular note is YFLUSD will be pegged to $1 of ETH instead of another stable. This will further function as a way for YFLUSD to have true independence from other stablecoins. In addition to this it will have a pivotal role in the YFL ecosystem through a mechanism to allow the use of a transaction fee (less than 1%) of each YFLUSD transaction to be sent to up to two additional initiatives, projects, the YFL Treasury, or yYFL stakers. By providing yet another stream of revenue to the YFL community, YFLUSD will help to build synergy and support where it is needed.
Contraction: When the price($YFLUSD) < ($1 - epsilon), users can trade in $YFLUSD for $bYFL at the $bYFL-$YFLUSD exchange rate of price($YFLUSD). This allows bonds to be always sold at a discount to cash during a contraction.
Expansion: When the price($YFLUSD) > ($1 + epsilon), users can trade in 1 $bYFL for 1 $YFLUSD. This allows bonds to be redeemed always at a premium to the purchase price.
Seigniorage Allocation: If there are no more bonds to be redeemed, (i.e. bond Supply is negligibly small), more $YFLUSD is minted totalSupply($YFLUSD) * (price($YFLUSD) - 1), and a percentage is sent to the YFL Treasury and the remaining is placed in a pool for $sYFL holders to claim pro-rata in a 24 hour period.
Time Weighted Price Avarage (TWAP) is used for price($YFLUSD).