Why do we need ZeusDao in the first place?
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 a fallacy. The dollar is controlled by the US government and the Federal Reserve. This means a depreciation of dollar also means a depreciation of these stablecoins.
ZeusDao aims to solve this by creating a non-pegged stablecoin called $ZEUS. By focusing on supply growth rather than price appreciation, ZeusDao hopes that $ZEUS can function as a currency that is able to hold its purchasing power regardless of market volatility.
Is $ZEUS a stablecoin?
No, $ZEUS is not a stablecoin. Rather, $ZEUS aspires to become an algorithmic reserve currency backed by other decentralized assets. Similar to the idea of the gold standard, $ZEUS provides free-floating value its users can always fall back on, simply because of the fractional treasury reserves $ZEUS draws its intrinsic value from.
$ZEUS is backed, not pegged.
Each $ZEUS is backed by 1 USDC or 1 DAI, not pegged to it. Because the treasury backs every $ZEUS with at least 1 USDC or 1 DAI, the protocol would buy back and burn $ZEUS when it trades below 1 USDC or 1 DAI. This has the effect of pushing $ZEUS price back up to 1 USDC or 1 DAI. $ZEUS could always trade above 1 USDC or 1 DAI because there is no upper limit imposed by the protocol. Think pegged == 1, while backed >= 1.
You might say that the $ZEUS floor price or intrinsic value is 1 USDC or 1 DAI. We believe that the actual price will always be 1 USDC or 1 DAI + premium, but in the end that is up to the market to decide.
How does it work?
At a high level, ZeusDao consists of its protocol managed treasury, protocol owned liquidity, bond mechanism (minting), and high staking rewards that are designed to control supply expansion.
Minting generates profit for the protocol, and the treasury uses the profit to mint $ZEUS and distribute them to stakers. With LP bond, the protocol is able to accumulate liquidity to ensure the system stability.
Why is PCV important?
As the protocol controls the funds in its treasury, $ZEUS can only be minted or burned by the protocol. This also guarantees that the protocol can always back 1 $ZEUS with 1 USDC or 1 DAI. You can easily define the risk of your investment because you can be confident that the protocol will indefinitely buy $ZEUS below 1 USDC or 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.
What is a rebase?
Rebase is a mechanism by which your staked $ZEUS balance increases automatically. When new $ZEUS are minted by the protocol, a large portion of it goes to the stakers. Because stakers only see staked $ZEUS balance instead of $ZEUS the protocol utilizes the rebase mechanism to increase the staked $ZEUS balance so that 1 staked $ZEUS is always redeemable for 1 $ZEUS.
What is reward yield?
Reward yield is the percentage by which your staked $ZEUS balance increases on the next epoch. It is also known as rebase rate.
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 ZeusDao, your staked $ZEUS 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 $ZEUS on day 1, after a year, your balance will grow to about 1377.
Why does the price of $ZEUS become irrelevant in long term?
As illustrated above, your $ZEUS balance will grow exponentially over time thanks to the power of compounding. Let’s say you buy a $ZEUS for $400 now and the market decides that in 1 year time, the intrinsic value of $ZEUS will be $2. Assuming a daily compound interest rate of 2%, your balance would grow to about 1377 $ZEUS 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 $ZEUS now in exchange for a long-term benefit. Thus, you should have a long time horizon to allow your $ZEUS balance to grow exponentially and make this a worthwhile investment.
What will be $ZEUS intrinsic value in the future?
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 $ZEUS with 100 USDC or 1 DAI, the intrinsic value will be 100 USDC or 1 DAI. It can also be decided by the future DAO. For example, if the DAO decides to raise the price floor of $ZEUS, its intrinsic value will rise accordingly.
How does the protocol manage to maintain the high staking APY?
Let’s say the protocol targets an APY of 100,000%. This would translate to a rebase rate of about 0.6328%, or a daily growth of about 2%. Please refer to the equation above to learn how APY is calculated from the rebase rate.
If there are 100,000 $ZEUS tokens staked right now, the protocol would need to mint an additional 2000 $ZEUS to achieve this daily growth. This is achievable if the protocol can bring in at least 2000 USDC or 1 DAI daily from bond sales. If the protocol fails to achieve this, the APY of 100,000% cannot be guaranteed.
