Liquidity

The available Liquidity in the Stability Pool is subject to various fees, stability mechanisms and divergence changes. Together they influence the Liquidity (DCM) in the Stability Pool and consequently the value of the LPD token via the lpRATE. The Stability Model determines the settings which will adjust dynamically to align the incentives with the stabilising needs of the Protocol.

DCM Liquidity

The DCM liquidity in the Stability Pool refers to the total amount of liquidity in the Stability Pool denominated in DCM. Only DCM and DUCA can be contained in the Stability Pool. Whenever the DCM Market Value is below the Par Value the DUCA will be calculated against the Par Value.

OPERATING FEE

The Operating Fee is designed to compensate for the direct costs that are associated with and incurred through operating the smart contracts and the infrastructure that is required to have the Protocol fully functional and operational.

TREASURY FEE

The Treasury Fee is a fee that adds DCM to the Treasury Fund in support of the DUCA Yield and is a % taken over the total liquidity in the Stability Pool (and separately also over the DCM owners).

The Treasury Fee consists of a fixed rate and a variable rate. The fixed rate is a 3% base rate and the variable rate is equal to the actual DUCA Yield. The variable rate is variable because the DUCA Yield is variable but also because the actual % used for the Treasury Fee depends on the actual retracement level. The result is that the more the DCM Market Value moves towards the Par Value the lower the discount and the higher the fee.

DUCA-BACKED ASSETS

The Stability Pool safeguards the 120% Funding Ratio for DUCA-Backed Assets. Providing this guarantee will happen against the DCM Market Value and will negatively impact the Liquidity but when it returns it will be against Par Value and will positively impact the Liquidity.

STABILITY FEE

The Stability Fee is a fee that applies to the owners of DCM. The fee is a percentage of the total DCM supply on the open market excluding the DCM within the Protocol. All wallets containing DCM will be affected by the Stability Fee. The Stability fee can be both positive and negative. When the fee is negative DCM will be taken from the Stability Pool and distributed pro rata to all owners of DCM.

The Stability Fee functions within the Stability Pool as a dynamic liquidity provider fee in that it provides a variable incentive to liquidity providers to ensure the target pool size. Therefore it is the open market that determines the height of the fee.

DIVERGENCE CHANGE

The Stability Pool is subject to Divergence Change due to the presence of DUCA and contraction events. This can take the form of both a loss as well as a gain in liquidity. These mechanics are commonly known as impermanent loss within liquidity pools. DUCA contraction will happen against the DCM Par Value. Since the Par Value will be below the DCM Market Value, under normal circumstances, the net result will be an increase in liquidity. These Divergence Changes impact the DCM Liquidity in the Stability Pool as reflected in the lpRATE.

EXIT FEE

Whenever LPD is returned, it withdraws its liquidity from the Stability Pool by sending in the LPD, an Exit Fee is applicable. The exit fee will be burnt and increase the Liquidity in the Stability Pool which means the fee is distributed pro rata to all LPD owners.

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