Reflexivity Protocol Incentive Structure

The Incentive Structure that drives the Protocol

What are the Mechanisms behind the DUCA Incentive Structure?

The Incentive Structure is a fundamental building block of the DUCA Reflexivity Protocol. It incorporates a range of novel mechanisms designed to maintain stability, manage liquidity, and ensure the protocol adapts dynamically to changing market conditions. Central to these mechanisms is the Stability Pool supporting the economic and operational health of the DUCA ecosystem. This page will explore these key mechanisms in detail, describing how they contribute individually and collectively to the protocol's resilience and responsiveness.

• DCM Par Value: Serves as a critical threshold to ensure the DCM Market Value does not fall below a certain level, safeguarding the protocol's endogenous collateral levels.

• Clean Float: A market-driven approach that adjusts the circulating supply of DCM to stabilize its market value, operating without the need for centralized intervention.

• Stability Fee: Utilized to fine-tune the size of the Stability Pool, aligning liquidity provision with market needs and incentivizing protocol participation.

• Rebase Mechanism: A dynamic adjustment process that modifies the supply of DCM in response to market valuation changes, ensuring that the token's market value aligns with its Par Value.

Each mechanism not only supports the protocol's functionality but also contributes to a sustainable model of operation. The result is a collection of mechanisms that support the incentives the protocol offers to holders, encouraging growth and stability within the broader DUCA ecosystem.

What is the Role of the Stability Pool in the DUCA Incentive Structure?

The Stability Pool is the beating heart of the DUCA Reflexivity Protocol, managing the balance and flow of liquidity within the ecosystem. At the basis, it forms the second layer of collateral for DUCA, and while it is a pool, it does more than hold liquidity. The Stability Pool regulates the supply of DUCA and DUS, aligning with the protocol’s incentive structure. The Stability Pool handles all fees and rewards, dictated by market dynamics, making outcomes for liquidity providers variable and the stability of the protocol predictable.

What is Par Value's role within the DUCA Incentive Structure?

Par Value represents the 100% collateralisation level of DUCA in DCM, ensuring the DCM Market Value does not fall below the 100% collateral level. The Par Value is dynamic - it adjusts in response to shifts in market conditions, aligning with the protocol's design to respond to fluctuations in demand and supply.

The primary role of Par Value is to anchor the market value of DCM, providing a stable reference point for the protocol's stabilization mechanisms. When DCM's market price falls and approaches Par Value, mechanisms such as the Clean Float and Stability Fee are triggered to adjust DCM's supply, stabilizing its market value. These adjustments are automatic and are designed to maintain the stability of DCM's price by matching supply with the current market conditions.

What is Clean Float's role within the DUCA Incentive Structure?

Clean Float is designed to ensure the stability of the DCM market value without centralized intervention and maintain the 100% collateralisation level. Operating on the classic principles of supply and demand, Clean Float automatically adjusts the target size of the Stability Pool, which is anchored by DCM's Par Value to ensure consistent collateralisation.

When the market value of DCM decreases towards Par Value, indicating lower demand, Clean Float increases the demand for LPD, utilizing the Stability Fee. This increase in LPD demand effectively reduces the circulating supply of DCM on the open market, stabilizing its price by tightening supply.

When the market value of DCM increases, indicating higher demand, Clean Float decreases the demand for LPD, utilizing the Stability Fee. This decrease in LPD demand effectively increases the circulating supply of DCM on the open market, stabilizing its price by expanding supply.

Clean Float operates transparently and automatically, aligning market dynamics with the demand for DCM and LPD through the Stability Pool. The symbiotic relationship between DCM and LPD ensures that there is always a market for DCM holders to exit, reinforcing the stability and sustainability of the protocol. Clean Float's design as a credibly neutral mechanism supports the protocol’s broader objectives of stability and reflexivity.

What is the Stability Fee's role within the DUCA Incentive Structure?

The Stability Fee is the 'silver bullet' of the DUCA protocol, it helps maintain the financial stability and operational dynamics of the protocol by minimizing DCM's volatility. This fee is a key component of DUCA’s stability model, working with the Par Value and managed by Clean Float. The Stability Fee is dynamic and is either charged to DCM holders or LPD holders, depending on market conditions.

When the market value of DCM decreases towards Par Value, indicating lower demand, Clean Float increases the demand for LPD, utilizing the Stability Fee. The Stability Fee is charged to DCM holders via the Rebase Mechanism and added to the Stability Pool, resulting in an increase in lpRate, favouring LPD holders.

When the market value of DCM increases, indicating higher demand, Clean Float decreases the demand for LPD, utilizing the Stability Fee. The Stability Fee is charged to LPD holders and paid out as interest to DCM holders.

This flexible mechanism helps maintain the required 100% over-collateralization by balancing the supply and demand for DCM and LPD within the market. By effectively distributing the responsibility of maintaining stability across its participants, the Stability Fee showcases DUCA's commitment to shared responsibility and a transparent operational model. It ensures the protocol can autonomously respond to and stabilize against market fluctuations, securing the underlying value of the DUCA ecosystem.

What is the Rebase Mechanism's role within the DUCA Incentive Structure?

The rebase mechanism adjusts the supply of DCM tokens in circulation based on current market conditions and the token's alignment with its Par Value. The Rebase Mechanism is used by the Stability Fee and managed by Clean Float. When Clean Float determines that the Stability Fee should be charged to DCM holders, it utilizes the Rebase Mechanism to collect DCM to deposit into the Stability Pool. DCM is the only rebaseable token within the DUCA ecosystem.

All of these novel mechanisms make it possible to enable incentives on all DUCA-native tokens. Continue reading to learn about the incentives of the DUCA protocol.