How Davos Works

Davos Protocol operates as a Collateralized Debt Position (CDP) platform, allowing users to lock up assets such as Liquid Staking Tokens (LSTs), Liquid Restaking Tokens (LRTs), and other reward-bearing assets. Each asset type is assigned a specific Loan-To-Value (LTV) ratio according to its risk profile. For LSTs, the LTV is set at 66%, ensuring that the borrowed DUSD is over-collateralized by 150%. This varying over-collateralization strategy, tailored to the risk characteristics of different assets, bolsters the overall stability of the ecosystem and provides a buffer against market volatility.

Our solution is distinctive in that it implements minting caps according to the risk factors of each collateral type. This feature minimizes exposure by assigning each asset to its own collateral pool with a unique minting cap, so effectively managing risk and preventing systemic contagion. These limitations contribute to the overall stability and liquidity of DUSD, ensuring a safe borrowing experience.

Dynamic Borrowing and Monetary Policy

Davos Protocol deviates from traditional CDP models, which often feature near-zero or arbitrary borrowing rates, by adopting a more dynamic and unbiased monetary policy. Borrowing rates within the protocol are determined by a dynamic system that selects the highest among three rates – the Personal Consumption Expenditure (PCE) Index, Federal Reserve interest rates, or stablecoin lending rates in DeFi. These rates are further adjusted based on the risk profile of the collateral used.

This means that assets deemed riskier may incur a higher cost of borrowing, reflecting their risk profile. This approach ensures a balanced and realistic borrowing rate, more closely aligned with the true cost of capital and the inherent risk associated with different types of collateral.

The protocol also features an “All-weather savings rate” which is precisely engineered to provide durability and competitive returns throughout a wide range of economic scenarios. While aiming to mitigate the effects of inflation, this model promises increased predictability and sustainability in various interest rate environments.

Furthermore, this will increase the Omnichain Savings Rate’s appeal and reach, demonstrating our commitment to delivering accessible and compelling savings possibilities throughout the Defi space.