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.