Dynamic Feedback Loop

Davos Protocol operates on a dynamic positive feedback loop, designed to perpetually promote growth and reward every participant in the ecosystem.

Here’s how it functions:

Tailored Borrowing Incentives:

The protocol not only encourages borrowing, but it also actively rewards users who go the extra mile and deposit their assets before minting or borrowing DUSD. Recognizing that these activities involve greater risk than just purchasing DUSD on the market, the protocol aligns incentives closely with the value of users' collateral.

The more a specific collateral is used, the more likely it is to receive increased emissions. This process has the potential to produce a situation in which users profit financially from borrowing, essentially being “paid to borrow” when the benefits outweigh the costs. Even in less extreme cases, these incentives help to dramatically lower borrowing costs through rewards earned on deposited collateral in conjunction with minting DUSD.

This mechanism not only encourages borrowing but also plays an important role in increasing the protocol’s revenue, resulting in a win-win situation for both users and the ecosystem at large.

Revenue Redistribution:

The revenue generated from borrowing activities isn’t just accumulated; it’s actively redistributed within the ecosystem. This means that various stakeholders, including DUSD liquidity providers, future lenders, and participants in the DUSD Savings Rate (sDUSD), directly benefit from the revenue growth. Such a redistribution approach not only improves ecosystem sustainability by rewarding participation and investment, but also generates a more equal financial climate in which the protocol’s success translates into actual benefits for its diverse user base.

Rising Annual Percentage Rate (APR):

As specific pools within the protocol begin to offer higher APRs, they become more attractive to investors. This attractiveness leads to an increase in the total value locked (TVL) in these pools.

Increased TVL and Revenue Cycle:

A higher TVL naturally results in a surge in revenues. These augmented revenues are then channeled back into the system as increased incentives.

The Virtuous Cycle:

The distribution of richer incentives feeds back into the system, encouraging more participation and borrowing. This leads to further revenue generation, which is again redistributed, thus creating a self-reinforcing cycle of escalating rewards and engagement.

Sustained Growth and Attractive Yields:

This feedback loop ensures continuous growth within the Davos ecosystem.

By employing this feedback loop, Davos Protocol aims to create a sustainable and growth-oriented DeFi environment, where the benefits are cyclically amplified and shared across its user base. In essence, Davos Protocol is designed to address the traditional inefficiencies in the stablecoin realm of DeFi. Through innovative solutions, scalable yield sources, and a commitment to decentralization, it aims to set a new standard in how users interact with stablecoins and leverage their assets.