Stablecoin & Monetary Policy
While supporting collateralized lending, Demeter can also synthetically generate and mint a stablecoin, DUSD, by over-collateralization. Minting DUSD is equal to lending the equivalent USD amount of debt, and the credit limit will be shared between minting and borrowing. Rather than supplying fiat currency or a single cryptocurrency, DUSD is a combination of a basket of cryptocurrencies, backed by sufficient and reliable collateral, which makes it highly decentralized, also, faster, safer, more cost-efficient, and easier to use through the HECO network. In order to maintain the 1:1 anchoring of DUSD to USD, Demeter has established a series of monetary policies.
TRFM (Target Rate Feedback Mechanism) will be employed by Demeter in order to maintain the Target Price of $1 DUSD is $1USD: when the DUSD price falls below $1, the collateral ratio for the CDP (Collateral Debt Position) decreases and less DUSD will be available for the same collateral, which corresponds to a decrease in supply. And when the price of DUSD falls below $1, the stability fee required to hold DUSD increases, so as the cost of holding it, prompting users to buy back DUSD to repay it.
DUSD will be supplied at a dynamic interest rate, with an annual over-provision rate consistent with the stability fees, with the inflationary share going entirely to the DAO revenue pool and the DAO Treasury, without any subjective malicious increases.
In addition, Demeter has set up a mechanism for the overprovision allocation rate, where a certain percentage (0%-100%) of the overprovision revenue along with a portion of the governance tokens will go into the DAO Treasury, thus ensuring that the actual annual overprovision rate is in an adjustable state.
It is important to note in particular that the dynamic interest rate supply mechanism of the DUSD is fundamentally different from the simple inflationary and algorithmic stablecoin mechanisms, where the main purpose of the excess supply of the DUSD is to hedge the endogenous growth demand of the monetary system. These excess supply revenues do not directly enter the circulation to cause inflation, it needs to be reconciled through the Treasury first, allowing for a 0% policy target if necessary. In the case of a positive excess issue rate, the DUSD that enters actual circulation after reconciliation is also distributed through the DAO revenue pool in a completely equitable manner. On the other hand, the excess supply of DUSD is in fact collateralized by 5% of the governance token DMT in the Treasury as collateral. When necessary, the DUSD supply can be liquidized through the Treasury governance token DMT.