FAQ
What is Democracy DAO ?
Stablecoins have become a integral part of the defi space as users have a sense of security in the interacting with tokens that are pegged to currencys such as the dollar and the euro while shielding themselves from the volitility of popular cryptos such as Bitcoin and Ether. It is a myth though that these currency's are safe assets to park cash in as their are not backed by anything and institutions such as the Federal reserve can print as much cash as they see fit thus holders are at risk of their currency's and purchasing power depreciating.
Democracy DAO offers a innovative solution to this problem by offering a extremly attractive yield to stakers of DEMO. DEMO is backed by assets in the Democracy DAO treasury that gives DEMO a value that in theory it can not fall below or if it does fall below it will present a good abitrage opportunity for savvy traders.
Is DEMO a stablecoin ?
No DEMO is not a stablecoin but it is aiming to become the resererve currency of the KCC network backed by a group of decentralised assets. Similarly to how the U.S dollar was once backed by gold during the era of the gold standard. Unlike a stablecoin DEMO has the potential to be very volatile asset.
DEMO is backed not pegged
It is a important distinction to make that each DEMO token is backed by 1 USDT and not pegged to it. Because the treasury backs each DEMO with atleast 1 USDT it would buy back and burn DEMO to push the price back above 1 USD.Think pegged == 1, while backed >= 1. We hope DEMO will always trade above 1 USD but at the end of the day it is up to the market to decide what the price should be
How does Democracy DAO work?
At a high level, Democracy DAO consists of its protocol managed treasury, protocol owned liquidity, bond mechanism (minting), and high staking rewards that are designed to control supply expansion.
Bonding in the "bonds" page generates profit for the protocol, and the treasury uses the profit to mint DEMO and distribute them to stakers. With LP bond, the protocol is able to accumulate liquidity to ensure the system stability and allowing users to buy and sell DEMO as they please. These LP bonds allow for protocol owned liquidity (POL) which is important for a number of reasons (you can read up on why here)
What is the deal with (A,A) and (B,B)?
A,A is the idea that, if everyone cooperated in Democracy, it would generate the greatest gain for everyone (from a game theory standpoint). Currently, there are three actions a user can take
Staking (+B)
Bonding (+A)
Selling (-B)
Staking and bonding are considered beneficial to the protocol, while selling is considered detrimental. Staking and selling will also cause a price move, while bonding does not (we consider buying DEMO from the market as a prerequisite of staking, thus causing a price move). If both actions are beneficial, the actor who moves price also gets half of the benefit (+A). If both actions are contradictory, the bad actor who moves price gets half of the benefit (+A), while the good actor who moves price gets half of the downside (-A). If both actions are detrimental, which implies both actors are selling, they both get half of the downside (-A).
The below chart shows all the plausible scenarios and the impact they would have on the protocol
If both parties stake (C, C), it is the best thing for both of us and the protocol (C +C represented by the dark green ).
If one party stakes and the other one bonds, it is also mutually beneficial because staking takes DEMO off the market and put it into the protocol, while bonding provides liquidity and USDT for the treasury (A + C represented by a lighter green).
When one of the parties sells, it diminishes effort of the other one who stakes or bonds (A-A ).
When both parties sell, it creates the worst possible scenario for both invloved parties and the protocol (-C,-C illustrated by orange)
Is Protocol Controlled Value (PCV) important ?
As the protocol controls the funds in its treasury, DEMO can only be minted or burned exclusively by the protocol. This also guarantees that the protocol can always back 1 DEMO with 1 USDT. Ond could easily define the risk of their investment because you can be confident that the protocol will indefinitely buy DEMO below 1 USDT with the treasury assets until no one is left to sell. For most people it is a lot easier to place their trust in a indiscriminate piece of code rather than federal reserve
As the protocol accumulates more PCV, more runway is guaranteed for the stakers as a result of this. This means the stakers can be confident that the current staking APY can be sustained for a longer period because more funds are available in the treasury thus increasing the overall level of trust in the protocol
What is POL and does it matter ?
POL is a abbreviation for protocol owned liquidty and has quite significant benfits for Democracy protocol for a number of reasons.
Democracy does not have to pay out high farming rewards to incentivize liquidity
providers a.k.a renting liquidity.
Democracy guarantees the market that the liquidity is always there to facilitate both
sell and buy transactions
By being the largest LP (liquidity provider), it earns most of the LP fees which
represents another source of income to increase the balance the treasury.
All POL can be used to back DEMO. The LP tokens are marked down to their risk-free
value for this purpose.
Can we expect the market price of DEMO to be stable ?
No accutally quite the oposite DEMO has the potential to be a extremly volatile asset as a result of a combination of the staking, bonding and yield mechanics that Democracy DAO consists of. It is possible that DEMO could trade at a very high price because the market is willing to pay a hefty premium to capture a percentage of the current market capitalization. However it is also possible the price of DEMO could also drop to a large degree if the market sentiment turns bearish. We would expect significant price volatility during our growth phase so please do your own research whether this project suits your goals and that you are able to stomach the volatility of a project like ours.
Why would someone buy DEMO when it trades a high premium ?
When you buy and stake DEMO, you capture a percentage of the supply (market cap) that will remain close to a constant. This is because your staked DEMO balance also increases along with the circulating supply. The implication is that if you buy DEMO when the market cap is low (such as upon token launch), you would be capturing a larger percentage of the market cap that may not be possible to do so in the future if their is a consensus bullish sentiment regarding Democracy DAO
What is a rebase?
Rebase is a mechanism by which your staked DEMO balance increases automatically. When new DEMO tokens are minted by the protocol, a large portion of it goes to the stakers. Because stakers only see staked DEMO balance instead of DEMO the protocol utilizes the rebase mechanism to increase the staked DEMO balance so that 1 staked DEMO(sDEMO) is always redeemable for 1 DEMO.
What is reward yield ?
Reward yield is the percentage by which your staked DEMO balance increases on the next epoch. It may also be reffered to as rebase rate. You will be able to find this number on the Democracy DAO staking page.
What is APY ?
APY stands for annual percentage yield. It measures the real rate of return on your principal by taking into account the effect of compounding interest.Compound intrest plays a pivotal role in allowing Democracy DAO to offer such a high APY. Your staked DEMO represents your principal investment and the compound interest is added periodically on every epoch (8 hours) thanks to the rebase mechanism.
Albert Einstein once said “Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn't, pays it” .One interesting fact about APY is that your balance will grow not linearly but exponentially as time passes, Assuming a daily compound interest of 2%, if you start with a balance of 1 DEMO on day 1, after a year, your balance will grow to about 1377.
The calculations behind APY
The APY is calculated from the reward yield (a.k.a harvest rate) using the following equation:
APY=(1+rewardYield)1095APY = ( 1 + rewardYield )^{1095}
It raises to the power of 1095 because a harvest happens 3 times daily. Consider there are 365 days in a year, this would give a harvest frequency of 365 * 3 = 1095.
Reward yield is determined by the following equation:
rewardYield=DEMOdistributed/DEMO totalStakedrewardYield = DEMO_{distributed} / DEMO _{totalStaked}
The number of DEMO distributed to the staking contract is calculated from DEMO total supply using the following equation:
DEMOdistributed=DEMOtotalSupply×rewardRateDEMO_{distributed} = DEMO_ {totalSupply} \times rewardRate
Note that the reward rate is subject to change by the protocol.Proposals from the DAO have the ability to change the reward rate if agreed upon my the members of the DAO
Does the market price of DEMO matter in the long term ?
As illustrated above, your DEMO balance will grow exponentially over time thanks to the power of compounding. Theoretically let's say you buy a DEMO for $200 now and the market decides that in 1 year time, the intrinsic value of DEMO will be $1 Assuming a daily compound interest rate of 2%, your balance would grow to about 1377 DEMO by the end of the year, which is worth around $1377. That is a cool $1177 profit! By now, you should understand that you are paying a premium for DEMO now in exchange for a long-term benefit. Thus, if you have a long enough time horizon to allow your DEMO balance to grow exponentially DEMO could be a worthwhile investment
The calculations behind APY
The APY is calculated from the reward yield (a.k.a harvest rate) using the following equation:
APY=(1+rewardYield)1095APY = ( 1 + rewardYield )^{1095}
It raises to the power of 1095 because a harvest happens 3 times daily. Consider there are 365 days in a year, this would give a harvest frequency of 365 * 3 = 1095.
Reward yield is determined by the following equation:
rewardYield=DEMOdistributed/DEMO totalStakedrewardYield = DEMO_{distributed} / DEMO _{totalStaked}
The number of DEMO distributed to the staking contract is calculated from DEMO total supply using the following equation:
DEMOdistributed=DEMOtotalSupply×rewardRateDEMO_{distributed} = DEMO_ {totalSupply} \times rewardRate
Note that the reward rate is subject to change by the protocol.Proposals from the DAO have the ability to change the reward rate if agreed upon my the members of the DAO
Does the market price of DEMO matter in the long term ?
As illustrated above, your DEMO balance will grow exponentially over time thanks to the power of compounding. Theoretically let's say you buy a DEMO for $200 now and the market decides that in 1 year time, the intrinsic value of DEMO will be $1 Assuming a daily compound interest rate of 2%, your balance would grow to about 1377 DEMO by the end of the year, which is worth around $1377. That is a cool $1177 profit! By now, you should understand that you are paying a premium for DEMO now in exchange for a long-term benefit. Thus, if you have a long enough time horizon to allow your DEMO balance to grow exponentially DEMO could be a worthwhile investment.
Will DEMO still have a intrinsic value in the future ?
Unfortunately the answer to this remains unclear, but the intrinsic value can be determined by the treasury performance which will be viewable in the dashboard section of our website. For example, if the treasury could guarantee to back every FORT with 100 USDT, the intrinsic value will be 100 USDT. It can also be decided by the future DAO. For example, if the DAO decides to raise the price floor of DEMO, its intrinsic value will rise in tandem with the DAO's decision
How does the protocol manage to maintain such a high staking APY ?
Let’s say the protocol targets an APY of 1,000%. This would translate to a rebase rate of about 0.2105%, or a daily growth of about 0.63%. Please refer to the equation above to learn how APY is calculated from the rebase rate.
If there are 100,000 DEMO tokens staked right now, the protocol would need to mint an additional 2000 DEMO to achieve this daily growth. This is achievable if the protocol can bring in at least of $632.8 revenue daily from bond sales. If the protocol fails to achieve this, the APY of 1,000% cannot be guaranteed. Even if the protocol fails to bring in this much revenue it could still maintain this APY of 1,000% due to the reserve in the treasury balance
Will I have to unstake my DEMO on every rebase to recieve al these staking rewards ?
No. Once you have staked DEMO with Democracy DAO, your staked Demo (sDEMO) balance will auto-compound on every epoch without you having to do anything. That increase in balance represents your rebase rewards(staking rewards).
Where can i track my rebase rewards ?
You will be able to track your rebase rewards on the dashboard section of our website and this section will be updated in accordance with that to display instructions on how to track your rebase rewards
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