How Algorithms Create Stability in a Decentralized Way

The cryptocurrency market has grown 600% since the start of the year, with its value now standing at $2.8 trillion according to Data from cryptocurrency market analytics firm, Footprint Analytics. This has been fueled by an increase in development and investment in the space, triggering a need for stable assets to support ever more volatile asset pairs. Consequently, there has been an increase in the number and value of stablecoins in the cryptocurrency market. Currently there are 74 stablecoins according to the latest Datawith a combined value of just under $165 billion.

The most popular stablecoin, Tether, operates multiple fiat-stablecoin pairs, including USDT, EURT, and GBPT. It alone is worth $78.2 billion, representing a 47.3% share of the total stablecoin market value. However, as the number of audits of Tether’s actual fiat holdings has demonstrated, tethered stablecoins have inherent centralization and, subsequently, existential risk.

Load DeFi is an algorithmic crypto token with an innovative new “rebase” mechanism implemented to maintain stability. The mechanism adjusts the circulating supply of $STATIC using price elastic tokens to raise the price when below an anchor. This article will take a look at Charge DeFi’s solution to algorithmic stability, explore how it works, and compare it to the competition in the stablecoin space. He will then analyze the impact of algorithmic stability on the algorithmic space and the broader cryptocurrency market.

But first, let’s take a look at Charge DeFi itself.

What is Charge DeFi?

Load DeFi is a combination of an algorithmic cryptographic token and rebase mechanics. A stablecoin is a cryptocurrency whose value is pegged to a single unit of fiat currency, typically $1. Normally, this is done by means of a “connection” in which a company acquires an equivalent amount, for example, in USD and promises to back each unit of stablecoin 1:1. However, inherent in this mechanism is the requirement to trust the guarantor, which requires constant and often costly monitoring.

An algorithmic crypto token takes stability to the next level. Instead of a fixed peg, an algorithm is used to adjust the price of a token based on predefined conditions that can be written into a smart contract and initiated in a fully decentralized fashion. Therefore, no third party intervenes afterwards, with the algorithm running based on demand, supply and market movements.

Allow for comprehensive and inexpensive independent oversight and an absence of the need to trust a guarantor’s word.

How does Charge DeFi provide stability?

There are two main tokens that feature in this rebasing mechanism, $CHARGE and $STATIC. $CHARGE functions as a share/lordship token in the Charge DeFi ecosystem, and $Static as an elastic supply coin.

One of the main features of this new ecosystem is the rebase mechanism implemented in the contracts. Rebase mechanisms implement price-elastic tokens that adjust the circulating supply to influence a token price. Where other tokens feature rebase mechanisms above and below a certain peg (target price), Charge DeFi has chosen to only implement a mechanism that rebases below a certain peg.

The rebase mechanism works as follows:

  • When $STATIC’s TWAP is below its peg of $1.0 for 6 epochs (1 epoch is 8 hours), or when $STATIC’s TWAP drops below $0.8, the protocol rebases. A simpler explanation for this would be that the protocol “compresses its tokens until the value returns to its peg of $1.0
  • During such “compression”, all tokens in circulation are compressed, including those in a user’s wallet and liquidity pools. Only unclaimed tokens in the project conference room are exempt.

But perhaps an example would clarify this:

  1. You have $1,000 STATIC tokens ($STATIC = $1.0) in your wallet, worth $1,000
  2. Price drops $1 STATIC = $0.98 for more than 6 epochs
  3. The value of your portfolio is $980.0
  4. Rebase starts and $STATIC tokens are compressed
  5. You now have 980 $STATIC tokens worth $1.0 in your wallet, worth $980

The reason Charge DeFi implemented these mechanisms lies in the central problem plaguing traditional algorithmic cryptocurrency: when the token falls below a threshold of $0.6-0.7, each AlgoStable is entered in a so-called “death spiral”.

The algorithmic cryptocurrency rewards holders when the ecosystem grows through a seigniorage system. Investors who invest tokens in a meeting room receive part of the expansion.

But when the price of a token drops too much, all the incentives to push the price of the token up disappear. During these “death spirals”, token values ​​often fell to prices 90% below par.

These declines removed all incentives to hold onto the token, while increasing the cost of tenfolding a token. The rebasing mechanisms implemented rebalance supply and demand such that the price of $STATIC returns to its peg and, with a small increase on the demand side, expansions return and holders are rewarded again.

A simple explanation would be that a rebase prevents an algorithmic cryptocurrency from “dying”. Instead, it resets the ecosystem to a lower level so investors can “try again”.

For an example of how this mechanism works, please see the ChargeDeFi FAQ here.

The ideal range for $STATIC is roughly between $1.20 and $1.70. This will result in a reliable reward system for everyone. A much higher price will yield more rewards, but may also attract arbitrage hunters looking to capitalize in the short term.

Users can invest in liquidity pools that help maintain the rebasing mechanism for $STATIC. Investors receive a reward, through an entity called the conference room every epoch (~8 hours). Charge DeFi also maintains a decentralized exchange (DEX) called Smart Swap which acts as a medium of exchange between $STATIC and $CHARGE.

Advancing the Algorithmic Cryptocurrency Space

As explained above, Charge DeFi dispenses with the need to trust a central guarantor to guarantee a 1:1 parity between fiat and a stablecoin. This is a positive step in the direction of decentralization given the scandals that have occurred with Tether and USDCoin, the biggest stablecoins in the cryptocurrency market.

Attach, for example, was fined $41 million to deceive authorities and investors about the level of resources he has retained to honor his guarantee. This follows years of assurances from the Tether team (which is also owned by the same holding company that owns the centralized exchange, Bitfinex) that the 1:1 guarantee between USDT and USD was fully funded.

DAI, an algorithmic stablecoin created by MakerDAO, was one of the first attempts to solve this problem. It creates stability by collateralizing a basket of crypto assets and using an algorithm to execute market orders for those assets to maintain a peg. Although this approach is completely decentralized, there is a risk when it comes to obtaining data on the assets in one’s basket. This became clear in November 2020, when a poor transmission from oracle led to the price of DAI momentarily jumping 30%. As a result, $88 million in liquidations were recorded in DAI-based pairs on the DeFi protocol compound.

Charge DeFi’s algorithmic rebasing solution is the answer to that. It is decentralized, transparent, and operates without human or oracle intervention, removing the requirement for trust, but also reducing the potential margin for error.

In addition, the Charge DeFi ecosystem has a series of additional features, the most notable of which are called “Money Legos”. Money Legos is Charge DeFi’s solution for automated DIY staking strategies. In their first iteration, they allow users to automate a set of staking rules and conditions within the $CHARGE ecosystem. Users can set “take profit” or “compound profit” rules for investing in the conference room ($CHARGE, $STATIC-$BUSD) or in any of the $BUSD farms available in the ‘ecosystem. In a later stage, these Money Legos will also showcase other projects within the Binance Smart Chain. Allow users to create bespoke investment strategies across multiple projects. Therefore, Money Legos attempts to remove the complexity associated with DeFi, by combining commonly used automated trading strategies with staking. The project team assigned to Money Legos expects the first version to be live in March 2022.

A second team is working on another addon to the Charge DeFi ecosystem:
an easy-to-use crypto wallet with DeFi integrations, allowing the common user to make/receive crypto payments and easily participate in DeFi projects. With a focus on “ease of use”, the team added an experienced UX designer to the team who was responsible for several large-scale banking applications. The goal for this second team is to release an MVP at the end of Q1 2022. The previously mentioned Money Legos being part of a later release.

A New Dawn for Stablecoins?

Load DeFi is pioneering a new mechanism to maintain stability in an increasingly volatile cryptocurrency market. Not only does its rebasing mechanism outperform algorithmic cryptocurrency, but its elimination of the flaws inherent in captive stablecoins helps restore confidence in a market that demands more from its stability arbiters.

These innovative changes to stablecoin spaces are materialized in their 2022 roadmap. current form. These include a voting system, a guided reinvestment feature, and the meeting room enclosure.

Additionally, the team intends to secure a number of resource-sharing partnerships, which will also further introduce the world of crypto into their innovative new approach to cryptocurrency. Indeed, Charge DeFi could be set to usher in a new dawn for the algorithmic cryptocurrency space, pioneering a new approach to stability and as such leading the space into a decentralized future. , transparent and algorithmic.

To learn more about Charge DeFi and their unique fractional algorithmic approach to stability, visit their website here or follow the Twitter community here.

Sharon D. Cole