FAQ
Dollar-pegged stablecoins have become an important part of crypto due to their lack of volatility as compared to tokens such as Bitcoin and Ether. Users are confident with transacting using stablecoins knowing that they hold the same amount of purchasing power today vs. tomorrow. But this is a fallacy. The dollar is controlled by the US government and the Federal Reserve. This means a depreciation of dollar also means a depreciation of these stablecoins.
AlphaDAO aims to solve this by creating a free-floating reserve currency, OX, that is backed by a basket of assets. By concentrating on supply growth rather than price appreciation, AlphaDAO hopes that OX can function as a currency that is able to maintain its purchasing power despite the consequences of market volatility.
No, OX is not a stable coin. Rather, OX aspires to become an algorithmic reserve currency backed by other decentralized assets. Similar to the idea of the gold standard, OX provides free floating value its users can always fall back on, simply because of the fractional treasury reserves OX draws its intrinsic value from.
Each OX is backed by 1 BUSD, not pegged to it. Because the treasury backs every OX with at least 1 BUSD, the protocol would buy back and burn OX when it trades below 1 BUSD. This has the effect of pushing OX price back up to 1 BUSD. OX could always trade above 1 BUSD because there is no upper limit imposed by the protocol. Think pegged == 1, while backed >= 1.
You might say that the OX floor price or intrinsic value is 1 BUSD. We believe that the actual price will always be 1 BUSD + premium, but in the end that is up to the market to decide.
At a high level, AlphaDAO consists of its protocol managed treasury, protocol owned liquidity (POL), bond mechanism, and staking rewards that are designed to control supply expansion.
Bond sales generate profit for the protocol, and the treasury uses the profit to mint OX and distribute them to stakers. With liquidity bonds, the protocol is able to accumulate its own liquidity. Check out the entry below on the importance of POL.
In Alpha, PCV refers to the assets owned by the protocol (smart contract’s code). They are primarily used to:
- Back OX tokens in circulation
- Provide a permanent source of liquidity for OX tokens
- Generate passive income through deployment to other protocols
As the protocol controls the funds in its treasury, OX can only be minted or burned by the protocol. This also guarantees that the protocol can always back 1 OX with 1 BUSD. You can easily define the risk of your investment because you can be confident that the protocol will indefinitely buy OX below 1 BUSD with the treasury assets until no one is left to sell.
As the protocol accumulates more PCV, more runway is guaranteed for the stakers. This means the stakers can be confident that the current staking APY can be sustained for a longer term because more funds are available in the treasury.
Alpha owns most of its liquidity thanks to its node validation and bond mechanism. This has several benefits:
- Alpha does not have to pay out high farming rewards to incentivize liquidity providers a.k.a renting liquidity.
- Alpha guarantees the market that the liquidity is always there to facilitate
- Sell or Buy transaction.
- By being the largest LP (liquidity provider), it earns most of the LP fees which
- Represents another source of income to the treasury.
- All POL can be used to back OX. The LP tokens are marked down to their risk-free value for this purpose.
Fractional reserve banking works because depositors don’t withdraw their funds all at once. A depositor’s faith in the banking system rests on regulations and agencies like Federal Deposit Insurance Corporation (FDIC).
OX does not have FDIC insurance but it has an incentive structure that protects stakers. Let’s take a look at how it performs during a hypothetical bank run. In this scenario, we assume the majority of stakers would panic and unstake their tokens from Alpha - the staking percentage which stands at 92% now quickly collapses to 3.3%, leaving only 55,000 OX staked.
Next, we assume the Risk-Free Value (RFV) inflows to the treasury completely dry up. For context, lets say the RFV is currently growing at about $1 million every 2 days. However, during a bank run this growth will likely stop.
Finally, we assume that those last standing stakers bought in at a price of $500 per OX. The initial investment of these stakers would be:
As an example, if the total OX supply is 2,082,553 and the RFV is $47,041,833. Remember that 1 OX is backed by 1 BUSD. By subtracting these two numbers, we know 44,959,280 OX will eventually get issued to the remaining stakers. In roughly a year, these stakers who are holding 55,000 OX will have:
$27.5 million investment made by these stakers will turn into about $45 million based on cash flow alone if they stay staked (recall that 1 OX is backed by 1 BUSD). In this bank run scenario, the stakers who stay staked not only get their money back, but also make some profit. Therefore, (3,3) isn’t just a popular meme, it is actually a dominant strategy.
The above scenario is unlikely to play out because when other people find out that extremely high rewards are being paid to the stakers, they will copy the strategy by buying and staking OX. This is also why the percentage of OX staked in Alpha has consistently remained over 90% since launch.
Note: Most of the data referenced above are taken from this Dune Analytics page.
It is extremely important to understand how early in development the AlphaDAO protocol is. A large amount of discussion has centered around the current price and expected a stable value moving forward. The reality is that these characteristics are not yet determined. The network is currently tuned for expansion of OX supply, which when paired with the staking, bonding, and yield mechanics of AlphaDAO, result in a fair amount of volatility.
OX could trade at a very high price because the market is ready to pay a hefty premium to capture a percentage of the current market capitalization. However, the price of OX 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.
When you buy and stake OX, you capture a percentage of the supply (market cap) which will remain close to a constant. This is because your staked OX balance also increases along with the circulating supply. The implication is that if you buy OX when the market cap is low, you would be capturing a larger percentage of the market cap.
Rebase is a mechanism by which your staked OX balance increases automatically. When new OX are minted by the protocol, a large portion of it goes to the stakers. Because stakers only see staked OX balance instead of OX, the protocol utilizes the rebase mechanism to increase the staked OX balance so that 1 staked OX is always redeemable for 1 OX.
Reward yield is the percentage by which your staked OX balance increases on the next epoch. It is also known as rebase rate. You can find this number on the Alpha staking page.
The number of OX distributed to the staking contract is calculated from OX total supply using the following equation:
Note that the reward rate is subject to change by the protocol. For example, it has been revised due to this latest proposal.
As illustrated above, your OX balance will grow exponentially over time thanks to the power of compounding. Let's say you buy an OX for $400 now and the market decides that in 1 year time, the intrinsic value of OX will be $2. Assuming a daily compound interest rate of 2%, your balance would grow to about 1377 OXs by the end of the year, which is worth around $2754. That is a cool $2354 profit! By now, you should understand that you are paying a premium for OX now in exchange for a long-term benefit. Thus, you should have a long time horizon to allow your OX balance to grow exponentially and make this a worthwhile investment.
There is no clear answer for this, but the intrinsic value can be determined by the treasury performance. For example, if the treasury could guarantee to back every OX with 100 BUSD, the intrinsic value will be 100 BUSD. It can also be decided by the DAO. For example, if the DAO decides to raise the price floor of OX, its intrinsic value will rise accordingly.
Validation of network transactions are calculated for each 8 hour epoch for the pool you are in.
If there are 100,000 of OX staked right now, the protocol would need to mint an additional 632.8 OX to achieve this daily growth. This is achievable if the protocol can bring in at least $632.80 in transaction fees. Even if the protocol doesn't bring in that much revenue, it can still sustain for a considerable amount of time due to bond sales as well as the excess reserve in the treasury.
No. Once you have staked OX with AlphaDAO, your staked OX balance will auto-compound on every epoch. That increase in balance represents your rebase rewards.
You can track your rebase rewards by calculating the increase in your staked OX balance.
Record down the Current Index value on the staking page when you first stake your OX. Let's call this the Start Index.
After staking for some time, if you want to determine by how much your balance has increased, check the Current Index value again. Let's call this the End Index.
By dividing the End Index by Start Index, you would get the ratio by which your staked OX balance has increased.
In this example, the OX balance has grown by 1.5 times.
Last modified 7mo ago