The Davos Protocol is a decentralized finance (DeFi) platform that provides its users with a stable asset, DUSD, which is pegged to the value of the US dollar. One of the key features of the Davos Protocol is its ability to generate yield for its users through stable asset staking rewards. In this article, we will explore how the Davos Protocol generates yield through its stable asset staking reward mechanism.

Arbitrage Opportunties for DUSD Investors

Because DUSD is soft-pegged this opens up opportunities for arbitraging. If the price of DUSD is under $1 you could buy a bunch of DUSD on a DEX using wither the Uniswap or Quickswap liquidity pools that consist of USDC and DUSD. Then you could redeem them on the Davod web app for a premium.

In contrast, if the price of DUSD is above $1 you could mint DUSD on the web app at the price of $1 then you could sell them on DEXs for a premium. Either way there are profits to be made using this yield-earning technique.

These arbitrating opportunities create buy and sell pressure on the asset and act as a market-incentivization to hold the price as close to $1 USD as possible.

The Mechanics of DUSD Staking APY

The main yield-earning opportunity with Davos Protocol is to stake your DUSD token in the web app, which can provide a yield of 7-9%.

The mechanics of the 7-9% APY are simple. As users over-collateralize thei positions into DUSD by locking MATIC in the smart contract and borrow DUSD, a percentage of the MATIC gets converted into ankrMATIC reward-bearing tokens. Over time, the protocol’s reserve of ankrMATIC accumulates in value, and the rewards get converted back into DUSD. A proportion of the rewards are then granted to stakers and liquidity providers at the rate of 7-9% APY.

Another way in which the protocol generates yield for DUSD stakers or liquidity providers is through the borrowing interest paid to the protocol. The borrowing rate for DUSD is 2%, and these fees get collected in the Davos Protocol Revenue pool. The fees are then distributed to stakers.

Earn Yield Through Liquidity Pools

The second option is to deposit DUSD and USDC into a liquidity pool and receive yield from the LP token. If you want to maximize your yield from DUSD, you can add DUSD liquidity pairs to the available liquidity pools, such as Uniswap and Quickswap. By doing so, you can receive rewards from the yield farming process on these decentralized exchanges.

Deposit DUSD in Boosted Vaults

One way to earn yield through the Davos Protocol is by depositing DUSD in a boosted vault. Boosted vaults are pools of liquidity that are designed to optimize yield generation for DUSD holders. These vaults utilize complex yield-earning strategies, such as lending and borrowing on various DeFi platforms, to generate the highest possible yield for depositors. By depositing DUSD in a boosted vault, users can earn a higher yield than they would with simpler strategies.

Additionally, users can withdraw their DUSD from the boosted vault at any time, making it a flexible option for those who are unsure about committing to a long-term staking strategy. Overall, boosted vaults provide an easy and convenient way for DUSD holders to earn yield while minimizing the amount of work required on their end. Similarly to the liquidity pools, you can participate in the Uniswap and Quickswap boosted vaults.

Conclusion

In conclusion, the Davos Protocol is a decentralized finance platform that offers various ways for users to earn yield on their DUSD stable asset. Through stable asset staking rewards, liquidity pool participation, and boosted vaults, users can earn competitive real yield, as well as other fees and rewards. The protocol's soft-pegged system also creates arbitrage opportunities for investors, which adds market-incentivization to hold the DUSD price as close to $1 USD as possible. Overall, the Davos Protocol provides users with a convenient and flexible way to earn yield on their assets while participating in the DeFi ecosystem.