Frequently Asked Questions
What is the Davos Protocol, and how does it differ from other DeFi platforms?
The Davos Protocol is a decentralized platform designed to address the yield challenges associated with stablecoins. Unlike traditional DeFi platforms, Davos harnesses the power of Liquid Staking Tokens (LSTs) and other reward-bearing tokens. By leveraging these tokens, Davos offers a resilient omnichain stablecoin, DUSD, enabling users to compound their returns through borrowing incentives and revenue redistributions.
How does the 'flywheel effect' function in Davos Protocol?
The 'flywheel effect' in Davos Protocol creates a self-reinforcing cycle of growth. Borrowers are incentivized based on their collateral type, leading to increased protocol revenues. These revenues are then strategically redistributed to various participants like DUSD liquidity providers, lenders, and the DRR. As the APR of pools rises, there's a corresponding increase in TVL. This boost then leads to higher emissions, further channelling more revenue back into the ecosystem, and creating a positive feedback loop.
What are Liquid Staking Tokens (LSTs) and their significance in the Davos Protocol?
LSTs are tokens that represent staked assets and their associated rewards. In the Davos Protocol, LSTs play a pivotal role by serving as collateral. By utilizing LSTs, users can maintain their staking rewards while simultaneously borrowing the protocol's native stablecoin, DUSD. This allows users to amplify their yield potential by benefiting from both staking rewards and opportunities within the DeFi space.
What are the minimum borrowing amounts of DUSD on the various chains?
On Ethereum, users can borrow starting at a minimum of 300 DUSD, while on Arbitrum and Optimism, the starting threshold is 100 DUSD. For Polygon zkEVM, BNB Chain, and Polygon (PoS), the initial borrowing amount is set at 50 DUSD. It’s essential to note that these values are determined based on the minimum value of the respective LSTs accepted by the protocol. Users aren’t obligated to borrow the full minimum amounts; they can opt to borrow just 50% of the value of their deposited LST.
On Ethereum, for instance, the protocol requires a minimum deposit of 0.25 ETH as an LST, which translates to approximately 300 DUSD. Nonetheless, with this collateral amount, users can’t borrow the full 300 DUSD as that would mean they’re at 100% utilization. Following the protocol’s guidance, users are advised to maintain their borrowing below 66% of their collateral’s value. Thus, with the aforementioned 0.25 ETH collateral, a user would be best positioned to borrow up to 198 DUSD.
How does the Davos Governance Token (DGT) work, and why is it essential?
DGT, or the Davos Governance Token, empowers holders with the ability to vote on protocol changes, ensuring democratic decision-making. By holding veDGT (vote-escrow DGT tokens), users can actively participate in governance, deciding on borrowing incentives allocation and the redistribution of revenues, among other pivotal decisions.
Is my investment secure with Davos Protocol?
Davos Protocol prioritizes the security of its users' assets. The platform has undergone rigorous smart contract audits, and by implementing over-collateralization strategies, it intends to ensure that the issued stablecoins are backed by assets of greater value. However, as with all investments, it's crucial to be informed and cautious, and always maintain a healthy collateralization ratio to minimize risks.