Frequently Asked Questions
What Is Davos?
Davos Protocol has created a new stablecoin architecture, like nothing seen before. The Stable Asset DAVOS generates a real, native yield while maintaining a secure peg. The protocol accomplishes this because it’s over-collateralized assets are liquid staking tokens. The protocol enables users to mint DAVOS by providing an over-collateralized amount of the MATIC token which then accrue in the reserve.
This is valuable for users because they can keep their MATIC in the Davos Protocol while utilizing the DAVOS Stable Asset for other purposes (ie: yield farming or lending). Then in the future, the original MATIC is redeemable by paying back the Davos loan – an all around win-win.
The Davos Protocol also consists of a governance token called DGT which allows DAO users to vote on key proposals in the organization pertaining to revenue, treasurery and market positioning.
Is Over-Collateralization a Secure Pegging Mechanism?
Over-collateralization is the most secure pegging mechanism the DeFi ecosystem has seen to date. In contrast, algorithmic pegging has been proven to be ineffective because it relies on formulas as opposed to economic principles.
An over-collateralized pegging mechanism ensures that the market cap of the stablecoin never exceeds the TVL of assets locked in the smart contract. Therefore, the peg is secure because the amount of MATIC locked in the protocol exceeds the total amount of DAVOS Stable Assets in circulation. Furthermore, in the case of a MATIC price drop, lenders are required to provide more MATIC or else risk liquidation of their position.
What Differentiates DAVOS from Other Stablecoin Projects?
Davos differentiates itself from other DeFi stablecoin projects by addressing capital inefficiencies in stablecoin reserves through its collateralized debt position (CDP) architecture. Traditional CDPs usually lack in capital efficiency since the assets which have been offered up as collateral remain idle. Unlike, traditional CDPs, Davos accepts MATIC as collateral and through the use of liquid staking (low-risk strategy) it allows for the protocol generate yield on this collateral via staking rewards. Davos Protocol has addressed the capital inefficiency in traditional CDP stablecoin architectures, allowing for real yield generation on our protocol. The yield is paid out as a native yield to the protocol in the form of DAVOS, providing users with a competitive and reliable yield. DAVOS Stable Assets prioritize security and maintain a high price stability with a 150% over-collateralization ratio, instead of promising an absolute peg like other stablecoin projects. This approach allows for a small percentage fluctuation in the peg. Therefore, DAVOS is referred to as a Stable Asset, not a stablecoin.
How Does Davos Ensure Over-Collateralization?
The Davos Protocol ensures that the MATIC reserve is always larger than the market value of DAVOS through multiple different systems.
First, The Davos Protocol, unlike most other stable asset protocols, utilizes liquid staking to improve it’s collateralization ratio. In short, the reserve that The Davos Protocol holds consists of a majority of ankrMATIC meaning that the reserve grows over time at the 4.22% APY rate of MATIC staking rewards.
Second, the DAVOS liquidation mechanism is set at 66% meaning that for every $66 worth of DAVOS there will always be at least $100 worth of MATIC in the reserve. Architected by MakerDAO, this is a fail-safe mechanism to ensure that the fluctuating price of the crypto reserve never falls below the total stablecoin amount in circulation.
How Does DAVOS Keep Price Stability?
The Davos Protocol has created a system that incentivizes peg stability by slightly increasing or decreasing supply and demand based on the price of DAVOS.
When the price of DAVOS is higher than $1.00 then the supply is slightly increased, creating a premium and incentivizing users to borrow more DAVOS and sell for other assets. Furthermore, the Davos Protocol reduces DAVOS framing rewards by decreasing the DAVOS borrowing interest which reduces the demand for DAVOS yield farming.
On the other hand, when the DAVOS price is below $1.00 the supply of DAVOS is slightly reduced which creates a discount and incentivizes borrower to purchase DAVOS from the market and pay back their original debt for cheaper than they borrowed it for. The Davos Protocol will also increase the borrowing interest rate so as to disincentivize users from borrowing more DAVOS, and increasing DAVOS farming rewards in the process.
What is DAVOS’ Minimum Collateralization Ratio?
The collateralization ratio of DAVOS is 66% meaning that for every $100 worth of MATIC you deposit, you have the capacity to borrow up to $66 worth of DAVOS.
Do I Have to Wait 3–4 Days to Withdraw MATIC Collateral?
Currently, you have to wait 3-4 days to withdraw your collateral depending on the amount you’re trying to withdraw. The Davos Protocol reserve consists largely of ankrMATIC and some percentage of MATIC.
If you’re withdrawing a large sum of MATIC you may have to wait for the 3-4 day unbonding period of staked MATIC. Or if you want to withdraw the large amount of collateral immediately you can receive your collateral in the form of ankrMATIC – which then enables you to exchange it back to MATIC on applicable DEXs.
How Transparent is the Davos Protocol?
Davos Protocol is completely transparent because every transaction is hosted on-chain. This means that you can always check the TVL of MATIC locked from the Davos Protocol and compare that to the market cap of DAVOS Stable Assets in circulation.
Plus, in the Davos app you can access the dashboard that displays the collateral value and borrowed value – just head over to the analytics tab.
Where Does DAVOS Staking Yield Come From?
The DAVOS staking yield comes from the Davos Revenue Pool. This pool gets it’s value from two mechanisms. First, the borrowing fees paid by DAVOS holders make up a significant portion of the pool. Second, the staking yield that the reserve of ankrMATIC generates gets placed in the revenue pool to be paid out to stakers.
Upon staking DAVOS, the yield from the ankrMATIC is then converted into DAVOS and paid out in the forms of DAVOS yield.
What Is the DAVOS Staking Yield?
Currently the DAVOS staking yield sits between an attractive 7-9%, which offsets the DAVOS 2% borrowing fee.
How Do I Know My Investment is Safe?
Davos’ smart contract have been audited by two of the leading smart contract auditing firms, to ensure smart contract security.
For even more security, the Davos Protocol also runs a bug bounty program to incentivize developers to find any possible small bugs in the code and course-correct.
Even though these mechanisms are in place, the Davos Protocol recommends that all users understand the risk of any DeFi project and perform due diligence research before making investment decisions.
Why Should I Use Davos Protocol As Opposed to Other Leading Stablecoins?
While other protocols rely on yield-earning mechanisms outside of the protocol itself, Davos Protocol generates real yield entirely within the protocol. The use of ankrMATIC tokens has the benefit of providing a native source of yield, all within the protocol itself.
The protocol then pays out DAVOS tokens as rewards and doesn’t need to use circular reward-earning strategies like paying out rewards in less composable protocol tokens and governance tokens. Ultimately, when you stake DAVOS on the protocol you receive a competitive yield as a direct result of the capital efficiency of Davos and it’s innovative tokenomic structure.
In What Ways is Davos Protocol More Capital Efficient than Other Coins?
Davos protocol is more capital efficient than other stablecoin protocols because of its tokenomic structure. We must realize that capital efficiency isn’t binary. Whereas, other protocols like MakerDAO claim to have capital efficiency, at the end of the day it’s the degree of capital efficiency that we’re after. MakerDAO and other over-collateralized stablecoins lock up tokens in CDPs (collateralized debt positions) which are completely capital inefficient. The Davos protocol also uses a CDP, but converts the inefficient MATIC (if left idle) into ankrMATIC which increases the degree of capital efficiency and enables real yield in the process.
How Do We Differentiate Between a Stable Asset and a Stablecoin?
Stablecoins are generally considered to be hard-pegged to a fiat currency (like the US Dollar) and thus aim to hold the peg as close to $1 as possible without fluctuating. This is different from a stable asset (which DAVOS is) which seeks to maintain a rough peg. The DAVOS will always be around $1 but is given the leeway to fluctuate a bit in each direction.
In the world of stablecoins you can’t have decentralization, stability and capital efficiency. With Davos we’ve chosen to prioritize decentralization and capital efficiency over an absolute peg. Albeit, we’ve put multiple mechanisms in place to ensure that it still maintains a rough peg in addition to DAVOS being an over-collateralized Stable Asset.