• Price Stability

Price Stability

Borrowing Rates Adjustment

Davos Protocol utilizes an arbitrage-based rebase mechanism to ensure that DAVOS is always soft-pegged to the US Dollar. Since the price of DAVOS is designed to handle minor fluctuations in price, arbitrageurs are incentivized to balance out the price as close to $1 as possible.

The mechanics of this are as follows:

  • When the price of DAVOS falls slightly under $1, borrowers are incentivized to buy DAVOS from the market to pay back their debt at a discount.
  • When the price of DAVOS rises above $1, users are incentivized to borrow DAVOS from the protocol and sell their DAVOS at a premium for other assets (like USDC swaps in liquidity pools).

USDC Liquidity Pools

The second mechanism is the USDC Pools which will promote smoother arbitrage opportunities. There are currently two USDC/DAVOS liquidity pools (Uniswap and Quickswap) which enable effortless arbitrage mechanisms for DeFi power users.

Emergency Swap

Finally, Davos Protocol has an Emergency Swap functionality that enables individuals to swap DAVOS tokens for USDC directly in situations of extreme events. This feature will aid in the seamless execution of arbitrage opportunities and also contribute to the promotion of price stability.

The system will automatically activate this functionality whenever there is a 2.5% difference in the Davos Weighted Average Price over the past 7 days with an hourly resolution. Users will be able to trade DAVOS for USDC at a 1:1 ratio through this functionality, which will make it simple to take advantage of arbitrage opportunities.