All adopted stablecoins are pegged to the US Dollar. But do you really want your “safe haven” to be a currency that makes hundreds of inflation headlines? The Swiss Franc has been proven to be the save haven in the fiat world - why not introduce it to the crypto space as well?
With a strong economy, low debt, and sizable foreign investment, today all the ingredients are there to make the Swiss franc a strong currency and a safe haven investment. DCHF brings this safe haven to crypto.
By providing an appealing alternative to US Dollar pegged coins, DCHF strives to be the new go-to currency when you want to tap out of the speculations of the crypto market. Without having to worry that inflation will eat up your capital.
Because the price fluctuations between USD and CHF do only change a couple of percents a year, Liquidity Mining between USD and CHF pegged coins is still attractive and will not suffer deeply from the risk of impermanent loss.
A collateral ratio is the ratio between the value of the collateral (ETH or wBTC) in your position and its debt in DCHF. The collateral ratio of your position will fluctuate over time as the price of ETH or wBTC changes.
The DeFi Franc Protocol allows users to borrow at a minimum collateral ratio of 110%, which corresponds to a loan-to-value ratio of 90.09%. This makes borrowing highly capital efficient and allows for up to 11x leverage on investments. When compared to other DeFi borrowing protocols, the DeFi Franc's minimum collateral ratio requirement of 110% is unprecedented.
Borrowers need to ensure that their collateral ratio does not fall below 110%, otherwise their Positions become vulnerable to liquidation. The protocol’s efficient, instantaneous liquidation mechanism allows for such a low collateralization ratio, while maintaining a high level of robustness.
To ensure that the entire stablecoin supply remains fully backed by collateral, Positions that fall under the minimum collateral ratio of 110% will be closed (liquidated). The debt of the Position is canceled and absorbed by the Stability Pool and its collateral distributed among Stability Providers.
Liquidations ensure that borrowing protocols remain solvent. Thus, the DeFi Franc’s quick and efficient liquidations of Positions that fall under the minimum collateral ratio of 110% maintain the health and stability of the protocol.
Liquidation is performed in the following order of priority:
- 1.Offsetting The DCHF tokens in the Stability Pool are used to repay the undercollateralized debt and are subsequently burned. The collateral from the liquidated Positions is sent to the Stability Pool
- 2.Redistribution If the Stability Pool does not contain sufficient DCHF to cover the debt, the (remaining) debt and collateral from the liquidated Trove is redistributed to all active borrowers in proportion to their own collateral amounts.
Liquidators are incentivized to execute prompt liquidations while stability providers benefit from contributing to the system’s Stability Pool.
The DeFi Franc Protocol charges a one-time borrowing fee as low as 0.5% that is algorithmically adjusted by the protocol based on redemption activity and time.
Users can borrow the stablecoin DCHF interest-free against their ETH or wBTC used as collateral. They can thus obtain a backed loan without any recurring costs.
In other decentralized borrowing protocols, users pay variable interest rates that accrue for the duration of their loan, which often change unpredictably through governance. When using the DeFi Franc Protocol, users pay a one-time borrowing fee, determined upfront as a percentage of the drawn amount. This borrowing fee adjusts itself algorithmically and in a fully decentralized manner.
A redemption is the process of exchanging DCHF for ETH or wBTC at face value, as if 1 DCHF is exactly worth 1 Swiss Franc. That is, for x DCHF you get x Swiss Franc worth of ETH or wBTC in return.
Users can redeem their DCHF for ETH or wBTC at any time without limitations. However, a redemption fee is charged on the redeemed amount.
DCHF is a fully redeemable stablecoin. At any time, the protocol allows holders to redeem their DCHF for the underlying ETH or wBTC collateral at face value. For example: A holder redeeming 100 DCHF would receive 100 Swiss Franc worth of ETH collateral from the riskiest Position(s), minus the current redemption fee.
The redemption mechanism creates a price floor for DCHF, pushing its price back to parity whenever it drops below 1CHF. Holders have an incentive to redeem DCHF if they can buy it for less than 1CHF and then convert it into ETH at a price of exactly 1CHF. Every redemption leads to a contraction of the total DCHF supply and to an adjustment of the base rate.
The Stability Pool is the first line of defense in maintaining system solvency. It achieves that by acting as the source of liquidity to repay debt from liquidated Positions - ensuring that the total DCHF supply always remains backed. The Stability Pool is funded by users transferring DCHF into it (called Stability Providers).
Users can deposit DCHF tokens to the Stability Pool and make the protocol more robust against ETH or wBTC price drops.
Stability Providers are incentivized in two ways:
- Liquidation gains: Liquidations of ETH or wBTC loans (Positions) will generally lead to a net gain for the Stability Pool, consisting of the difference between the absorbed debt (in DCHF) and the received collateral (in ETH or wBTC). Stability Providers participating pro rata with their pool deposits thus acquire collateral from liquidated positions at a significant discount.
- Rewards: Stability Providers will continuously receive $MON tokens based on the deposited DCHF and the kickback rate of the frontend through which their deposits are made.
Stability Providers can withdraw their ETH/wBTC gains and $MON rewards at any time, while DCHF deposits can be withdrawn as long as the system contains no liquidatable debt.
The DeFi Franc Protocol’s secondary token, $MON is used to capture 100% of the revenue generated by the protocol. This revenue is distributed to all stakers of $MON.
The DeFi Franc Protocol captures the revenue from the borrowing and redemption fees and pays it out on a pro rata basis to the stakers of the $MON token. The tokens can be staked and unstaked any time with no minimum lockup period.
Staked $MON are not used to backstop the DeFi Franc and are not used for governance, making $MONs staking mechanism easy to reason about when compared to other DeFi protocols.