DCHF is an over-collateralized Stablecoin, pegged to the Swiss Franc (CHF), backed by Ethereum and Bitcoin.
What does over-collateralized mean?
Over-collateralized means that there is always more collateral in the DCHF protocol than DCHF in circulation. This means at any point everyone can sell their DCHF for ETH or wBTC at a value of 1 CHF.
Why should I use the DCHF to borrow against my ETH or wBTC?
The DeFi space offers lots of amazing yield opportunities. However, many people don’t feel comfortable selling their ETH or wBTC to participate in them. With the DCHF, you can hold your ETH or wBTC and benefit from the long term price increase while also being able to invest in attractive yield opportunities.
How does the DCHF hold its peg?
If the DCHF goes below 1 CHF, people are incentivized to buy DCHF and sell them for 1 CHF worth of ETH or wBTC to make a profit. Further, the open positions are incentivized to close their positions to also make a profit.
If the DCHF goes above 1 CHF, people are incentivized to take out more DCHF loans, since they get more value from the same collateral. Having more DCHF in circulation will bring the value back down to 1 CHF.
Why a Swiss Franc peg instead of a US dollar peg?
The Swiss franc has been the most stable currency in history. Because Switzerland is not a member of the EU nor NATO and has its own monetary policies, outside factors don’t affect the CHF that much. Especially in times of uncertainty and crisis, the Swiss Franc shows its strength.
What are the risks involved in using the DCHF?
The biggest risk when using the DCHF comes in the form of Liquidation. As explained above, the DCHF is over-collateralized at all times, which means that as soon as your deposited collateral is worth only 110% of what you borrowed in DCHF, you get liquidated. This basically means that you can keep your DCHF and the DCHF protocol keeps your collateral in exchange to make sure it’s always over-collateralized.
However, when being liquidated, you only lose 10%.
What is the cost of borrowing DCHF against ETH?
In comparison to other protocols, you don’t pay any interest on your DCHF loan. The only fee you pay is a borrowing fee of 0.5%.
Does it matter if I am invested in the ETH or BTC Stability Pool?
In the ETH Stability Pool you will receive ETH when Liquidations happen. In the wBTC Pool you will receive wBTC instead. You decide which currency you would rather receive at a 10% surpluss.
The more volatile asset usually pays out higher Yields in the Stability Pool, however that also depends on the TVL in that pool.