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.
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.
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.
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%.
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.