Dollar-pegged stablecoins have become an essential part of crypto due to their lack of volatility as compared to tokens such as Bitcoin (BTC) and Ether (ETH). Users are comfortable with transacting using stablecoins knowing that they hold the same amount of purchasing power today vs. tomorrow. But this is a fallacy. The dollar is controlled by the US government and the Federal Reserve. This means a depreciation of dollar also means a depreciation of these stablecoins.
TemplarDAO aims to solve this by creating a free-floating reserve currency, TEM, that is backed by a basket of assets. The basket of assets has two uses, a) to be used for buybacks and burns as necessary to maintain the $1 floor price of TEM, b) to be invested in order that dividends can be paid out to stakers. Holders are thus incentivized to invest long term, rather than swing-trading, further bringing price stability.
No, TEM is not a stable coin. Rather, TEM aspires to become an algorithmic reserve currency backed by other decentralized assets. Similar to the idea of the gold standard, TEM provides free floating value its users can always fall back on, simply because of the fractional treasury reserves TEM draws its intrinsic value from.
Each TEM is backed by 1 BUSD, not pegged to it. Because the treasury backs every TEM with at least 1 BUSD, the protocol would buy back and burn TEM when it trades below 1 BUSD. This has the effect of pushing TEM price back up to 1 BUSD. TEM could always trade above 1 BUSD because there is no upper limit imposed by the protocol. (Pegged means it would be == 1. Backed means than it would be at least 1 or >= 1)
You might say that the TEM floor price or intrinsic value is 1 BUSD. We believe that the actual price will always be 1 BUSD + premium, but in the end that is up to the market to decide.
At a high level, TemplarDAO consists of its protocol managed treasury, protocol owned liquidity, bond mechanism (bonding), and high staking rewards that are designed to control supply expansion.
Bond sales generate profit for the protocol, and the treasury uses the profit to mint TEM and distribute them to stakers. With liquidity bonds (LP Bonds), the protocol is able to accumulate its own liquidity to ensure stability.
- Staking (+2)
- Bonding (+1)
- Selling (-2)
Staking and bonding are considered beneficial to the protocol, while selling is considered detrimental. Staking and selling will also cause a price move, while bonding does not (we consider buying TEM from the market as a prerequisite of staking, thus causing a price move). If both actions are beneficial, the actor who moves price also gets half of the benefit (+1). If both actions are contradictory, the bad actor who moves price gets half of the benefit (+1), while the good actor who moves price gets half of the downside (-1). If both actions are detrimental, which implies both actors are selling, they both get half of the downside (-1).
- If we both stake (3, 3), it is the best thing for both of us and the protocol (3 + 3 = 6).
- If one of us stakes and the other one bonds, it is also great because staking takes TEM off the market and put it into the protocol, while bonding provides liquidity and BUSD for the treasury (3 + 1 = 4).
- When one of us sells, it diminishes effort of the other one who stakes or bonds (1 - 1 = 0).
- When we both sell, it creates the worst outcome for both of us and the protocol (-3 - 3 = -6).
As the protocol controls the funds in its treasury, TEM can only be minted or burned by the protocol. This also guarantees that the protocol can always back 1 TEM with 1 BUSD. You can easily define the risk of your investment because you can be confident that the protocol will indefinitely buy TEM below 1 BUSD with the treasury assets until no one is left to sell. You can't trust the FED but you can trust the code.
As the protocol accumulates more PCV (Protocol Controlled Value), more runway is guaranteed for the stakers. This means the stakers can be confident that the current staking APY can be sustained for a longer term because more funds are available in the treasury.
It is extremely important to understand how early in development the TemplarDAO protocol is. A large amount of discussion has centered around the current price and expected a stable value moving forward. The reality is that these characteristics are not yet determined. TEM could trade at a very high price because the market is ready to pay a hefty premium to capture a percentage of the current market capitalization. However, the price of TEM could also drop to a large degree if the market sentiment turns bearish. We would expect significant price volatility during our growth phase so please do your own research as to whether this project suits your goals.
There is no clear answer to this, but the intrinsic value can be determined by the treasury performance. For example, if the treasury could guarantee to back every TEM with 100 BUSD, the intrinsic value will be 100 BUSD. It can also be decided by the DAO. For example, if the DAO decides to raise the price floor of TEM, its intrinsic value will rise accordingly.