In order to maintain the 1:1 USD peg, DSD features 12 epochs per day in which the voluntary supply change is managed. Per epoch the supply can extend, or contract by a maximum of 2%.
Epochs define the period in between which the supply regulation is managed and either an expansion or contraction is assessed. The difference between the DSD TWAP price and 1 USD tells whether the supply will extend or contract.
The supply change solely depends on the DSD TWAP price. If the price is above 1$, the supply will extend and be distributed between DAO and LP stakers. If the TWAP price is below 1$, new debt is minted and can be bought at a premium by burning DSD and turned into coupons.
The whole protocol relies on the community to actively participate in the processes to function. You can bond your DSD in the DAO to participate in governance, propose new features and mechanics to the protocol and provide liquidity to the oracles pool on Uniswap.
Dynamic Set Dollar (DSD) is an ERC-20 self-stabilizing decentralized censorship-resistant non-collateral backed USD stablecoin.
DSD is a fully decentralized stablecoin that unlike centralized coins, e.g. USDT, has no 1:1 backing through a centralized USD treasury. To be highly capital efficient it does not use any collateral, like the main competitors DAI or sUSD. The voluntary elastic supply mechanic is different from Ampleforth (AMPL) and Based (BASED). It is inspired by Empty Set Dollar (ESD), yet responds faster to market demand through more frequent epochs, extended supply caps, and a modified supply extension/contraction formula.
The goal of a stablecoin is not to always be worth 1 USD, but to always be almost worth 1 USD. Even centralized stablecoins such as Tether experience price volatility. Decentralized stablecoins such as DAI can experience even greater price amplitudes. Different stablecoins employ different mechanics to return to the USD peg. DSD is built to become more stable over time. Due to its self-stabilizing mechanism DSD is expected to experience elevated volatility in the initial stages. At maturity, DSD aims to vacillate close to 1 USD.
DSD uses an elastic supply mechanic. As market demand for DSD increases, the price of DSD increases above the 1 USD peg, which causes new DSD to be minted. This increases the supply of DSD, returning the price of DSD to the peg. There are several ways newly minted DSD are distributed. In the event of supply extension, 60% of the newly minted DSD will return to DSD holders that have bondedtheir DSD inside the DAO, while the remaining 40% return to Uniswap Liquidity Providers/Oracle. Lastly, DSD features a built-in debt market that handles supply contraction phases (DSD price < $1). Once debt has been created, DSD token holders can burn their DSD to acquire Coupons. Coupons will be redeemable for newly minted DSD during a supply expansion event. When burning DSD for Coupons, there is always a discount applied depending on the debt ratio. Important to note is that the supply of DSD changes through voluntary actions of users. Your wallet balance will never increase or decrease without your volition.
An epoch defines a period within the DSD ecosystem in which the total supply of DSD is being adjusted. 1 epoch equals 2 hours, 12x daily. Within the epoch, the token price will be measured in order to decide if a supply extension or supply contraction is necessary. It also allows governance proposals to be raised and voted on by token participants.