DeFi, a wing of finance powered by blockchain technology, is responsible for users earning high yields. The past few years have been instrumental in its rise as investors made huge returns, often higher than what traditional finance offers. That said, earning yields in DeFi also have inherent risks that amplify the inconveniences associated with the already volatile crypto asset class.
To address the issue, Davos Protocol combines multiple DeFi features to introduce a risk-free yield generation mechanism driven by the DAVOS Stable Asset.
What Davos Protocol does differently
Using the DAVOS Stable Asset, Davos Protocol facilitates yield generation with minimal risk. Unlike other stablecoin protocols, DAVOS is designed to be capital efficient while being sufficiently over-collateralized to prevent de-pegging incidents the industry has witnessed on multiple occasions.
Polygon chain’s native token, MATIC, back the DAVOS Stable Asset. Instead of allowing the collateral to remain idle, locked in a smart contract, the protocol achieves capital efficiency by allocating a certain portion of collateralized MATIC for liquid staking. This, in turn, allows the Davos community to borrow and hold DAVOS tokens in liquidity pools, generating yields in diverse market conditions.
Davos integrates MATIC liquid staking
DAVOS borrowers create their positions by over-collateralizing with the Proof-of-Stake MATIC token, benefitting from its use case. Davos stakes a portion of the MATIC collateral via a liquid staking strategy that, in return, issues yield-generating derivative MATIC tokens in the form of ankrMATIC while simultaneously staking the MATIC collateral to secure the Polygon network.
The derivative MATIC tokens are reserved in the Davos revenue pool, where they generate liquid staking yields and even grow in value. The revenue pool also accumulates value by collecting the borrowing interest paid by DAVOS borrowers.
As a result, the protocol employs a model where it can generate gains by utilizing established cryptocurrencies like MATIC and by issuing its stable asset. This model is also resistant to adverse market conditions as MATIC staking is time-tested.
Why did Davos choose MATIC?
MATIC is a popular token thanks to its utility in the Polygon network. MATIC has a large market capitalization, making it less volatile than low-cap coins.
What does this do for DeFi users on the Davos platform? Staking comes with a handful of risks that users on all networks are exposed to. Davos’ dependence on MATIC, alongside its use of revenue-generating and liquidity-enhancing measures, mitigates staking risks.
For example, MATIC being a high market cap coin, makes it comparatively less volatile. Therefore, MATIC can withstand adverse market movements, generating staking rewards that ultimately incentivize Davos users.
Additionally, the popularity of MATIC and its derivative liquidity tokens ensures constant access to liquidity for the protocol. Davos Protocol implements a 90-10 rule where 90% of MATIC collateral is staked over liquid staking contracts. The remaining 10% is held in reserves to meet immediate liquidity requirements. Further, if the demand for withdrawal exceeds 10% of the collateral, MATIC liquidity tokens like ankrMATIC can be easily exchanged for MATIC on leading DEXs to skip the unbounding period and meet immediate liquidity requirements.
Meanwhile, anyone purchasing the ankrMATIC or similar liquidity token can always claim the associated MATIC from the liquid staking pool upon completion of the unbounding period, which is usually four days in the case of Polygon.
The Davos Protocol eliminates all staking risks using MATIC liquid staking and liquidity provision, making it convenient for its platform users to earn yields. The statement holds even during down market conditions when some DeFi protocols fail or bear low returns.
DAVOS token may disrupt the stablecoin landscape
On the other hand, holders of the DAVOS Stable Asset can earn a constant annual percentage yield of 7% to 9% in DAVOS tokens. They must stake and provide liquidity to the protocol’s DAVOS pools to tap into the yields. On top of MATIC utilization, Davos’ lending of its capital-efficient stable asset is making it possible to bring a trailblazing yield-generation system. The DAVOS Stable Asset acts as the key to this protocol, its unconventional design leaving the functioning of stablecoins in the DeFi ecosystem at the brink of disruption.
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