FAQs
Why do we need Lendr in the first place?
Dollar-pegged stablecoins have become an essential part of crypto due to their lack of volatility as compared to tokens such as Bitcoin and Ether. 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.
Lendr aims to solve this by creating a free-floating reserve currency, Lendr , that is backed by a basket of assets. By focusing on supply growth rather than price appreciation, Lendr hopes that the Lendr token can function as a currency that is able to hold its purchasing power regardless of market volatility.
Is Lendr a stable coin?
No, Lendr is not a stable coin. Rather, Lendr aspires to become an algorithmic reserve currency backed by other decentralized assets. Similar to the idea of the gold standard, Lendr provides free floating value its users can always fall back on, simply because of the fractional treasury reserves Lendr draws its intrinsic value from.
Lendr is backed, not pegged.
Each Lendr is backed by 1 DAI, not pegged to it. Because the treasury backs every Lendr with at least 1 DAI, the protocol would buy back and burn Lendr when it trades below 1 DAI. This has the effect of pushing Lendr price back up to 1 DAI. Lendr could always trade above 1 DAI because there is no upper limit imposed by the protocol. Think pegged equals 1, while backed is greater or equal 1.
You might say that the Lendr floor price or intrinsic value is 1 DAI. We believe that the actual price will always be 1 DAI + premium, but in the end that is up to the market to decide.
How does it work?
At a high level, Lendr consists of its protocol managed treasury, protocol owned liquidity (POL), mint mechanism, and staking rewards that are designed to control supply expansion.
Mint sales generate profit for the protocol, and the treasury uses the profit to mint Lendr tokens and distribute them to stakers. With liquidity mints, the protocol is able to accumulate its own liquidity. Check out the entry below on the importance of POL
What is the deal with (3,3) and (1,1)?
Staking (+2)
Minting (+1)
Selling (-2)
Staking and minting are considered beneficial to the protocol, while selling is considered detrimental. Staking and selling will also cause a price move, while minting does not (we consider buying Lendr 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).
Thus, given two actors, all scenarios of what they could do and the effect on the protocol are shown here:
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 mints, it is also great because staking takes Lendr off the market and put it into the protocol, while minting provides liquidity and DAI for the treasury (3 + 1 = 4).
When one of us sells, it diminishes effort of the other one who stakes or mints (1 - 1 = 0).
When we both sell, it creates the worst outcome for both of us and the protocol (-3 - 3 = -6).
Why is PCV important?
As the protocol controls the funds in its treasury, Lendr can only be minted or burned by the protocol. This also guarantees that the protocol can always back 1 Lendr with 1 DAI. You can easily define the risk of your investment because you can be confident that the protocol will indefinitely buy Lendr below 1 DAI 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, 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.
Why is POL important?
Lendr own most of its liquidity thanks to its mint mechanism. This has several benefits:
Lendr does not have to pay out high farming rewards to incentivize liquidity
providers a.k.a renting liquidity.
Lendr guarantees the market that the liquidity is always there to facilitate
sell or buy transaction.
By being the largest LP (liquidity provider), it earns most of the LP fees which
represents another source of income to the treasury.
All POL can be used to back Lendr. The LP tokens are marked down to their risk-free
value for this purpose.
What will happen if there is a bank run on Lendr?
Fractional reserve banking works because depositors don’t withdraw their funds all at once. A depositor’s faith in the banking system rests on regulations and agencies like Federal Deposit Insurance Corporation (FDIC).
Lendr does not have FDIC insurance but it has an incentive structure that protects stakers. Let’s take a look at how it performs during a hypothetical bank run. In this scenario, we assume the majority of stakers would panic and unstake their tokens from Lendr - the staking percentage which stands at 92% now quickly collapses to 3.3%, leaving only 55,000 Lendr staked.
Next, we assume the Risk-Free Value (RFV) inflows to the treasury completely dry up. During a bank run this growth will likely stop.
Finally, we assume that those last standing stakers bought in at a price of $500 per Lendr. The initial investment of these stakers would be:
if we have a total Lendr supply of 2,082,553 and the RFV is $47,041,833. Remember that 1 Lendr is backed by 1 USD (DAI). By subtracting these two numbers, we know 44,959,280 Lendr will eventually get issued to the remaining stakers. In roughly a year, these stakers who are holding 55,000 Lendr will have:
The above scenario is unlikely to play out because when other people find out that extremely high rewards are being paid to the stakers, they will copy the strategy by buying and staking Lendr. This is why we expect the percentage of staked Lendr to be stable over 85%.
What is a rebase?
Rebase is a mechanism by which your staked Lendr balance increases automatically. When new Lendr are minted by the protocol, a large portion of it goes to the stakers. Because stakers only see staked Lendr balance instead of Lendr, the protocol utilizes the rebase mechanism to increase the staked Lendr balance so that 1 staked Lendr is always redeemable for 1 Lendr.
What is reward yield?
Reward yield is the percentage by which your staked Lendr balance increases on the next epoch. It is also known as rebase rate.
What is APY?
APY stands for annual percentage yield. It measures the real rate of return on your principal by taking into account the effect of compounding interest. In the case of the Lendr App, your staked Lendr represents your principal, and the compound interest is added periodically on every epoch (around 8 hours) thanks to the rebase mechanism.
One interesting fact about APY is that your balance will grow not linearly but exponentially over time! Assuming a daily compound interest of 2%, if you start with a balance of 1 Lendr on day 1, after a year, your balance will grow to about 1376. That is a lot!
How is the APY calculated?
The APY is calculated from the reward yield (a.k.a rebase rate) using the following equation:
It raises to the power of 1095 because a rebase happens 3 times daily. Consider there are 365 days in a year, this would give a rebase frequency of 365 * 3 = 1095.
Reward yield is determined by the following equation:
The number of Lendr distributed to the staking contract is calculated from Lendr total supply using the following equation:
Note that the reward rate is subject to change by the protocol.
Why does the price of Lendr become irrelevant in long term?
As illustrated above, your Lendr balance will grow exponentially over time thanks to the power of compounding. Let's say you buy an Lendr for $400 now and the market decides that in 1 year time, the intrinsic value of Lendr will be $2. Assuming a daily compound interest rate of 2%, your balance would grow to about 1376 Lendr's by the end of the year, which is worth around $2752. That is a cool $2354 profit! By now, you should understand that you are paying a premium for Lendr now in exchange for a long-term benefit. Thus, you should have a long time horizon to allow your Lendr balance to grow exponentially and make this a worthwhile investment.
What will be Lendr's intrinsic value in the future?
There is no clear answer for this, but the intrinsic value can be determined by the treasury performance. For example, if the treasury could guarantee to back every Lendr with 100 DAI, the intrinsic value will be 100 DAI. It can also be decided by the community. For example, if the community decides to raise the price floor, its intrinsic value will rise accordingly.
How does the protocol manage to maintain the high staking APY?
If there are 100,000 of Lendr staked right now, the protocol would need to mint an additional 657.7 Lendr to achieve this daily growth. This is achievable if the protocol can bring in at least $657.70 of daily revenue from mint sales. Even if the protocol doesn't bring in that much revenue, it can still sustain 1,000% APY for a considerable amount of time due to the excess reserve in the treasury.
Do I have to unstake and stake Lendr on every epoch to get my rebase rewards?
No. Once you have staked Lendr with the Lendr app, your staked Lendr balance will auto-compound on every epoch. That increase in balance represents your rebase rewards.
How do I track my rebase rewards?
You can track your rebase rewards by calculating the increase in your staked Lendr balance.
1. Record down the Current Index value on the staking page when you first stake your Lendr. Let's call this the Start Index.
2. After staking for some time, if you want to determine by how much your balance has increased, check the Current Index value again. Let's call this the End Index.
3. By dividing the End Index by Start Index, you would get the ratio by which your staked Lendr balance has increased.
Last updated
