Comment on page
BTCH, is a DeFi protocol that creates an index pegged by a 365-day moving average price of BTC. Naturally, the wild price fluctuations of BTC has forced investors to reconsider their investment strategies. Many who have ventured into cryptocurrency have washed out during the journey as Hodl(ing) is harder to achieve than it appears. The BTCH Index is designed to be stable and has significantly lower volatility, which is pegged by a 365-day moving average price of BTC and is designed to follow the increasing value of BTC over time. The intent of this effect is to help the investor HODL and, in turn, generate a greater return as a result. Short term, to help HODL by providing a less volatile BTC index. Long term, BTCH will contribute to building the decentralized monetary system of the crypto world. It is designed to be a crypto native currency (essentially a crypto native stable coin).
BTCH is stabilized and pegged through the rebalancing of a Protocol owned Liquidity pool and is, in part, supported by a Vault of BTC. The protocol will continuously accumulate BTC by selling bonds. The long-term value increase of BTCH is backed by the BTC value increase in the treasury. During price volatility, the value of BTCH may not be 100% backed and to encourage the investor to HODL, staking rewards will be distributed when rebalancing and bond selling.
The target price is the 365 days moving average price of BTC divided by 10,000. BTCH is pegged by the target price with Rebalancing. For more information about Rebalancing, please refer to the FAQ about rebalancing below. BTCH is stabilized and pegged through the rebalance of a Protocol owned Liquidity pool. Since the protocol itself controls most of the liquidity, the BTCH would never fail to peg the target price.
The protocol is designed to encourage investors to HODL BTCH, by distributing staking rewards when rebalancing and bond selling. Let's take an example on how the protocol performs during a bank run hypothetically.
First, let’s make several assumptions:
- The current BTC price is $39,326.00.
- The current market and target price of BTCH are both US$ 4.4018.
- Total stacked BTCH is 739,500, an 85% staking percentage.
- The PCL owns 66.67 BTC and 608,657 BTCH as liquidity.
When a bank run happens, the stake percentage drops to 10% in the short term. That means that 652,500 BTCH was unstaked and sold in the market and now the PCL owns only 32.1761 BTC and 1,261,157 BTCH after the selling. Since the BTCH market price is far lower than the target price, a ‘Buy Rebalance’ will happen, which will push the PCL price back to the target price. After the rebalance, the PCL owns 32.1761 BTC and 293,748 BTCH. 1% of the 967,409 burnt BTCH from the PCL, i.e. 9674 BTCH will be sent to the reward pool.
Let’s assume the BTCH in the reward pool will award stakers across a 30-day duration, which would mean add 9674 / 87000 / 30 * 365 = 135% extra APY to the current staking APY (if the current APY is 48% then the total APY is 183%). This would create significant value and encourage the staker to continue staking!
Note: Please be advised that the above is just an example and is unlikely to happen due to the likelihood of investors buying and staking BTCH — especially after realising the high APY value backed in the PCL.
Bonding allows the protocol trading BTCH for LP shares (BTCH/WBTC). Bonding gives users the opportunity to buy BTCH from the protocol at a discount, via depositing USDC. The protocol compensates the users with more BTCH than you could get on the market, but the users’ exposure becomes entirely to BTCH and no longer to BTCH/WBTC LP. This helps the protocol accumulate liquidity shares. The demand for bonds decides the discount.
Bond discount = (outstanding bond / BTC value in PCL) * control variable + base variable.
Initially, control variable = 0.5, base variable = 0.8.
The real discount a bond buyer can get is determined by the total deposit the buyer makes. For example, the buyer sees the current discount shown on the DAPP page is 5%, after the buyer deposits 1000 USDC for the bond, the discount shown is 3%, then the real discount the buyer gets for the deposited 1000 USDC is 4%.
Rebalance is the mechanism the protocol used to move the market price of BTCH back to the target price, by adjusting the number of BTCH in the Protocol owned liquidity pool. In the event of the market price of BTCH below Target Price, for example, 3% as the initial setting, a Buy Rebalance of PoL will be introduced:
- Withdraw all PoL
- Buy BTCH with the withdrawn WBTC to bring the price up to Target Price
- Resupply remain PoL to the liquidity pool
- Burn the excess BTCH.
In the event of the market price of BTCH above the Target Price, a similar Sell Rebalance will be initiated:
- Withdraw all PoL
- Mint and sell BTCH to bring the price down to the target price
- Resupply remain PoL to the liquidity pool
- Mint corresponding BTCH and pair with the excess WBTC, and then grow the Protocol-owned Liquidity.
To help Hodl, staking is designed as the dominant strategy for participants. The easy and best strategy to participate is hodl, stake and compound. The BTCH protocol will profit from BTC (held by protocol) value increase, protocol treasury income and the transaction fee of PoL. Staking is a profit distribution mechanism of the protocol, sometimes future profits. Staking rewards are generated when selling bonds and rebalancing.
- When a Bond is sold, together with the increase of PoL, a certain percentage (10% initially) of additional BTCH will be minted and sent to the staking reward pool.
- When a Buy Rebalancing occurs, a small percentage (1% initially) of burning BTCH will be exempted and sent to the staking reward pool. It will mitigate the downward spiral, by encouraging staking with more rewards.
- When a Sell Rebalancing occurs, a small percentage (1% initially) BTCH of the value of excess WBTC will be minted and sent to the staking reward pool, as protocol treasury increases.
After staking BTCH in the protocol, user will get sBTCH as staking credential.
BTCH is pegged by a 365-day moving average price of BTC. The PCL holds BTC as the backup vault for BTCH. At this initial stage, we believe BTC is the right asset as the value support. However, when the protocol evolves with the changing market condition, it’s up to the Dao to determine whether other assets could be added as the support.
The following parameters could be managed by Dao to fine-tune the operation of BTCH protocol:
- Rebalance Range
- Buy Rebalance Reward Rate
- Sell Rebalance Reward Rate
- Bond Reward Rate
- Stake Reward Base
- Bond Discount Rate
At present, the parameters are managed by a multi-sign ETH wallet address of the Dao, and the Dao contains the development team, the market team and the operation team. When the protocol matures, the Dao will include BTCH stakers and they will have the right to vote for parameter updates and other Dao proposals.