FAQ

Why do we need Trapeza Protocol 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.
Trapeza Protocol aims to solve this by creating a free-floating reserve currency, FIDL, that is backed by a basket of assets. By focusing on supply growth rather than price appreciation, Trapeza Protocol hopes that FIDL can function as a currency that is able to hold its purchasing power regardless of market volatility.

Is FIDL a stable coin?

No, FIDL is not a stable coin. Rather, FIDL aspires to become an algorithmic reserve currency backed by other decentralized assets. Similar to the idea of the gold standard, FIDL provides free floating value its users can always fall back on, simply because of the fractional treasury reserves FIDL draws its intrinsic value from.

FIDL is backed, not pegged.

Each FIDL is backed by 1 BUSD, not pegged to it. Because the treasury backs every FIDL with at least 1 DAI, the protocol would buy back and burn FIDL when it trades below 1 BUSD. This has the effect of pushing FIDL price back up to 1 BUSD. FIDL could always trade above 1 BUSD because there is no upper limit imposed by the protocol. Think pegged == 1, while backed >= 1.
You might say that the FIDL 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.

How does it work?

At a high level, Trapeza Protocol consists of its protocol managed treasury, protocol owned liquidity (POL), bond mechanism, and staking rewards that are designed to control supply expansion.
Bond sales generate profit for the protocol, and the treasury uses the profit to mint FIDL and distribute them to stakers. With LP(liquidity bonds), 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)?

(3,3) is the idea that, if everyone cooperated in Trapeza Protocol, it would generate the greatest gain for everyone (from a game theory standpoint). Currently, there are three actions a user can take:
  • 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 FIDL 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 bonds, it is also great because staking takes FIDL 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).

Why is PCV(Protocol Controlled Value) important?

As the protocol controls the funds in its treasury, FIDL can only be minted or burned by the protocol. This also guarantees that the protocol can always back 1 FIDL with 1 BUSD. You can easily define the risk of your investment because you can be confident that the protocol will indefinitely buy FIDL 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, 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(Protocol Owned Liquidity) important?

Trapeza Protocol owns most of its liquidity thanks to its bond mechanism. This has several benefits:
  • Trapeza Protocol does not have to pay out high farming rewards to incentivize liquidity providers a.k.a renting liquidity.
  • Trapeza Protocol 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 FIDL. The LP tokens are marked down to their risk-free value for this purpose.

Why is the market price of FIDL so volatile?

It is extremely important to understand how early in development the Trapeza 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. The network is currently tuned for expansion of FIDL supply, which when paired with the staking, bonding, and yield mechanics of Trapeza Protocol, result in a fair amount of volatility.
FIDL 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 FIDL 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 whether this project suits your goals.

What is the point of buying it now when FIDL trades at a very high premium?

When you buy and stake FIDL, you capture a percentage of the supply (market cap) which will remain close to a constant. This is because your staked FIDL balance also increases along with the circulating supply. The implication is that if you buy FIDL when the market cap is low, you would be capturing a larger percentage of the market cap.

What is a rebase?

Rebase is a mechanism by which your staked FIDL balance increases automatically. When new FIDL are minted by the protocol, a large portion of it goes to the stakers. Because stakers only see staked FIDL balance instead of FIDL, the protocol utilizes the rebase mechanism to increase the staked FIDL balance so that 1 staked FIDL is always redeemable for 1 FIDL.

What is reward yield?

Reward yield is the percentage by which your staked FIDL balance increases on the next epoch. It is also known as rebase rate. You can find this number on the Trapeza Protocol staking page.

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 Trapeza Protocol, your staked FIDL 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 FIDL on day 1, after a year, your balance will grow to about 1377. That is a lot!
The power of compounding

How is the APY calculated?

The APY is calculated from the reward yield (a.k.a rebase rate) using the following equation:
APY=(1+rewardYield)1095APY = ( 1 + rewardYield )^{1095}
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 FIDL distributed to the staking contract is calculated from FIDL total supply using the following equation:
FIDLdistributed=FIDLtotalSupply×rewardRateFIDL_{distributed} = FIDL_{totalSupply} \times rewardRate
Note that the reward rate is subject to change by the protocol.

Why does the price of FIDL become irrelevant in long term?

As illustrated above, your FIDL balance will grow exponentially over time thanks to the power of compounding. Let's say you buy an FIDL for $400 now and the market decides that in 1 year time, the intrinsic value of FIDL will be $2. Assuming a daily compound interest rate of 2%, your balance would grow to about 1377 FIDL by the end of the year, which is worth around $2754. That is a cool $2354 profit! By now, you should understand that you are paying a premium for FIDL now in exchange for a long-term benefit. Thus, you should have a long time horizon to allow your FIDL balance to grow exponentially and make this a worthwhile investment.

What will be FIDL'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 FIDL 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 FIDL, its intrinsic value will rise accordingly.

How does the protocol manage to maintain the high staking APY?

Let’s say the protocol targets an APY range of 1,000% to 10,000%, this would translate to a minimum reward yield of about 0.2105%, or a daily growth of about 0.6328%. Please refer to the equation above to learn how APY is calculated from the reward yield.
If there are 100,000 of FIDL staked right now, the protocol would need to mint an additional 632.8 FIDL to achieve this daily growth. This is achievable if the protocol can bring in at least $632.80 of daily revenue from bond 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 FIDL on every epoch to get my rebase rewards?

No. Once you have staked FIDL with Trapeza Protocol, your staked FIDL 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 FIDL balance.
  1. 1.
    Record down the Current Index value on the staking page when you first stake your FIDL. Let's call this the Start Index.
  2. 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. 3.
    By dividing the End Index by Start Index, you would get the ratio by which your staked FIDL balance has increased.
    ratio=endIndex/startIndexratio = endIndex / startIndex