Equations
Staking
Swaps between VSQ and sVSQ during staking and unstaking are always honored 1:1. The amount of VSQ deposited into the staking contract will always result in the same amount of sVSQ. And the amount of sVSQ withdrawn from the staking contract will always result in the same amount of VSQ.
The treasury deposits VSQ into the distributor. The distributor then deposits VSQ into the staking contract, creating an imbalance between VSQ and sVSQ. sVSQ is rebased to correct this imbalance between VSQ deposited and sVSQ outstanding. The rebase brings sVSQ outstanding back up to parity so that 1 sVSQ equals 1 staked VSQ.
Bonding
VSQ has an intrinsic value of 1 DAI, which is roughly equivalent to $1. In order to make a profit from bonding, Olympus charges a premium for each bond.
The premium determines profit due to the protocol and in turn, stakers. This is because new VSQ is minted from the profit and subsequently distributed among all stakers.
The debt ratio is the total of all VSQ promised to bonders divided by the total supply of VSQ. This allows us to measure the debt of the system.
VSQ Supply
VSQ supply does not have a hard cap. Its supply increases when:
VSQ is minted and distributed to the stakers.
VSQ is minted for the bonder. This happens whenever someone purchases a bond.
VSQ is minted for the DAO. This happens whenever someone purchases a bond. The DAO gets the same number of VSQ as the bonder.
VSQ is minted for the team, investors, advisors, or the DAO. This happens whenever
the aforementioned party exercises their pVSQ.
The DAO receives the same amount of VSQ as the bonder. This represents the DAO profit.
Backing per VSQ
Every VSQ in circulation is backed by the VESQ treasury. The assets in the treasury can be divided into two categories: stablecoin and non-stablecoin.
For reserve bonds such as DAI bond and FRAX bond, the RFV simply equals to the amount of the underlying asset supplied by the bonder.
For LP bonds such as VSQ-DAI bond and VSQ-FRAX bond, the RFV is calculated differently because the protocol needs to mark down its value. Why? The LP token pair consists of VSQ, and each VSQ in circulation will be backed by these LP tokens - there is a cyclical dependency. To safely guarantee all circulating VSQ are backed, the protocol marks down the value of these LP tokens, hence the name risk-free value (RFV).
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