Mitigating volatility during a negative rebase

General Discussion
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I think that one thing that many rebasing tokens have demonstrated is that when a rebasing token drops below its peg, it can trigger a downward spiral of token price, despite the rebasing mechanism, making it very difficult to get back to its peg.

There will always be short-term-timeline actors, but I think that with proper incentives, the subset of users that might panic sell during a negative rebase can be reduced.

Political arguments and theories aside, I think that one thing that many governments understand fairly well is that while you generally can’t force people into certain behavior, such as starting a business, if that’s the kind of thing you want to see, then you incentivize it (e.g., tax breaks, etc).

To that end if Digg falls below its peg, there are two behaviors, when taken together, bring the price back up to its peg: holding and buying. A negative rebase plays into this, because it affects liquidity for those looking to buy. I’m not sure about incentivizing buying. ESD and others offer bonds, which incentivize buying in the future, when ESD is above the dollar peg again. There’s some game theory behind their whole thing, but I’m not convinced that it works.

What can be incentivized fairly easily, of course, is holding. This already happens to a great extent, obviously, with emissions, rewards, etc. So, the mechanism is already understood, built, and in active use.

I don’t know what the right balance of numbers would be, but I think that if Digg rewards during a negative rebase were to actually increase, with maybe some sort of bonus reward if/when the peg is re-achieved, you might be able to decrease the number of people that panic sell when the price drops.

This kind of mechanism would require some pretty careful design, though, because it could open the thing up to abuse/manipulation. One potential solution to that would be to get liquidity to be so high that it’s just not worth the cost to deliberately manipulate the price. That’s of course easier said than done.

So, I don’t have any real, concrete answers, and my suggestion above for increasing Digg rewards during a negative rebase is just an idea. I’m sure much has been discussed about this already, and if I’m rehashing old and/or settled issues, I apologize. I’m curious to hear what thoughts others have to try to mitigate the risk of downward price spiral for Digg as seen with other rebasing tokens.

Cheers

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We get these questions / comments every time DIGG is under peg. It is working, as intended.

The way I see it, you can’t compare digg to other algostables because digg isn’t based against $1, it is based against btc. People can’t comprehend either paying more or less for $1, but it is much easier to comprehend that for btc.

If digg contracts, that is fine… market will shrink and it’ll eventually come up to par price-wise with btc. We’ve already seen this happen. Nothing to worry about here.

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I’d been meaning to make a post like this for a while, and coincidentally, it happened when the price fell below the peg. So, I get how it looks. And yeah, so far, it’s been working as intended. But the whole project is still super crazy young, having been launched in the midst of a mad bull market. Will it continue to behave as intended if there’s another market collapse? Time can only tell, ultimately. But should the token take a weird turn without ability to get back on course with the current mechanisms, it would be nice to have a nice stockpile of well-designed weapons in the armamentarium, rather than panic-designed weapons that get rushed to the front, if that makes sense.

I’m not worried about digg’s current price or whatever. And I’m not trying to push any changes. I’m just of the mind that a good long-term strategy would involve thinking about what to do if things break.

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Totally valid points. Pretty sure though that you can assume that the project leaders are thinking about these things. Hence the BIPs, like BIP31 as one example.

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These are good discussions. I am new to algostable coins and rebase mechanisms and their effects on an investors holdings and the behaviors of other holders.

what are BIPs for? How can that help? I have yet to participate in any governmance or voting on proposals, I just created this forum account yesterday.

D

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Badger is a DAO. BIP is the way the DAO progresses as a community:

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There are already plans for just what you proposed. When price is below peg digg apy will increase for digg setts, encouraging buying and holding. There will also be contracts that buy and sell digg automatically when price is off peg to help adjust price.

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There will also be contracts that buy and sell digg automatically when price is off peg to help adjust price.

I have no problem or issue with this, but just for my own edification, if there is (or is to be) a treasury that will help with maintaining the peg, would it be more accurate to describe Digg as a partially collateralized token rather than an uncollateralized token? Also, for my own curiosity, how would the treasury be denominated? Is it strictly in Digg? Or is it something like a combination of Digg and ETH or somesuch? Is there perhaps a resource or page where I can go read more about the specifics for these plans?

Thanks

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Yes, go to the bips section of the forum and read the ones about treasury and revenue management . We have badger and digg currently in the treasury but will be diversifiying soon to some eth and stable coins as well.

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There is a huge problem and is that the people who has DIGG want to hold, but there are many rewards of DIGG for other assets like WBTC, Badger… and this people sell DIGG and the negative spiral increment.

Rewards is good for holders of DIGG, but not for people who does not stake only DIGG.

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Then could you tell me why the apy for the uniswap BTC/Digg SETT has in fact gone down from ~100% to 67%?

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I wrote this a long time ago. A lot has changed since then.