Empty Set Dollar AMA with @eqparenthesis at t.me/amaroom

Eric: Welcome @eqparenthesis!

=): thanks for having me 😁

Eric: So let's start by asking you to introduce us to Empty Set Dollar. What is it exactly? @eqparenthesis

=): The main goal for ESD is to create the best stablecoin to be used as the reserve currency for DeFi

The exact implementation and mechanism is meant to evolve via governance, so what this looks like today in the early days may very well improve as the project matures

Eric: What is different about it from the other stablecoin as it is?

=): Before ESD we only had either over-collateralized stablecoins like Dai or rebase coins like AMPL + YAM

Collateralized stablecoins like Dai are generally capital inefficient and incur a lot of risk on the underlying capital. Rebase solves the capital constraint but doesn’t play nice as a building block because there’s no way to actually hold a stable amount of the currency.

ESD uses the elastic supply model of rebase coins but implements it without balance rebases so it can be used like Dai.

Eric: What are the mechanic of this elastic supply model? I understand it's based on coupons as a sort of a Call (option) on ESD?

=): Correct yeah, the model we currently use is inspired by the original Basis project. Decreasing price is generally easy, you can print more of the stablecoin to flood the market. Increasing price is generally where the challenges lie. For ESD, like Basis, we issue coupons that can be purchased at a discount with circulating ESD. The coupons are only redeemable if the protocol returns to peg and can expand in supply enough to pay back the coupons, otherwise, they expire worthless (currently after 90 epochs/30 days).

In this way, we still sort of have a semblance of rebases, but they are explicitly opt-in both for expansion and contraction.

Eric: It’s a very interesting mechanic.

Does this project have no relation to the Basis?

=): It does not

Eric: So tell us about the people behind it, how did it start and how is it structured?

=): The team behind it is the {ess}. Unfortunately, I can’t give too much background into the team since we’re operating pseudonymously 😅 We’re generally not new to the crypto space though.

I can give a little background into why we chose to do this project though if that’s helpful?

Eric: yes pls

=): We were inspired by Black Thursday earlier this year. Before ESD we thought of Dai as the reserve currency to DeFi but weren’t super impressed by how it handled through that period. It became clear that at the very least there needed to be more experimentation in the algorithmic stablecoin space and that’s when we started this project.

Eric: Interesting inception/inspiration period.

How many coders were involved at the start and now?

=): can’t say for the start😅 At this point though we’ve been able to pull together a really great community, so the development is already starting to get fairly decentralized

Aldric: Is it also true that ESD didn't raise capital in the early days? How were you guys able to manage to do that considering Basis raised millions? And how is the team currently incentivized?

=): Correct, we didn’t raise any capital for the project. I think Basis’s approach to launching was much more centralized, whereas for ESD we were fully decentralized within 24 hours of the protocol launching.

Eric: @eqparenthesis may I know what is an Epoch? how was the length decided to be most optimal?

We will be opening up the floor for the community after the next reply. Please prepare your questions!

=): Epochs are the unit of time in the ESD protocol, essentially the window of time for rebase/regulation periods. Currently, epochs are 8 hours. There’s no exact science to this. What we’ve seen is that shorter epochs result in a faster response time for price stability, so the plan is to gradually shorten over time.

Community AMA

Q: During supply, inflation LPs are incentivized to stay in the Uniswap pool used by the oracle because it receives 5% of the new inflation, (correct?). However, what’s the incentive to stay in the pool during significant supply contraction? Wouldn’t LPs early to pull out benefit by dumping on those still in the pool or am I missing something?

A: I see a few versions of this question so I can answer this.

This is actually correct, however, it’s design is somewhat intentional. What we see in the protocol is two levels of liquidity depending on whether we’re expanding or contracting. Expansion is incentivized with both Uniswap fees + ESD rewards, whereas contraction only gets uniswap fees. It’s important to note the Uniswap fees are non-trivial so there’s still some liquidity at this level.

The general advantage of having liquidity be removed when the coin goes under-peg is similar to an exchange circuit breaker. These are usually periods of high speculation so it doubles as an effect to cool things off while the market has a chance to restabilize.

We’ve also since introduced lockup periods for LP so there isn’t the ability to immediately remove liquidity like there was at launch, which helps maintain stability as well.

Q: Why do you think the Empty set requires governance? What types of changes do you think can be proposed without affecting the original idea of a truly decentralized stablecoin?

A: This goes back to our vision of “being the best stablecoin” without necessarily locking into one specific model. We chose to start with a modified version of Basis’ mechanism as it seemed like an interesting starting point, but we’ve already begun investigating large iterations on the model such as Scott and Will’s vision here: https://medium.com/@scott_lew_is/a-vision-for-empty-set-dollar-ce29b7e0e297

Q: On the Coupons page, does “Coupons” represent the amount available to be bought? Or the amount already bought?

A: “Coupons” represents the total outstanding coupons, “debt” is the current amount of ESD that can be burnt for coupons.

Q: Does the ESD’s protocol require constant growth in order to maintain peg in the long term? If the assets leave the protocol, in what kind of ways they stay on peg after that?

A: It does not, the coupons are the mechanism by which the supply can contract, either temporarily by burning and later redeeming the coupons, or permanently if the coupons end up expiring. I should note that it is expected that coupons do sometimes expire, so you’re taking a risk choosing to participate in them.

Q: Can I as a user withdraw a reward from the LP pool without putting a reward into the pool?

A: To get LP rewards, you must supply ESD/USDC to the uniswap pool and stake your resulting UNI-V2 tokens. Rewards come in the form of ESD and can be claimed without having to remove your liquidity.

Q: What are the dynamics behind the total supply? Is the increase just from the rewards alone? So if I assume marketcap to increase, just bonding ESD will allow me to capture the upside without risks?

A: Yeah, to touch on this as well. Supply increases by issuing ESD rewards to either bonded LPs or those who have bonded ESD in the DAO. Both serve an important function, liquidity, and governance respectively, so both are rewarded as the supply increases.

Q: Do all ESD tokens have a physical backup? Do you plan to open audits of these funds? Is this going to be the next USDT?

A: ESD is a un/under-collateralized stablecoin, instead of being backed by collateral it uses market dynamics to attempt to stay at a peg similar to real-world fiat currencies.

Q: Can a user get as many coupons as possible with the “first come first serve” method or are they limited per user?

A: Purchasing coupons are not limited per user as any limit like this would generally be trivial to bypass.

Q: If someone provides liquidity on your LPs, does he need to wait for an epoch if he wants to exit the LP or how does the mechanism work?

A: We recently voted in a 5 epoch exit lockup for LPs (15 for DAO bonding). This means that once you unbond your LP tokens you still have to wait for 5 epochs in order to withdraw them.

Q: Can you briefly explain the current backstops/insurance/protections in place?

A: Right now we’re completely un-collateralized, so there is no backstop. This goes back to the difference in launch strategy between the way we did it versus the way Basis was planning to.

That being said, the vision doc I linked earlier includes our strategy to transition to a partially collateralized model with a backstop in the near future.

Closing Remarks

Eric: Ok. that's a wrap! @eqparenthesis Please invite people where to go for further questions

=): Thanks @ERCSU! You can visit us at the following links:

website: https://emptyset.finance/#/

Twitter: https://twitter.com/emptysetsquad

tg: https://www.t.me/emptysetdollar

discord: https://discord.gg/vPws9Vp

Eric: Thanks, everyone. hope you support such a great project.

Dric: Thank you! Very excited about ESD’s future 😀

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