Yes, you read that right: an Ethereum-based stablecoin meant to trade around one U.S. dollar is up approximately 100 percent in the past 24 hours alone.
That stablecoin is Dynamic Set Dollar (DSD), which is an algorithmic stablecoin that is meant to trade around $1.00 through a system of price oracles, dynamic supply adjusting, yield farming, and financial vehicles called coupons.
24 hours ago, DSD traded for $0.90. At the highs set just an hour ago, the coin, now with a $184 million market capitalization, traded at $2.97 per CoinGecko.
What is Dynamic Set Dollar?
Dynamic Set Dollar is an algorithmic stablecoin that is based on a seigniorage model. There are no U.S. dollar reserves backing the coin; instead, its price action is meant to stabilize over time by incentivizing actors to keep the price around the peg. As the project’s anonymous founders explain:
“The voluntary elastic supply mechanic is different from Ampleforth (AMPL) and Based (BASED). It is inspired by Empty Set Dollar (ESD), yet responds faster to market demand through more frequent epochs, extended supply caps, and a modified supply extension/contraction formula.”
How it works (in simple terms) is if DSD trades above $1.00 as per a time-weighted average price oracle, ESD is minted and distributed to those that either provide liquidity on Uniswap or stake their coins in the DAO.
If DSD trades under $1.00, users can “burn” their DSD in exchange for “coupons,” which can be minted for DSD on a 1:1 basis once the price returns to the peg.
This system ensures that over time, the price of the ocean should stay around $1.00.
There are many nuances to this system that allows plugged-in speculators to make a lot of money trading the coin, whether that’s buying dips under $1.00 or playing whale games to suppress or boost the price.
DSD is based on Empty Set Dollar, which uses a similar model and launched before DSD. ESD has seen strong institutional backing from many of the DeFi space’s top funds, like Mechanism Capital.
What’s causing the rally?
DSD’s rally comes after it faced a period of contraction for 10 days, during which investors had to continually burn their DSD in exchange for coupons in hopes of the price going back up.
The rally that began just a day ago seemingly began as investors that missed out on the ESD rally (which is up by approximately 400 times over the past few months) began to look at similar opportunities.
DSD may be seen as a relative value play due to it having a similar and potentially improved model and it also having a fledgling community starting to form around it.
Spillover effects
DSD’s rally has had spillover effects on the rest of the uncollateralized stablecoin market.
Basis Cash, another Ethereum-based money experiment that uses a somewhat similar model, is up to $1.15, meaning it is in a period of expansion.
The price of the coin is likely to return to $1.00 once the extra supply kicks in.
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