How does SatoshiDAO work?
Tags: Web3, Ohm, Dao, Defi, Bitcoin

Basically, SatoshiDAO is a decentralized reserve currency protocol on Ethereum backed by bitcoin assets. Inspired by the spirit of Bitcoin to allow people to collaborate in a decentralized network, SathoshiDAO aims to give Web3 citizens the opportunity to earn higher yields with Bitcoin through an ERC20 token called $SATO.

Each $SATO is backed by but not pegged to 0.0001 BTC-pegged tokens in the treasury. This maintains the value of a $SATO because it can’t fall below the underlying BTC, then the protocol will Mint or Burn tokens directly in response to the price, which has the effect of constantly maintaining a price above the backed assets. To make it simple, take WBTC as an example, when the value of $SATO is below 0.0001 WBTC, the protocol will directly buy and burn the token. If the value of a $SATO is above 0.0001 WBTC the protocol will mint and sell new $SATO.

To accomplish the goal of making people earn more with their Bitcoin, as well as ensure the long-term sustainability of our system, SatoshiDAO employs two main strategies, namely: staking (to better reward stakeholders), and bonding (to efficiently drive liquidity).

Now let’s dive into a detailed interpretation that may help you obtain a clearer understanding of how SatoshiDAO works.

Staking

Staking is how SatoshiDAO distributes the profits of the protocol equitably to participants with a rebasing mechanism. It is designed as the dominant strategy for people to participate in SatoshiDAO. The best thing to do for most users will likely be to just stake, hold, and compound.

In practice, you will stake and lock your $SATO for a certain period of time and receive an equivalent reward in $sSATO at the ratio of 1:1. Your $SATO balance rebases up automatically at the end of a given period.

How does the rebase happen? SatoshiDAO distributes tokens by sending them to the staking contract without asking for $sSATO back. This increases the ratio of $SATO staked to $sSATO outstanding, and results in a rebase to correct the difference.

Note that $sSATO is the protocol’s profit accruing token. Stakers will earn 100% of protocol profits (minus the DAO’s cut). When you unstake, you will burn your $sSATO and receive the equivalent $SATO token at a 1:1 ratio. Unstaking means you quit the distribution process of the protocol’s profits.

The logic behind Staking is to set the staking rewards to exceed the potential loss caused by market volatility over time, so that the incentive structure effectively removes all reason for any staker to sell his/her staked $SATO. This delicate incentive structure is inspired by the game theory, which is the main power to drive the growth, ensure high APY, and keep stability, leading to a further positive feedback loop.

In SatoshiDAO, we want to build a consensus that the more $SATO tokens a participant stakes, the more bitcoins in the market he locks up, and the more rewards he will receive through staking.

Bonding

Bonding is a process that allows you to buy $SATO at a lower cost basis. In return for giving up your LP shares, the protocol will sell you $SATO at a discount, which will be dynamically adjusted according to the protocol’s risk-free value.

Bonding is designed to replace the traditional liquidity mining scheme with the protocol-owned liquidity method. Projects no longer need to sacrifice ownership in exchange for temporary liquidity.

The end result of this design is that SatoshiDAO itself becomes its own market maker, and is able to provide sustainable liquidity for $SATO regardless of the returns, thus ultimately reducing the volatility of the $SATO price.

Furthermore, these LP tokens can constantly generate revenue for the protocol, as they receive the majority of the market maker commissions from the swaps made on DEXes. The benefits, in this case, are win-win, which means the sellers of LP tokens can receive a discount relative to the market price to purchase $SATO, and SatoshiDAO can acquire liquidity and assets for its treasury, further increasing the net asset value of each $SATO’s underlying assets.

And for users, after creating a bond (or shall we say buying a bond), they can continue to enter into the same incentive structure as any other $SATO stakers to boost their benefits.

And More

SatoshiDAO will continue to be expanded on, most importantly by the introduction of other BTC-pegged tokens, which will eventually form the backbone of the whole ecosystem.

Thank you for taking the time to read this article. Join us on our social media to be informed about the launch of SatoshiDAO!

WAGMI.