DOLA Supply Management

DOLA Fed contracts are made to expand and contract DOLA supply. They are controlled by Inverse Finance governance and they are a powerful tool for DOLA peg management.

There are two different types of Fed contracts. Both share some qualities like having the ability to expand DOLA supply by minting and supplying DOLA directly to the connected liquidity pool or lending market DOLA supply while a contraction withdraws and burns DOLA.

A great way to keep track of all the ‘expansions’ and ‘contractions’ of DOLA supply is via the ‘Feds Policy & Income’ or 'DOLA & Feds' tabs on the Transparency page.

DOLA Fixed Rate Lending Fed on FiRM

The DOLA Fed on FiRM expands and contracts the DOLA supply for that lending market. The FiRM Fed has a global DOLA limit and a limit per FiRM market, both set by governance and enforced by the fed chair.

DOLA DEX Liquidity Feds

DOLA DEX Liquidity Feds expand by minting and supplying DOLA directly to the a decentralized exchange (DEX) liquidity pool while a contraction withdraws and burns DOLA from the pool. Expansions/contractions are done in response to demand changes for DOLA in a specific liquidity pool.

If the pool requires the Fed to supply proportional amounts of one or more assets, the new DOLA supplied to the pool by the Fed is effectively backed by the counterparty asset in the pool. The Fed's DOLA liquidity never enters traded circulation in a regular sense, the feds revert the process completely when done, sometimes creating valuable arbitrage for the DAO treasury.

If a user expresses demand to the point where there are significantly fewer DOLA than normal in the pool, the Fed can be expanded to bring the pool back to balance. This can happen when a user deposits a counterparty token in the pool, or someone swaps for DOLA. In addition to being profitable for the DAO, this also balances DOLA’s $1.00 price peg.

When the demand for DOLA decreases, the Fed Chair contracts the DOLA supply, reducing the DOLA overweight in the pool, bringing the price or peg back to par.

Simply put, the goal is to find equilibrium for DOLA:

  • Demand for DOLA increases = AMM Fed increases DOLA supply to match this.

  • Demand for DOLA decreases = AMM Fed decreases DOLA supply to match this.

This is a very powerful mechanism for peg management and gives Inverse Finance the ability to scale DOLA supply up or down rapidly in each individual liquidity pool, ensuring a more stable peg even in highly volatile times.

While DOLA is deposited in the liquidity pool, the Fed earns any rewards sent to LP’s which in turn are sent back to the DAO Treasury. The current policy is to recycle these rewards back into “bribes” to the liquidity pool, subsidizing the liquidity expense of the DAO, otherwise paid in INV.

Providing Liquidity

Liquidity Pools

Decentralized liquidity pools enable trading of tokens and are a fundamental money lego enabling open blockchain markets. Anyone can provide liquidity and you have self-custody over the funds. Note that liquidity pools with volatile tokens can incur impermanent loss (or divergence loss) as the asset values move apart.

What Are Liquidity Pools?

Liquidity pools are on-chain contracts that provide a "place" to securely pool tokens (which can be called liquidity) so that users can use them to make trades in a decentralized way. The weighting of tokens in the pool determines the price for swapping between the tokens. Curve takes its name from elegant curve mathematics which allow for highly efficient swaps despite large imbalances in the pools.

These pools are created by users and decentralized apps (or Dapps, for short) who want to enable new token markets and profit from their usage. To pool liquidity, the amount a user supplies must be equally divided between two coins: the primary token (sometimes called the quote token) and the base token (usually ETH or a stable coin).

Curve's, Balancer's and Velodrome's liquidity pools all allow anyone to provide liquidity. Upon doing so, they will receive LP tokens (Liquidity Provider tokens). If a user deposits $INV and $ETH into a pool, they would receive INV-ETH LP tokens. These tokens represent a proportional share of the pooled assets, allowing a user to reclaim their funds at any point.

Every time another user uses the pool to trade between $INV and $ETH, a fee is taken on the trade which goes back to the LP pool.

The value of the SLP tokens is updated with each trade and the price for swapping the tokens is set by the weighting of the balance between the tokens in the pool. For example:

If previously there were 100 SLP tokens representing 100 ETH and 100 INV, each token would be worth 1 ETH & 1 INV (note in this example, ETH and INV are the same relative value). If a user were to trade 10 ETH for 10 INV in that pool, and another user were to trade 10 INV for 10 ETH, then there would now be 100.025 ETH and 100.025 INV. This means each LP token would be worth 1.0025 ETH and 1.00025 INV when it is withdrawn.

Provide Liquidity to help DOLA grow!

Deep DOLA liquidity is vital to the success and growth of Inverse Finance. For Stablecoin liquidity, currently it is most efficient to use Curve pools as these pools keep the peg of the stablecoin far better thane most other 50:50 pools. Note: Not all DOLA Curve As these liquidity pools are paired with dollar stablecoins only, meaning the risk of impairment loss is presently very low. Liquidity pools paired with dollar stablecoins only are such that meaning that liquidity providers can collect trading fees and other incentives at a relatively lower risk of impermanent loss.

When depositing liquidity, you will receive an LP token in return. This LP token is what proves your stake in the liquidity pool and you need it to be able to withdraw your funds. Trading fees and/or token incentives are accumulated to the liquidity providers are added your balance automatically.

Discover where to join DOLA liquidity pools directly from our Yield Opportunities page!

Note that Inverse Finance does not officially endorse or advise you to use any protocol, all DeFi and smart-contract interactions carry some form of risk. ALL yield strategies carry additional smart contract risk. Many yield opportunities mentioned on this page have not been audited by Inverse Finance. Different strategies carry different levels of risk, with some subject to potential impermanent loss or divergence loss can become a risk when DOLA is paired with volatile tokens, such as INV or wETH. Ensure that you do your own due diligence prior to interacting with any, and never invest more money than you are willing to lose.

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