DBR
DOLA Borrowing Right Token
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DOLA Borrowing Right Token
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The is an ERC20 token that represents your right to borrow DOLA in FiRM, Inverse's fixed rate lending protocol. A user with a single DBR has the right to borrow one DOLA stablecoin for up to one year with no interest.
DBR’s solve issues of highly volatile interest rates in traditional variable rate lending and DBR removes many of the constraints of conventional fixed rate interest lending in DeFi. Users benefit from the certainty of fixed-rate loans while gaining both short and long-term optionality and opportunities from DOLA Borrowing Rights.
The duration is not fixed so you can borrow two DOLA for six months, four DOLA for three months, and so on. Borrowing one DOLA for one year will gradually consume that DBR token.
Via Automated Market Makers
Via DBR XY=K Auction
The XY=K auction contract includes the sendToSaleHandler() function, that anyone can call. This moves accumulated DOLA proceeds to the saleHandler contract, which currently includes logic that uses the DOLA to repay the DOLA borrowBalance of either 0xf508c58ce37ce40a40997C715075172691F92e2D or 0xeA0c959BBb7476DDD6cD4204bDee82b790AA1562 (the 2 Frontier exploiters of 2022). The logic of the saleHandler contract can be updated by governance in the future, for example, to send the DOLA proceeds to the Treasury.
The DAO sets a yearly max budget of DBR to be used by the auction, with an operator (the Fed Chair multisig) able to set the DbrRatePerYear between 0 and this governance set max.
In addition to this becoming a powerful (automated) tool for repayment of DOLA bad debt, the auction also has the additional benefit of increasing the current depth of DBR liquidity on the market for buyers. This improves the user experience for borrowers on FiRM, particularly ones with much larger positions who want to purchase DBR for longer-duration loans.
DBR supplies are adjusted according to a DBR Issuance Rate that encompasses two methods of adding DBR’s to the marketplace: DBR Streaming Rewards and DBR XY=K Auctions.
The rate at which DBR’s are issued into the market is done at a rate set by the Fed Chair multisig and subject to governance vote, but currently at a maximum annual rate equal to a ratio of 1 DBR for every DOLA being lent out on FiRM.
DBR Streaming Rewards
DBR is streamed at a rate advertised in the FiRM application to INV holders who stake their INV on FiRM. These DBR’s are continually streamed with each new block mined on Ethereum, and users can claim streamed DBR’s at any time.
DBR’s are streamed at a rate set by the Fed Chair multisig and subject to governance vote, but currently with a maximum annual rate equal to a ratio of 1 DBR for every DOLA being lent out on FiRM.
DBR issued to INV stakers is in addition to the inflation adjusted INV rewards which make the added DBR staking rewards akin to Real Yield.
Via DBR XY=K Auctions
DBR is also introduced into the marketplace via DBR XY=K auction, a type of dutch auction that provides users with a way of purchasing large blocks of DBR without causing upwards pressure on DBR prices. The DAO sets a yearly max budget of DBR to be used by the auction, with an operator (the Fed Chair multisig) able to set the DbrRatePerYear between 0 and this governance set maximum.
Impact of Increasing DBR Supply
An increase in DBR supply will generally lead to a lower DBR price which in turn makes borrowing DOLA on FiRM more attractive. As DBR is burned over the life of a DOLA loan, the DBR rewardRate will correspond to the amount of DOLA loans on FiRM. The Fed Chair determines whether this quantity should be maintained, increased or decreased.
To expand the amount of DOLA lent out on FiRM, the yearly DBR issuance rate is adjusted to the expanded DOLA lending target. For example, if 5,000,000 DOLA is loaned on FiRM but the target is 8,000,000 DOLA, the DBR issuance rate should be set to 8,000,000 DBR per year. DBR supply contraction reverses the process and sets a DBR issuance rate that is lower than the amount of DOLA borrowed in FiRM.
If a user’s DBR balance turns negative while borrowing DOLA on FiRM, additional DBR’s are added by any 3rd party for a fee to the user’s wallet to maintain a positive DBR balance. This process is called Replenishment.
The cost of additional DBR’s during Recharge is paid by adding DOLA debt to the user’s loan balance. DBR’s purchased via Replenishment is priced at a substantial premium to market DBR pricing to incentivize responsible loan management and to avoid having to rely on oracle infrastructure.
The Replenishment feature can be repeated if the borrower fails to top-up their DBR balance or repay their loan, until the borrower’s DOLA loan balance reaches the maximum collateral factor for the loan, triggering a liquidation process.
The liquidation process follows common DeFi liquidation practices where a fee (e.g., 10%) is collected by third-party liquidators who successfully repay loans that have become eligible for liquidation due to a breach of a borrower’s collateral factor. An additional liquidation fee may also be charged by the Inverse Finance DAO treasury. Inverse Finance DAO reserves the rights to alter the current liquidation process in future updates to the FiRM protocol. Any modifications would require a DAO vote via on-chain governance.
Here are five examples to illustrate the basic application of DBR’s:
One Year Loan
Jack deposits $1,000 in WETH as collateral and borrows $800 in DOLA. He plans to hold the loan for one year so acquires 800 DBR’s for $0.02 each. The $16 payment for the DBR’s is subtracted from Jack’s $800 DOLA loan at the time of borrowing.
Jack’s balance of 800 DBR’s is decremented on a time basis, so for every DOLA borrowed, the DBR balance is reduced by 0.xxxxxxxxx DBR every second or 1/365 per day.
Multi-Year Loan
Jack deposits $1,000 in WETH as collateral and borrows $800 in DOLA. He plans to hold the loan for three years so acquires 2,400 DBR’s for $0.02 each. The $48 payment for the DBR’s is subtracted from Jack’s $800 DOLA loan at the time of borrowing.
Jack’s balance of 2,400 DBR’s is decremented on a time basis, so for every DOLA borrowed, the DBR balance is reduced by 0.xxxxxxxxx DBR every second or 1/365 per day.
Short-Term Loan
Jack deposits $1,000 in WETH as collateral and borrows $800 in DOLA. He plans to hold the loan for three days so acquires 6.58 DBR’s for $0.02 each. The $0.13 payment for the DBR’s is subtracted from Jack’s $800 DOLA loan at the time of borrowing.
Jack’s balance of 6.58 DBR’s is decremented on a time basis, so for every DOLA borrowed, the DBR balance is reduced by 0.xxxxxxxxx DBR every second or 1/365 per day.
Loan Period Starting at a Future Date
Jack predicts he will soon need to take out a loan to pay for college tuition and purchases 1000 DBR as the price drops to $0.01, realizing the rate is far superior to other DeFi and traditional lending markets and that DBR price is unlikely to remain so cheap.
Simple Carry
Jack has found a good yield opportunity for DOLA and he has 10 WETH that he wants to make productive. He decides to deposit it into FiRM to borrow DOLA which he in turn will use to farm yield in a Velodrome liquidity pool on Optimism. Jack borrows 50.000 DOLA and includes the purchase of 50.000 DBR in the transaction which brings the total debt to 52.500 DOLA.
The introduction of DBR’s provides for a broader set of use cases for DOLA loans than is typically possible or practical with variable rate loans. A sample of these new use cases includes.
Yield Farming
DBRs enable yield farmers to borrow at predictable rates over long time periods, eliminating the uncertainty of interest rate spikes common in variable rate lending. Yield farmers who “loop” their strategies are assured that their DOLA borrowing rate will not spike and eventually trigger a cascade of liquidations. Additionally, in the case where yield farming activities rise, a farmer utilizing DBR could capture profits (from higher DBR prices) at the very moment that underlying farming activities are becoming less profitable.
Real World Assets
DBR’s are ideal for borrowers financing “real world” assets (“RWA’s”) like home down payments, a car, or college tuition. Financing costs can be fixed for many years and like yield farming, DBR’s solve for the uncertainty of variable rate borrowing or the hidden costs of other “fixed rate” lending. DBR’s also enable sellers of RWA’s like a home to “transfer” their 11 (below market rate) DBR’s along with the asset itself to a buyer, like real-world assumable mortgages.
Rate Locking
Potential borrowers wishing to “lock in” a borrowing rate in advance of executing a loan can do so by purchasing DBR’s and holding them until the loan is executed. Borrowers and investors concerned about future rate increases may wish to accumulate DBR’s as a hedge against future rate rises.
Insurance/Cover
DBR’s enable users to borrow at a fixed rate to purchase cover from projects like Nexus Mutual, making the cost of using leverage to purchase cover more predictable.
Collars
DBR’s enable users to limit downside losses on assets by borrowing at a fixed rate against the asset to purchase put options from projects like Hegic, making the cost of using leverage to collar a position more predictable.
Rate Arbitrage
DBR’s enable traders to implement new interest rate strategies that rely on fixed rate leverage to execute against arbitrage opportunities with rates on other lending protocols or even with traditional finance instruments like U.S. Treasury bonds, since both borrowing costs and bond yields are fixed.
DAO Treasury And Payroll Operations
DBR’s enable DAO’s to borrow against dormant Treasury assets without the uncertainty of variable rates, enabling the Treasury to fund operational expenses like payroll or liquidity mining. DAO expenses can be paid utilizing DBR’s to avoid negative price action on governance tokens, which themselves can be safely and predictably staked as collateral for DOLA loans.
DBR is available on Curve Finance in the. You can also input the DBR token address (listed above) into any DEX aggregator (Cow, 1inch, LlamaSwap, Matcha, etc). Ensure the slippage is within an acceptable range before executing the trade.
A new method for acquiring DBR is via Inverse’s . XY=K auctions operate as a virtual, xy = k constant function market maker auction. The XY=K Auction permissionlessly allows users to buy DBR using DOLA. In the auction, the price of DBR (per DOLA) continuously reduces every second, until a DBR purchase is made at which point the price increases. MEV bots will likely monitor the auction, executing arbitrage transactions between it and the as soon as it becomes profitable. A front end is available via inverse.finance/xykauction to make interaction with the auction easier.
Jack now deposits the DOLA in one of his favorite, earning more than the cost of the loan. If the yield from the liquidity pool declines below his DBR cost for the DOLA loan, Jack can repay the loan and sell the remaining DBR.
