FAQ

Why does United DAO exist?

Many problems exist with the current billion-dollar DeFi industry. Crypto yield farmers actively seek double-digit interest rates but risk having their digital wealth being stolen by scammers who can do so under the cover of anonymity because of the nature of the decentralized space. Also, because of the relatively low liquidity in DeFi markets as compared to TradFi markets, the volatility that can be experienced in DeFi markets correspondingly is higher, leading to large price fluctuations which can disincentivize investors in a project.

Traditional DeFi projects seek to solve this problem through the process of incentivizing the market to provide liquidity to decentralized exchanges. Due to the current market environment with limited liquidity, projects have to incentivize liquidity providers to provide liquidity for their project over their others in the space, and to retain such liquidity in these liquidity pools.

The DeFi 2.0 solution was that of protocol owned liquidity, where DeFi projects would own their own liquidity instead of relying on external providers, and this resolved the need to compete with other projects to retain liquidity from external providers. This process occurs via the bonding mechanism, where the protocol sells its native token (e.g. UTD) in exchange for an established cryptocurrency (e.g. BTC/ETH/stablecoins) or a liquidity pool token (e.g. UTD/USDC pair). The buyer is incentivized to buy these tokens from the protocol as they are typically priced at a discount to the current market price. However, these bonds are usually vested over a period of time. All these inflows from bonding then flow into the DeFi project’s treasury, which will primarily serve the goal of backing tokens, so that these tokens have an intrinsic value and thus a level of support for the price of the token on the market.

Shortcomings of preceding DeFi 2.0 projects can stem from the underlying protocol tokens losing value due to poor treasury management or having non-doxxed founding members who may not have had the relevant experience to manage such large projects, nor the responsibility to protect the treasury due to the veil of anonymity in this space. This has led to prior advocates of anonymity in the blockchain world to switch their stance, and now demand for DAO project founders and committee members to be doxxed and held accountable for credibility, especially when large treasury values are at stake.

United DAO seeks to usher in the next generation of DeFi 3.0 via its core protocol, which is underpinned by three unique propositions - the Allies Program, Rewards & Utility Program, and Treasury management – along with strong enablers. With this, United DAO aims to overcome the shortcomings of its predecessors, and build a long-term, sustainable protocol.

United DAO was founded by an experienced, versatile team with wide-ranging experiences - spanning blockchain, economics, finance, and more. This provides a strong foundation for the protocol’s build, while maintaining an end vision of having a completely DAO-led protocol.

We also seek to overcome the large price volatility in the prices of the native tokens, by introducing innovative new tokenomics to our native token model, which would incentivize token holders to voluntarily pledge their tokens to our protocol, and a burning mechanism for our tokens in order to reduce the overall token supply.

During the current time of unprecedented uncertainty and volatility in both the DeFi and TradFi markets, we believe that the way forward is through the sustainable growth of a DeFi community where the stakeholders are held equally accountable. Over the long run, we envision that all stakeholders will benefit from this model of prudent on-chain governance and decentralized ownership. How does United DAO work? United DAO has in place several functions across its treasury, POL, bonds and staking mechanisms. Each mechanism plays an important part in controlling UTD’s supply and has their benefits in keeping the ecosystem balanced to maintain liquidity and allow for profit generation and distribution to stakers. Additionally, United DAO has introduced a Rewards & Utility program to provide further utility to token holders - it will be used in the protocol's very own reward shop to redeem rewards such as NFTs and more. What drives the UTD ecosystem? The UTD ecosystem is driven by the actions of its users. To be precise, the ecosystem will largely benefit the community of users when users partake in the bonding and/or staking mechanisms. This majority contribution towards either of these mechanisms will enable users to be rewarded in the form of price increments and APY growth rates. An active management strategy for the treasury funds is also the key driving force behind UTD. Initial management principles have been laid out to align with different growth phases of United DAO’s treasury. Onboarded and future advisors, and partners, will provide access and expertise for such strategies, in what will ultimately be determined and finalized by the DAO. What is POL and why is it important? POL is protocol owned liquidity, and it refers to the amount of liquidity provisions (LP) that the treasury reserves owns and controls. United DAO owns most of its liquidity thanks to its bond mechanism. 1) This allows United DAO to pay a lower cost (in discounted tokens) to retain and acquire liquidity. 2) This also allows United DAO to guarantee the market that there will always be liquidity to facilitate transactions in the market. 3) This allows United DAO to be the largest LP, which will in turn earn more LP fees becoming another source of income to the treasury. 4) All POL can be used to back UTD. The LP tokens are marked down to their risk-free value for this purpose. What is APY? The annual percentage yield (APY) is the real rate of return earned on an investment, taking into account the effect of compounding interest. In the case of United DAO, your staked UTD (or your staked principal/initial capital) gains compounded interest as the supply of tokens rebases. Are High APYs sustainable? If sufficient bonds are sold, then high APY rates are sustainable. Assuming a growth of 2% per day, assuming that 100,000 UTD tokens are staked, we would require 2,000 UTD tokens to be brought into the protocol arising from the sale of bonds. It is worth noting that APYs are in the form of compounded interest, and while the APY may fluctuate over time and stabilise in the longer run, stakers will continue to enjoy reward benefits! What causes the price of UTD to be volatile? In periods of high demand, the protocol can create higher staking rewards by selling more bonds.This can be achieved and more importantly, maintained when overall growth in demand is sustainable. In such cases the market is willing to pay a premium for UTD. This draws in more market participants, which in turn increases the demand for UTD and driving up the price. Can you still buy UTD when it is trading at a premium? Yes you can! When you buy and stake UTD, you capture a percentage of the market capitalization which will remain close to a constant. This is because your staked UTD balance will increase along with the circulating supply. What is rebase reward? Rebase is essentially an increase in the total supply of a token across including all holders and LPs. A large proportion of newly minted UTD goes to the stakers. Because stakers only see staked UTD balance instead of UTD, the protocol utilizes the rebase mechanism to increase the staked UTD balance so that 1 staked UTD is always redeemable for 1 UTD. Why does the price of UTD become irrelevant in the long term? Because of the effect of compound interest, your UTD balances grows exponentially. Even if the price of your UTD falls greatly, the growth from your total balances can outweigh the fall in prices, resulting in a profit. As such, having a long time horizon to allow your UTD balance to grow exponentially is always a good idea. What will be the intrinsic value of UTD in the future? The intrinsic value of UTD in the future can be determined by the treasury performances. Do I have to unstake and stake UTD on every epoch to get my rebase rewards? No. Rewards will be added/compounded to your staked UTD balance automatically. How does the protocol manage to maintain the high staking APY? A high APY can be maintained should the protocol be able to mint UTD daily to achieve daily growth. This is achievable if the protocol can bring in enough daily revenue from bond sales. Should bond sales decline, a high APY can still be maintained due excess reserves in the protocol’s treasury. How will a bank run impact United DAO? A bank run occurs when a large number of people withdraw their funds simultaneously causing a high probability of defaulting. This usually occurs when a large majority of stakers unwind their positions in panic. To protect the interest of remaining stakers, they will be rewarded a larger proportion of UTD for staking. This mechanism is set in place to ensure that remaining stakers are not only rewarded substantially for staying through, but also attract other stakers back when they become aware of such rewards being paid out to stakers. Such a mechanism in place is why more than 90% UTD has remained staked consistently.