Empty Set Dollar (ESD)

 Basics

• Announced on:
• Mainnet release: 8-2020
• An elastic supply stable coin.

History

• From Dose of DeFi (17-11-2020):

"Empty Set was launched by an anonymous team at the end of August and builds on the elastic supply model pioneered by Ampleforth."

• From Yield Farmer (12-12-2020):

"Empty Set Dollar is one of the most interesting arrivals in a new wave of projects inspired by Basis, a once-promising algorithmic stablecoin project that closed up shop in 2018.

In this sense, you can understand Empty Set Dollar as like a revival of Basis that’s been updated for DeFi. Instead of relying on over-collateralization like Dai or supply changes that directly affect user balances like Ampleforth, Empty Set Dollar uses voluntary and incentivized rebases."

Token

Token allocation

• From the website (26-1-2021):

"The protocol launched with 0 initial supply and no pre-mine for the anonymous founding team."

Utility

• From Yield Farmer (12-12-2020):

"Empty Set Dollar is ESD, the project’s stablecoin and governance token."

Technology

• Whitepaper can be found here (24-8-2020).
• Code can be viewed here.
• Built on: Ethereum, ERC-20

How it works

• From DeFi Weekly (2-11-2020):

"The key insight around Empty Set Dollar is the fact that stable coin pegs are ultimately determined by market demand and supply forces and that creating incentive mechanisms around this is key.

1. When a stable coin is trading at a premium, the underlying message that Mr. Market is saying “there’s not enough of this thing, can you please give me more”
2. When a stable coin is trading at a discount, the underlying message that Mr. Market is saying is “there’s too much of this thing, you can take it at a discount”

Ampleforth and BASED offer a solution to this by increasing everyone’s global balance during a rebase to give an answer to Mr Market. However the problem with this approach is that it literally breaks everything you integrate it to and isn’t a very candidate at being composable with the rest of DeFi due to it’s irregular behaviour.

Empty Set Dollar takes the insight of a rebase in a cleaner way by creating “voluntary rebases”.

1. When ESD is trading at a premium, those who have “locked” up their tokens receive more ESD when a rebase happens and more ESD is printed. Easy enough to solve. This is what causes sell pressure when the peg trades at a premium.
2. When ESD is trading at a discount, anyone who purchases ESD on the open market can then lock their ESD to earn coupons. Coupons give a share of the the newly minted ESD during a positive rebase. This is what causes buy pressure when the peg trades at a discount.

There’s some more intricate, finer details such as the fact that “locked” tokens are tokens that are “bonded” or providing liquidity and that earned coupons expire after a certain number of epochs."

• From Dose of DeFi (17-11-2020):

"[It] builds on the elastic supply model pioneered by Ampleforth, but aims to make rebases less disruptive by abstracting them away. If ESD is trading above $1.00, instead of a positive rebase for the whole supply, it mints new ESD and directs it ESD staked in the DAO, and if ESD is trading below $1.00, instead of a negative rebase, it issues coupons “redeemable for a premium quantity of future ESD” to those that burn ESD."

• From Yield Farmer (12-12-2020):

"At the heart of Empty Set Dollar is ESD, the project’s stablecoin and governance token.

To make the ESD system go-’round, users bond these tokens to the project’s DAO to participate not only in governance but also in Empty Set Dollar’s rebasing mechanics. ESD is minted during expansionary supply periods and, if not spent on protocol debt, is awarded to bonded ESD holders. ESD can also be burnt in contracting supply periods in exchange for special coupons redeemable 1:1 for ESD plus bonus ESD during supply expansions." 

Liquidity Mining

• From Yield Farmer (12-12-2020):

"Right now, the Empty Set Dollar team is running a flexible protocol rewards program that shifts in accordance with the project’s ongoing supply circumstances.

To start, there’s the incentivized ESD-USDC pool on Uniswap. Liquidity providers (LPs) to this pool, always receive a 20% cut of Empty Set Dollar’s expansionary rewards, regardless of the protocol’s supply situation. (Note: if ESD is below its peg LPs only earn trading fees). 

Where things shift is who receives the remaining 80% of the expansionary rewards and when. Remember the special coupons I mentioned earlier? [see under How does it work?] Holders of these coupons receive the 80% allocation of expansionary rewards so long as there are outstanding coupons. Conversely, when there are no outstanding coupons, the 80% rewards allocation goes to bonded ESD holders." 

Oracle Method being used

• From Our Network (15-1-2021):

"The experimental project uses a single-token seigniorage shares model, aiming to peg to $1 according to the ESD:USDC Uniswap pool’s 8-hour TWAP oracle. When TWAP is above $1, the protocol expands supply by issuing newly minted ESD to DAO bonders and LP’s in a 77.5:20 ratio, with the goal of incentivizing sales of circulating supply in order to return the price to the peg."

Governance

DAO

• From their FAQ (26-1-2021):

"Since launch Empty Set Dollar has had on-chain governance. This means that any changes or upgrades to the protocol need to be voted on by the community of token holders before they are enacted."

Treasury

• From Our Network (15-1-2021):

"Recent progressions within the DAO include the introduction of a treasury that accrues 2.5% of supply expansion, which has grown to ~10.8M ESD to date."

• People can vote (26-1-2021) on or propose via an off-chain governance platform.

Roadmap

• Can be found [Insert link here].
• From DeFi Weekly (28-1-2021):

"They’re currently working on ESD v2 with the core difference being that the protocol itself will store some sort of reserve which can be used to buy ESD on the open market to drive the price back up to $1 if the price goes below. This reserve of USDC will be built by the ESD money printer selling ESD for USDC when above the peg."

Audits

• Bug bounty program can be found [insert here].
• Had an audit by Certik (6-11-2020).

Usage

• Supply has reached ~508.5M since inception.

Competition

• Their docs (26-1-2021) claims that the "protocol sidesteps the centralisation risks of USDC, USDT, & TUSD, attempts to avoid AMPL & BASED’s "death spirals", the over-collateralisation requirements of sUSD & DAI".
• Has a fork called DSD (28-1-2021).

Pros and Cons

Cons

• From Our Network (15-1-2021):

"Critiques of the current coupon system include the mispricing of option premium, the advantage to bots due to FCFS redemption, and the ‘waiting game’ that ensues where participants are inclined to wait until expansion looks exceedingly likely. Up to 69 ETH has been paid as transaction fee by bots aiming to call advance() first during redemption. 3rd party primitives have also emerged, namely Coupon Clipper and CPOOL, where coupon owners can place bribe orders to bots on-chain for priority redemption, or pool their coupons into a liquid basket of distressed options."

• From DeFi Weekly (28-1-2021):

"Well it was doing pretty well up until the last expansion phase where ESD was offering 1000%+ returns to investors and attracted a lot of attention. As a result the market cap grew from $300m to $550m over the course of a few days. Such growth was obviously unsustainable and as a result ESD has been in downwards death spiral reaching as low as $0.30."

Team, Funding, Partnerships, etc.

Team

• Full team can be found [here].
• The original founding team is anonymous (26-1-2021).