Nothing in this article or any other should be considered as advice or a guarantee. Always consult with an expert and make responsible decisions.
Our economic stability is intrinsically tied to the latest addition to our economy — SOR. We at Luxor Money have devised a dominant strategy for preserving the value inherent in Luxor Money while also combating the existing trend for the Luxor Economy towards a vibrant and promising future.
We intend on resolving market inefficiencies plaguing rebase economies while adding value for Luxor as Money.
Furthermore, we hope projects consider how to better serve their community and invite you all to compose a similar (or different) means of unlocking the full-capacity of the innovative system of intricate policy levers available to development teams who have adapted a rebase model a la DeFi 2.0.
Why do we need a stable coin for Luxor anyway?
A stable (coin) is a token pegged to the value of another asset, usually (though not limited to) $1 USD. This commonly occurs via some form of value acting as a backing mechanism — this backing helps maintains a reliable peg.
What does “backing” mean? Backing means there is some underlying value stored in the token itself. This “backing” is designed to uphold the inherent value of the asset in question.
There are two ways stables are value-backed. One popular mechanism is (1) fiat-backing, which ensures for each stable there exists a USD in an account, such that each coin is, theoretically, backed 1-to-1 with a real-life US Dollar. Alternatively, (2) cryptocurrency may be used to back a virtual asset, which is the case with stables such as our new token — SOR.
The significant difference between the two designs (fiat- vs. crypto-backed) is that while fiat-backing occurs off-chain, crypto-backing is done on the blockchain, using smart contracts and thus in a more decentralized fashion.
How Does This Affect The Luxor Economy?
Ultimately, our goal is the maximize capital accumulation and optimize price appreciation towards long-term sustainability. As such, we will use SOR as the starting point for a significant protocol upgrade.
In this article, we review our upcoming upgrades fashioned in a clear-cut, problem-to-solution orientation.
Problems with the Rebase Economic Model
Rebase Market Performance: Time for Change
Rebase markets began with overwhelming hype fueled by masses acquiring a seemingly-endless desire for rebase rewards. However, it has become evident that a rebase model (as we currently have) is simply not going to cut it anymore. This is not unique to Luxor, as rebase tokens across the board have experienced similar, suboptimal market performance.
It has become evident that a rebase model is simply not going to cut it anymore — it’s time for change.
TLDR; it’s time for change…
There are a whole host of flaws that have become evident as data continue to stream in from dozens of rebase projects with similar performance outcomes. These outcomes are the direct result of inherent policy components shared by the vast majority of these rebase forks, most of which left unquestioned.
Problem 1: Overzealous Rebase Rewards (High APY Inflation)
Over time, it has become abundantly clear that high APY is ultimately unsustainable and is correlated with the rate at which a project runs itself into the ground. In the existing wave of rebase implementations, member shares are diluted in a manner that exceeds the incoming-capital gains, such that each share is not only smaller, relatively-speaking, but also a share of a progressively less-valuable pie as the income does not always correlate with the projected or otherwise-anticipated rewards value.
We are provided with calculators informing us of our eagerly-anticipated Lamborghini arrival date, but most of us have come to the stark realization that such an outcome is mathematically impossible given the market cap.
$1 Million (Market Cap) only buys so many Lamborghinis…
Problem 2: Unrealized Utility for Reserve Currencies (Low Utility)
The main issue with these rebase rewards is they are unsustainable as they fail to track the actual income created by the protocol itself. This sets up conditions wherein which further inflation leads to steeper losses.
Needless to say, the Rebase Market is over-saturated, competitive and is continuously-evolving. As such, we are implementing ways to make it readily-apparent that our reserve currency, Luxor, is an effective means of value-preservation. As such, we aim to increase the utility of Luxor and rolling out SOR will enable us to do just that (and more).
Our Game Plan: to Overcome These Problems
Let’s cut to the chase and outline our proposed solutions to overcome the combined shortcomings brought forth by (1) unsustainable reward emissions — detached from actual, income-generation on top of (2) inadequate utility.
Solution 1: Bye-Bye High-APY (Decreasing APY Inflation)
Given the deleterious effects of unsustainable rewards, we have implemented a new inflation method that ensures progressive-sustainability and optimized economic expansion that better tracks our realized income.
Emissions optimized after each epoch to track incoming revenue.
What does this mean? It means we will no longer give out rebase rewards that outperform the incoming demand for the Luxor Currency. This will ensure we are not rewarding Luxor without consideration for the value inherent in each newly-minted token. This will yield a feasible trajectory of realizable of gains by enabling a solid and sustainable backing for each token.
How will this be implemented? We are rolling out a new adjustment delta on the emissions rate (APY), such that after each new rebase period, rewards rate will optimize. In other words, this value will be progressively ensure alignment with income received by the protocol itself. This will be enacted by the first-ever implementation protocol management backed by the power of machine-learning algorithms.
The resultant parameters are provably reliable, open source (transparent), self-improving (optimizable), and rigorously-tested.
Solution 2: Adding Utility for Luxor Money (as a Reserve Currency)
There are many ways to add utility to a token, but the most evident manner to add value to a reserve currency is by enacting a policy requiring Luxor-As-Reserves. Unsurprisingly, this is precisely what SOR aims to achieve.
SOR enables LUX to act as a reserve as for each newly-minted SOR, 20% of the collateral is stored in LUX.
Where does this Luxor reserve come from? Whenever anyone converts DAI into SOR, 20% of the purchase value is used to interact with the SoulSwap Exchange to instantaneously swap DAI for LUX and subsequently store it in the SOR staking contract as a reserve currency.
Where is the Demand for SOR?
While SOR is designed to act as a conduit for Luxor utility, this is only able to come to fruition in a world where there exists demand for accumulating SOR as a stable in the first place. We anticipate the following conditions will create true demand for the creation and immediate consumption of SOR.
Demand Driver 1: SOR Requirement for Newly-Minted LUX
In the past, we accumulated DAI as the stable reserve-component for protocol-liquidity absorption. Moving forward, we will prioritize SOR as an effective replacement for the DAI token, which enables us to achieve a number of preferential outcomes, namely:
A. (Increases) Buy-Pressure for Luxor: since each newly-minted SOR requires a conversion of 20% of the purchase value to Luxor, requiring SOR instead of DAI ensures ongoing buy-pressure for Luxor for the very creation of the currency itself. This is truly phenomenal, though experimental, so please understand the risks associated with such an endeavor as these is reliant upon the performance and reliability of SOR as an effective USD-pegged stable.
B. (Creates) Real Utility for Luxor (as a Reserve): the Luxor backing requirement will create the opportunity for Luxor to prove its value as a reserve currency. This is due to the nature of SOR-backing being intrinsically tied to the performance of Luxor as each SOR is composed of LUX (20%).
Demand Driver 2: SOR Staking Rewards
Those are interested in leveraging SOR for gains paid out in DAI may opt to hold onto their SOR and store it in a staking contract, which pays out DAI.
Where do the DAI rewards come from? DAI rewards stem from fees accumulated by those exiting SOR. In other words, from those who convert SOR for DAI. How’s this so? This occurs as a consequence of the conversion fee set by the protocol of 5% when a user reverts back to DAI.
The reversion fee (5%) will be redirected towards stakers. Incentivizing users to hold onto SOR instead of claiming for the underlying DAI (backing) of each token.
Please follow updates closely on our Twitter: @LuxorMoney
Stay-tuned for announcements throughout the months of April and May 2022 as they relate to protocol upgrades surrounding the enactment and integration of SOR into the Luxor Economy.
Stay tuned for guidance regarding the following protocol upgrades:
- Treasury Ownership Conversion of DAI → SOR Reserves
- SOR Staking Contract for DAI Rewards
- Transition from DAI → SOR Treasury Accumulation (2.0 Bonds)
Note: expect performance impacts during this phase. These updates are required for a secure transition from our existing setup towards a new set of contracts for rewarding Luxor moving forward. This includes the immediate cessation of bonds toward the latest variants consistent with our upgrades.