Introducing The XY=K DBR Auction: A Game-Changer For DeFi


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Cover Image for  Introducing The XY=K DBR Auction: A Game-Changer For DeFi

The world of decentralized finance (DeFi) is constantly evolving, and Inverse Finance DAO is at the forefront of this innovation. We're thrilled to announce the launch of our latest initiative: the virtual XY=K DBR Auction. This groundbreaking mechanism is not just a solution to reduce DOLA bad debt; it's a significant leap forward in enhancing DBR liquidity in the market.

The Inspiration: Uniswap’s x*y=k Formula

The virtual XY=K DBR Auction is inspired by the renowned constant product bonding curve formula from Uniswap, known as x*y=k. This principle is fundamental in DeFi, ensuring liquidity and fair pricing in an automated market maker (AMM) setting. By adopting this formula, we aim to bring the same level of efficiency and innovation to the auctioning of DBR using DOLA.

A Dual-Purpose Mechanism

This auction isn't just about trading and liquidity; it's a strategic approach to tackle the DOLA bad debt issue. As of now, the DAO’s bad debt stands at a significant amount, but through this auction, we're turning this challenge into an opportunity. By facilitating the purchase of DBR using DOLA, we directly contribute to reducing the outstanding bad debt, aligning with our top priority of de-risking DOLA and strengthening the DAO’s operations.

How Does the XY=K DBR Auction Work?

The auction operates on a simple yet effective principle: the price of DBR (per DOLA) decreases continuously with time, encouraging buyers. Once a purchase occurs, the price resets higher. This dynamic pricing model is expected to attract MEV bots, creating a healthy ecosystem of arbitrage transactions between our auction and the TriDBR pool on Curve.

To further enhance the auction's functionality, we have integrated the `sendToSaleHandler()` function. This function allows the movement of accumulated DOLA proceeds to a dedicated contract, primarily to repay the DOLA borrow balances or for future deployments as governed by the DAO.

Governance and Community at the Core

True to the spirit of decentralized governance, the DAO will set a yearly maximum for DBR, managed by the Fed Chair multisig. The community's involvement doesn't end here; continuous monitoring and adjustments, informed by auction performance and market conditions, will be integral to our approach. Your feedback is invaluable in refining these parameters.

Looking Ahead: A Bright Future for DBR Liquidity

With the XY=K DBR Auction, we're not just addressing the immediate challenges; we're paving the way for a more robust and liquid DBR market. This improved liquidity is crucial for borrowers, especially those looking to secure larger positions or longer-duration loans.

We're excited about the potential of the XY=K DBR Auctions and the positive impact they will have on the Inverse Finance ecosystem. Stay tuned for more updates, and don't hesitate to reach out with your thoughts and suggestions.

Check out the live auction here: https://www.inverse.finance/dbr/auction

For a deeper dive into the auction mechanics and our data-driven strategies, check out our detailed proposal and the accompanying Jupyter Notebook for comprehensive visualizations that helped inform the proposed launch parameters! Note: the on-chain DAO proposal set a record for the most FOR votes of any proposal in the DAO’s history, with over 117,000 INV voting power voting in support (~$4.1m).

Together, let's redefine what's possible in DeFi.

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