No, MAGIC is not a stable coin. Rather, MAGIC is a decentralised algorithmic reserve currency backed by additional decentralised assets. Similar to the gold standard, MAGIC offers escalating value that its users can always rely on, owing to the fractional treasury reserves from which MAGIC derives its intrinsic value.
MAGIC is comprised of a protocol-managed treasury, protocol-owned liquidity, bond mechanism, and high staking rewards that are designed to control supply expansion.
Bonding provides revenue for the protocol, which is used by the treasury to mint and distribute MAGIC to stakers. The protocol is able to accrue liquidity using LP bonds in order to maintain system stability.
(3,3) is a game theory-inspired notion that 'If everyone in Fantom DAO works together, everyone will profit the most.'
Three actions a user can take:
- Staking = +2
- Bonding = +1
- Selling = -2
Given 2 actors in all scenarios, the total scores of the protocols are:
- both actors bond & stake = (3, 3) = 6
- one bond & one stake = (3, 1) = 4
- if one sells = (1, -1) = 0
- if both sell = (-3, -3) = -6
Rebase is a mechanism by which your staked MAGIC balance increases automatically. When new MAGIC tokens are created by the protocol, the majority portion of it goes to the stakers. Because stakers only see staked DREAM (staked MAGIC) balance instead of MAGIC, the protocol utilizes the rebase mechanism to increase the staked DREAM balance so that 1 staked DREAM is always redeemable for 1 MAGIC.
The reward yield indicates the percentage of increases in your DREAM (staked MAGIC) balance on the next epoch. It is sometimes referred to as the rebase rate. This number will be found on the Fantom DAO staking page at all times.
APY stands for annual percentage yield. It measures the real rate of return on your principal by taking into account the effect of compounding interest. In the case of Fantom DAO, your DREAM represents your principal, and the compound interest is added periodically on every epoch (around 8 hours) thanks to the rebase mechanism.
One interesting fact about APY is that your balance will grow not linearly but exponentially over time! Assuming a daily compound interest of 2%, if you start with a balance of 1 MAGIC on day 1, after a year, your balance will grow to about 1377. That is a lot!
The APY is calculated from the reward yield (a.k.a rebase rate) using the following equation:
It increases to the power of 1095 due to the fact that a rebase occurs 3 times daily. A year has 365 days; this results in a rebase frequency of 365 * 3 = 1095.
Reward yield is determined by the following equation:
The number of MAGIC delivered to the staking contract is derived using the following calculation from the entire supply of MAGIC:
Note that the reward rate is subject to change by the protocol.
As illustrated above, your MAGIC balance will grow exponentially over time thanks to the power of compounding. Let's say you buy a MAGIC for $400 now and the market decides that in 1 year time, the intrinsic value of MAGIC will be $2. Assuming a daily compound interest rate of 2%, your balance would grow to about 1377 MAGIC by the end of the year, which is worth around $2754. That is a cool $2354 profit! By now, you should understand that you are paying a premium for MAGIC now in exchange for a long-term benefit. Thus, you should have a long time horizon to allow your MAGIC balance to grow exponentially and make this a worthwhile investment.
Let’s say the protocol targets an APY of 100,000%. This would translate to a rebase rate of about 0.6328%, or a daily growth of about 2% (The APY is high due to compounding interest). Please refer to the equation above to learn how APY is calculated from the rebase rate.
If 10,000 MAGIC tokens are staked, 200 MAGIC tokens need to be minted daily in order to achieve the APY (Roughly 2% growth a day). The APY is easily achievable If there are at least 200 MAGIC tokens brought into the protocol from bond sales.
No. Once you've staked MAGIC with Fantom DAO, your DREAM (staked MAGIC) balance will compound automatically at the end of each epoch. Your rebase benefits are represented by this rise in balance.