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DawnStar Finance is Polygon’s first algorithmic stablecoin, supported by real yields and tied to the price of 1 MMF through seigniorage. The DSF token is built to function as a medium of exchange. Its protocol includes an in-built stability process intended to help keep DawnStar aligned with the 1 MMF peg over the long term.
How the Algorithmic Peg works?
When DSF is below Peg. If DSF trades below the MMF Current Market Price (Peg), token holders can buy MOON and DSF will be burnt to shrink circulating supply when users redeem DSF tokens on a 1:1 basis.When DSF is above Peg. If DSF trades above the MMF Current Market Price (Peg), the circulating supply needs to grow to bring the price back down toward the Peg, and the contract enables redemption of the SOLAR.If DSF continues trading above the MMF Current Market Price (Peg) after bond redemption, the contract creates a suitable amount of new DSF and distributes it to SOLAR stakers.
Remember that DSF uses an algorithm to actively peg its price; that doesn’t guarantee it will always trade exactly at 1 MMF, since it isn’t collaterized. DSF should not be mistaken for a crypto- or fiat-backed stablecoin.
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