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DIGG
An elastic supply token pegged to the price of Bitcoin and governed by the Badger DAO.
What is DIGG?
DIGG is the first decentralized elastic-supply cryptocurrency that is pegged to the price of Bitcoin and it is governed by the Badger DAO. The main goal of this product is to remove the need for centralized parties to take custody of your BTC in order to be able to use it within DeFi protocols. DIGG relies on elastic parameters built into its smart contracts in order to maintain a peg to BTC.
But what is exactly an elastic-supply token?
An elastic-supply token is one where total supply is not fixed, but instead automatically adjusts on a periodic basis. These token supply adjustments, called 'rebases' expand and contract the total supply, increasing and decreasing everyone's balance with it and take place depending on the price of DIGG against BTC, if the price is below the 1:1 peg with Bitcoin it will have a negative rebase, contracting the supply, and if its above will have a positive rebase, expanding the supply.
What this means to a normal holder is that in comparison to other cryptocurrencies, where you know that if you buy 1 BTC, as long as you don't sell it or lose it you will have 1 BTC, on DIGG if you buy 1 unit of it it won't always be 1 DIGG, as it can change depending on these rebases, you may see your balance increase if the supply expands and see it reduce if supply contracts.
It is important to note the proportion of ownership does not change.
Example:Mr Badger buys 60 DIGG when the supply is 6000. He would be effectively buying 1% of the supply.A few positive rebases occur and supply expands to 10000.Following this, he will now have 100 DIGG i.e. still owning 1% of the entire supply!
Rebases affect all DIGG, this includes unclaimed, deposited and even the DIGG that is pooled in automatic market makers pools like Uniswap or Sushiswap.
Rebases
The rebase is a function of the contract that can be called everyday by anyone, when it does the mechanism automatically adjust the supply based on the last 24 hours time-weighted average price of DIGG against Bitcoin. If the price is above 1.05, supply is increased. If the price is below 0.95, supply is contracted. If the price is between 0.95 and 1.05, supply stays the same, this is called a "neutral" rebase. The amount that the supply can increase/decrease is limited to a buffer of 10%, what this means is that if the price of DIGG is at 0.50 against Bitcoin the rebase won't contract 50% Rather it will only do a 1/10 = 5%, same if the price is trading at 1.50 against Bitcoin, the rebase will only expand the supply a 5%.
To calculate change in supply we need to determine how far current price is from peg by using the following formula:
1
Deviation from peg = (Current Price - Target Price) / Target Price
2
Rebase Amount = Current Supply * (Deviation From Peg/Rebase Multiplier)
3
New Supply = Current supply + Rebase Amount
Copied!
Rebases exist to bring the price closer to the peg of 1:1 with Bitcoin, contracting its supply to increase the price and expanding it to reduce it, but it ends up being on hands of market forces to bring the peg closer to it's target, for this reason we know that DIGG won't track Bitcoin price perfectly minute by minute but instead it can stay above/below peg for extended periods of time.
Rebase function can be called daily after 20:00 UTC.\
bDIGG
bDIGG is an interest-bearing token that you get by depositing your DIGG on the DIGG single asset sett on Badger. This token is a representation of the DIGG deposited on the sett and doesn't rebase, this allow it to be used on different DeFi platforms without the issues that natively come with rebase tokens compatibility with other platforms, like Bancor Protocol.
But how does exactly bDIGG account for DIGG rebases and interest? It changes the ratio that bDIGG = DIGG can be traded for by depositing and withdrawing on app.badger.finance, (it is not 1:1) as interest are accrued the ratio goes up and rebases can make the ratio go down and up. Effectively when you withdraw you will get your initial deposit +- rebases + interest.
For example, in one single day you can have a you a negative rebase of -3% but bDIGG/DIGG only go down -2% due to interests offsetting the rebase.