Target Rate Feedback Mechanism

There was an overwhelming response to the previous article and many were curious to know how dotBTC maintains its peg to ATH(All Time High) of BTC. We’ll clear all your doubts in this article and explain TRFM(Target Rate Feedback Mechanism).


Reference Asset

Market Price (MP)

Target Price (TP)

Target Rate (TR)

Target Rate Feedback Mechanism (TRFM)

Implications of the TRFM

Another important feature of the TRFM is that it can be negative as well as positive. This means that it can deal equally well with dotBTC prices that are above and below the target price. This contrasts with the present situation in which the DSR is at 0% and cannot be lowered further, despite dotBTC remaining above peg. In fact, if dotBTC had a TRFM, having the DSR as well would be of questionable value (and very confusing for users). Further, stability fees could remain at non-zero values regardless of the sign of the target rate, ensuring that the system can still earn risk-premium income while the market overall is driven to resolve the discrepancy between the target and market prices.

TRFM Incentives

Market Price < Target Price

Vault user viewpoint

dotBTC holder viewpoint

Market Price > Target Price

Vault user viewpoint

dotBTC holder viewpoint

Implementing the TRFM

At a minimum, three new components would be required to fully implement an automated TRFM in the present dotBTC Credit System:

  • a dotBTCUSD price oracle
  • a target price calculator
  • a target rate controller

The dotBTC price oracle could be spun up using the existing oracle infrastructure; the target price calculator (which takes the target rate as an input) would be a trivial contract similar to the Pot or Jug (in fact, simpler than either of them). The target rate controller is more involved, as it must specify an algorithm for calculating the target rate.

The options for implementing the algorithm that controls the target rate are quite nearly limitless. However, a PID controller is a simple and widely-used process control algorithm that has been explored previously and could be implemented fairly easily on-chain.

Alternatively, governance could set the target rate or even the target price directly, reducing the need for smart contract implementations.In abmprotol there is function called “bull()” which changes the par(target price) if the current price of dotBTC is less than BTC.




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