How DeFiChain’s Future Swap Feature Brings Down The dToken Premium

DeFiChain -

Since the launch of dTokens in the last quarter of 2021, dTokens have become everyone's darling with rewards north of 100% APR. These dTokens can be minted directly on the DeFiChain blockchain by utilizing the loan and vault features or by buying them directly on the DeFiChain DEX on the mobile app.

Due to the underlying architecture of these dTokens and the way investors used them so far, most dToken prices showed a consistent spread between oracle price and the price they have been trading for on the DEX.

With DeFiChain’s new DFIP, the leading #nativeDeFi blockchain will be introducing a future swap feature. This feature will introduce a new economic mechanics that introduce more utility to the revolutionary dToken. Economically, it is predicted that dToken price will trend closer to the oracle price despite it being not a peg nor cap.

Unlike traditional futures contracts where the price is predetermined, this feature on DeFiChain determines the settlement price (i.e. the oracle price) on the block height where the futures contract is to be executed (roughly every 7 days), hence the term Future Swap.

Future swap users will stand to gain if the dToken prices continue to deviate beyond 5% by the settlement block (i.e. extreme premium/discount). If the expected premium/discount is <5%, users will be better off swapping instantly.

With this feature, users will be able to:

  • Buy dtoken with DUSD at oracle price of dToken + 5%
  • Sell dToken and get DUSD at oracle price of dToken - 5%

Most importantly, regardless of the direction (dToken -> DUSD or DUSD -> dToken), the future swap should always result in a lower dToken price on the DEX.

How future swap is meant to close the premium/discount gap on the DEX

We distinguish between two cases:

In the event of dToken premium > 5%:

  • Those holding on to dToken will want to swap it instantly to DUSD to gain more (rather than wait for the premium to go back to only 5% at the future settlement block) — this selling action will push the price down.
  • Those holding on to DUSD will prefer to enter into a future swap instead as they only have to pay a 5% premium rather than the current price. This scenario only plays out if they assume that the premium is staying at ≥5% by the settlement block.

In the event of a dToken discount >5%:

  • Those holding on to dToken will prefer to enter into a future swap instead so that their damage is capped to 5% (that said, they still lose out because they are getting 5% less than what they paid). This scenario only plays out if they assume that the discount is staying at ≥5% by the settlement block.
  • Those holding onto DUSD will capitalize on the discount and swap immediately to the dToken (rather than wait for the discount to reduce to only 5%) — this buying pressure will drive the dToken price up, hence reducing the discount.