Just released a $20 million synthetic BTC token on the market: will it really work?
After weeks of waiting and preparatory moves, BadgerDAO’s synthetic Bitcoin, DIGG, is finally available: qualified addresses on the Ethereum mainnet can pick it up.
The release is sure to be greeted with joy by a very enthusiastic community, which has been clogging Twitter with the phrase „wen DIGG“ for weeks. Despite all the memes and excitement, however, there are some serious technical issues behind both the distribution and maintenance of the latest Bitcoin Bank asset on Ethereum.
Regardless, now that DIGG has been launched, market forces will determine its long-term success.
A fair launch
According to Jon Tompkins, core contributor and distribution architect at BadgerDAO, the amount of DIGG allocated to each account was determined using a formula centred on the actual activity of an Ethereum address in the BadgerDAO application. Factors such as the total number of Badger tokens earned, the ratio of Badgers earned to Badgers being staked, and the total number of staking days were taken into account.
In order to prevent an over-allocation to whales, however, the DAO approved the application of a root of 1.75 to even out the distribution between addresses. In other words, as Tompkins himself explained in the original DIGG distribution proposal, with a linear distribution the first 100 addresses would be entitled to receive over 70% of the DIGGs; with this system, they will only be able to claim 33%.
Tompkins revealed that, of the 600 DIGG tokens currently available, the top address will receive 8.75 DIGGs; on average, the 8517 eligible addresses will get 0.07 tokens.
The goal of this distribution, says Tompkins, is to allow the project to „reward small users who are strong Badger supporters but not completely disadvantage whales“.
Maintaining a peg
Now that the token has been launched, the rebase begins.
Algorithmic stablecoins have been a hotly debated topic in the DeFi environment in recent months as one of the most popular trading vehicles. The assets, which are primarily intended to track the price of the US dollar, have „rebasing“ features that dynamically expand or contract the total supply of the asset based on predefined parameters, such as price or time.
So far, however, they have proven to be much more effective at enriching users who know how to exploit rebase parameters than at creating truly stable assets.
DIGG will probably be the first synthetic Bitcoin to feature a rebase, and certainly the first to present this method of distribution. As of now, users will be able to stack their DIGGs in an interest-bearing vault, use it to provide liquidity to DIGG/WBTC pairs on Sushiswap and Uniswap, hold core assets in anticipation of a positive rebase, or sell tokens on the open market.
While there has been no shortage of speculation as to how DIGG will perform and what the best strategies might be, it is ultimately unclear to what extent the asset will be able to stick to its peg, given the volatility of BTC and DIGG’s unique launch methods.