The Thriftcoin takeoff
In November 2019, a new Dai wrapper was added to the DeFi ecosystem that used a different set of incentives to traditional credit market wrappers. WeiDai is the first Dai token to use burn incentives to grow in value and the results are in:
38% growth is not bad for a period of less than 8 months! What's more, the roll-out of dapps such as the Behodler DEX which burns WeiDai on every trade means that burning and growth is only going to pick up speed!
So why does WeiDai grow?
WeiDai isn't the first token to allow burning but it's the combination of an algorithmically set redeem rate and burning that unleashes the magic. The redeem rate is just the Dai held in reserve divided by the total supply of WeiDai. So if there are 100 Dai in reserve and 2000 WeiDai in circulation then the redeem rate is (100/2000=) 0.05. Now suppose someone trades 1000 WeiDai for Eth on Behodler. 2.4% of that is first burnt and the remaining 97.6% is traded for Eth. 2.4% of 1000 is 24 WeiDai. This means the total supply has fallen to 1976 which means the redeem rate has risen to (100/1976=)0.050607287. That's growth of 1.21% from just one trade. That's it!
Uniswap <=> Unlimited Burning
When WeiDai is added to Uniswap, the power of burning will begin to reveal itself. The secret sauce lies in two concepts: arbitrage and redeem fees. Since WeiDai has a known redeem rate, traders on Uniswap can always make sure that WeiDai is maintaining its correct price. This will imply regular minting and redeeming of WeiDai on the dapp. Every redeem burns 2% of the WeiDai. Alternatively, Uniswap traders will arbitrage trade the price difference between Uniswap and Behodler. Every time WeiDai is sold on Behodler, 2.4% is burnt. So either way, price drift will imply constant burning.
Early Liquidity Provider Bonus
In addition to trading, you can participate in Uniswap by adding two tokens in proportion of their relative price. For instance, if the price of Eth is 200 Dai then you're encouraged to add something like 20 Dai and 0.1 Eth. You're then issued liquidity tokens which are shares of liquidity in the exchange. Your liquidity tokens can then be redeemed for reserve tokens (Eth and Dai) in proportion of their current price. On every trade, a small fee on trading increases liquidity in the exchange. So over time the value that liquidity tokens are able to redeem increases. This is especially so for early liquidity providers (be aware of possible impermanent loss).
WeiDai is not guaranteed to grow and this article does not constitute investment advice. Please do your due diligence before acquiring any cryptocurrency.