Inspiration

Our team has roots all over the world. One of us from Nigeria, and one of us currently lives in Sri Lanka. We are a group that has first-hand seen the devastating effects of inflation and how irresponsible policy can have awful effects on peoples lives. Creating a shelter from inflation that can be accessed worldwide could change lives for billions of people. They work hard for the fruits of their labor, and they deserve to have that value preserved.

What is Bread protocol?

Bread protocol is a public, open-source, inflation-resistant coin, we call ISUSD. The VaultContract** is the reference implementation of the Bread protocol written in Solidity.

Problem we’re solving

Stable coins are great for creating a familiar unit of account on chain, but how does a typical person protect their hard-earned money from the erosion of inflation in an accessible way?

How we’ve addressed the problem

Our vision is of an inflation resistant coin that can be purchased by anyone, ISUSD. They would be able to buy the coin and then retain their purchasing power without any of the complications of maintaining an investment.

We target to preserve present day purchasing power by earning yield at a rate that matches Truflation (a decentralized inflation statistic). A minter deposits an asset, DAI for now, and mints our token, ISUSD. By adjusting collateral required per token minted, we ensure that the token, which represents their Dai collateral locked in a vault strategy, is earning enough yield to cover the loss of purchasing power typical of inflation (models showed this rate to be between a minimum of 150% and 400% collateral, about 95% of the time).

Uses for ISUSD ISUSD would have value and could be used for anything else that you might do with another ERC20. So from the perspective of a minter, you can earn the yield you might be seeking out for your cash position anyways, and then additionally get an inflation resistant token to use/lend/spend as you wish.

Forward Looking Vision

Build Refined Price Targeting The variable collateral vaults, along with an added liquidation process would create economic balance that would keep the token near the targeted price, i.e. the purchasing power at the day they minted it. To keep the price from falling too far, the vaults already adjust the minimum collateral required to keep the inflation resistant tokens in circulation. That keeps them overcollateralized, so there are plenty of funds to ensure our token can be paid out, plus the value lost to Truflation. That would be in the case of liquidation, where our models found the minter was only at risk to lose about 3-8% of their investment. The liquidation process is when a vault falls below the minimum collateral requirement. When this is the case, the vault would become open to liquidation and a liquidator could purchase or borrow the same amount of ISUSD that the vaulted assets are collateralizing and deposit them. The ISUSD would be purchased by the vault at market price and burned, also creating demand pressure for the token price. Afterward, all of the assets would be released as follows: a fee to the liquidator, the protocol's a fee, and then the remainder of Dai would go to the minter. The minter would keep their ISUSD, minimizing the loss, and avoiding sell pressure on ISUSD price. Our modeled simulations showed the minter losing only about 3-8% of their investment, and they have every opportunity to avoid liquidation by staying well collateralized; changes in trends in Truflation and yield are historically not that threatening on a month to month basis. Our models showed that maintaining 100% extra collateral monthly was enough to protect you, almost always. To protect against the prices going too high, the first defense would be the collateralization rate. However, Bread Protocol could also explore some kind of minting/buying/burning mechanism later. We aim for a light touch however, always prioritizing safety over a perfect peg. We would also aim to implement emergency procedures, like Dai, to shut down the protocol in catastrophic scenarios, serving to preserve the users' value locked as a greater priority than anything else whatsoever.

Incorporate Ideal Collateral The ideal vision for Bread Protocol and ISUSD is "bread = bread". Once commodities are brought on-chain, we would ideally use them as the collateral in the vaults. In theory, owning the underlying things we use to measure purchasing power would create a perfect inflation resistant coin. In addition to commodities, the community could add farmland, real estate, gold, equities, and other things as they are tokenized over time.

Bread Protocol Community The community would vote on collateralization rates, what underlying assets to have in order to most closely match the Truflation rate, serve as liquidators, mint tokens, create applications for ISUSD within DeFi and much more.

Built With

  • chainlink
  • erc-4626
  • ethereum
  • solidity
  • truflation
Share this project:

Updates