True Seigniorage Dollar — or tsd — is a cryptocurrency whose value is designed to track the US Dollar. Unlike stablecoins that are backed by physical dollars or collateral, such as USDC and DAI, the value of tsd is designed to be maintained through market forces.
Here’s how it works, in a nutshell:
Contraction — When the market price of tsd is less than $1, the protocol stops minting new tsd, and begins offering “coupons” (debt) for sale at a premium, meaning you can buy a 1 tsd “IOU” for something less than 1 tsd. You pay for coupons by “burning” tsd. The burning of tsd reduces the total supply, which should drive the price higher.
Expansion — When the market price of tsd is greater than $1, the protocol mints new tsd coins. This increase in supply should drive the price lower. The newly minted coins are used first to buy back any debt (coupons), and then are awarded to people who lock up tsd in the “DAO”, and people who provide trading liquidity on Uniswap.
These two see-saw mechanisms are designed to work in tandem to keep the price of tsd oscillating around one US Dollar.
Bonding — Earning rewards in the tsd app requires staking or locking-up tokens. In tsd, staking is referred to as “bonding”.
Epochs — In order to attenuate changes in liquidity in the DAO and on Uniswap, the tsd protocol includes built-in withdrawal delays, which are calculated in units of “epochs”. One epoch is eight hours.
TWAP — In order to dampen volatility, changes in expansion and contraction are not triggered by the current market price of tsd, but rather the “TWAP”, or time-weighted average price.
At the time of this writing, tsd is getting a lot of press because of the high APRs paid to DAO stakers, liquidity providers, and coupon purchasers.