DeFi Revelations - Ducata

In this episode of DeFi Revelations which took place on July 11, 2024, Kirk from Revelo Intel hosted Patrick Huisinga from Ducata to discuss Ducata’s unique financial framework, solving the stablecoin trilemma, and more! Read our notes below to learn more.

Background

Kirk (Host) – Head of Business Development at Revelo Intel

Patrick Huisinga (Guest) – Founder and CEO of Ducata

Ducata – a decentralized financial framework based on a Reflexivity Protocol that produces programmatic money $DUCA

Innovating Stablecoins: Ducata’s Approach to Programmable Money and Stability

Patrick shares his broad background in entrepreneurship, project management, real estate, web development, publishing, and business-to-business applications, emphasizing his passion for innovation and creating new things. He recounts his experience with early retirement, which left him bored and led him to explore crypto, seeing it as a significant opportunity similar to the early internet days.
Patrick explains that Ducata was inspired by the need for stable value in crypto trading, which he recognized early on. He describes the inception of Ducata, driven by the desire to create high-quality, sound money with significant social impact. This journey started six years ago and they are now close to launch.
Kirk asks about the stablecoin trilemma—peg stability, capital efficiency, and decentralization—and how Ducata addresses these challenges.
Patrick explains that Ducata does not peg its value to the US dollar to avoid inheriting its weaknesses, such as inflation and value depreciation. Instead, Ducata uses a new algorithmic float, referencing the Special Drawing Rights (XDR) and indexed with CPI data, creating a value that maintains purchasing power. This method provides a stronger reference value than a simple peg.
Patrick elaborates on using endogenous collateral differently than exogenous collateral, learning from the Terra Luna $UST debacle. He highlights that endogenous collateral can’t substantiate stable value in the same way. Ducata manages capital flow in the protocol, similar to how central banks manage currency value through capital demand. This means Ducata’s value is maintained through capital management rather than traditional collateralization.
Patrick highlights that Ducata’s asset is not a collateralized stablecoin but maintains stable value through capital management, making it money that can deviate from its target value without collapsing. This approach allows Ducata to offer a more resilient and stable form of money.
Patrick clarifies that Ducata uses $USDC within liquidity pools for liquidity purposes, not as backing for the value, highlighting this important distinction. This ensures smooth entry and exit from the protocol while maintaining the integrity of Ducata’s unique value management system.

Bootstrapping Ducata: Minting Process, Liquidity Strategies, and Creating Demand for $DUCA

Kirk asks Patrick about the minting process and how Ducata plans to bootstrap the initial growth of the coin supply.
Patrick explains the process, detailing three components: the core protocol, liquidity pools, and the automated market operator. Users interact with the liquidity pools like a normal decentralized exchange. When a user swaps $USDC for $DUCA, the automated market operator balances the liquidity pools by minting or burning $DUCA as needed.
Kirk asks about the strategies for incentivizing liquidity in the pools and ensuring deep enough liquidity for proper functioning.
Patrick outlines Ducata’s unique approach: users cannot provide liquidity directly. All pool tokens are owned by the protocol, ensuring that liquidity remains stable and sustainable. The protocol builds liquidity over time as traction increases. This approach eliminates dependency on market participants who might withdraw liquidity at critical times.
Patrick adds that all transaction fees and yields generated within the pools go to the protocol, supporting a self-sustaining business model. This revenue can fund community support, grants, and other initiatives.
Kirk asks about creating utility for $DUCA, considering the protocol owns all liquidity and operates autonomously. He asks about plans to generate demand and partnerships for using $DUCA in various financial activities.
Patrick highlights the importance of yield in driving demand. $DUCA is yield-generating by design, providing returns without any additional actions from the holder. This sustainable yield model differentiates $DUCA and is expected to attract interest. Post-launch, Ducata will focus on building partnerships and integrations for borrowing, lending, and other uses of $DUCA.
Patrick reveals plans for an airdrop to boost initial yield, potentially offering returns between 500% to 2000%. This incentive aims to attract users and build traction. Over time, as more users join, the yield will adjust to sustainable levels.
Patrick says that the concept may be challenging to grasp initially. To build trust, Ducata will provide detailed dashboards and data, allowing users to see and understand how the protocol operates and generates yield. This transparency is crucial for gaining user confidence and driving adoption.

Ducata’s Liquidity Strategy and Path to Decentralization: Insights from Patrick

Kirk asks Patrick about the airdrop and how it will provide liquidity if users can’t directly add liquidity to the pools.
Patrick explains that while users can’t provide liquidity, the protocol itself can. Ducata will create 1.5 million $DCM tokens (utility token) and place them in a treasury fund exclusive to the protocol. This kickstarts the liquidity needed for $DUCA yields. Since the protocol can create its native tokens, it can bootstrap the initial liquidity and maintain stable operations.
Kirk asks about the protocol’s decentralization, given its autonomous operations and control over liquidity pools.
Patrick describes decentralization as a two-step process. Initially, everything operates autonomously on-chain, requiring no manual intervention. This is considered operational decentralization. However, the ability to update and upgrade the protocol still lies with the team, allowing for quick fixes and optimizations.
Patrick outlines the plan for full decentralization by the first quarter of 2025. At that point, a DAO will vote on every change and upgrade, ensuring the team can no longer make unilateral decisions. This governance structure will provide true decentralization, protecting the protocol from external pressures and maintaining integrity.
Kirk asks about the DAO structure, focusing on maintaining efficiency and quality in decision-making, especially during emergencies.
Patrick acknowledges the challenges of DAO efficiency. He suggests a model where the DAO can only approve or reject proposals, while the team ensures the quality of these proposals. For emergencies, a security council or a multisig approach with rapid action capabilities would allow for immediate fixes, subject to later DAO approval or reversion.
Patrick highlights the need for a balance between practical efficiency and decentralization, recognizing that decentralization often comes at the cost of operational speed. This dual-layer approach ensures both responsiveness and democratic governance, aiming for the best of both worlds.

Ducata’s Resilient Approach to Stablecoins: Avoiding Terra Luna’s Pitfalls

Kirk asks about Terra Luna’s collapse and asks Patrick how Ducata’s approach differs to avoid similar pitfalls.
Patrick acknowledges the concerns and explains that Ducata uses a triple token economy rather than a dual token economy like Terra Luna with $LUNA and $UST. He highlights the inherent flaw in Terra Luna’s symbiotic relationship between tokens, which only works when both tokens are thriving. In contrast, Ducata’s third token is designed to manage capital flow and create demand even in adverse conditions.
Patrick elaborates that Ducata’s system includes a rebase mechanism, similar to Ampleforth, but used differently. Instead of causing radical supply changes, Ducata’s rebase mechanism allows the protocol to charge a stability fee to $DCM token owners. This fee supports the protocol during downturns by redistributing value and stabilizing the ecosystem.
Patrick explains that during a downturn, the value of $DUCA might decrease significantly, but this shouldn’t be a cause for concern. The decrease triggers higher yields for $DUCA holders, effectively compensating them and increasing the upward potential. The protocol uses the stability fee to transfer $DCM tokens to the treasury, reducing the circulating supply and increasing yield, which helps stabilize the system.
Patrick provides a hypothetical comparison to Terra Luna, suggesting that if $LUNA tokens had been converted into yield for $UST during the crash, it might have mitigated the collapse. Ducata’s model ensures that when things go wrong, the system has mechanisms to correct itself by leveraging the rebase mechanism and stability fees.
Patrick highlights that Ducata is not a typical algorithmic stablecoin. Instead, it is designed to recover and return to stable value even after significant volatility. The protocol’s holistic approach and integrated stability mechanisms distinguish it from failed models like Terra Luna, offering a more resilient solution to maintaining value and stability.

Ducata’s Strategy: Balancing Risk, Rewards, and Decentralization in Crypto Finance

Kirk compares Ducata’s operation to a central bank’s regulation of monetary policy, noting the importance of maintaining flexibility in response to supply and demand fluctuations. He asks how Ducata protects $DCM holders, who bear more risk when the system tanks.
Patrick acknowledges the risk to $DCM holders, explaining that while they take the hit during downturns, they also enjoy massive rewards during growth periods. He highlights that every $DUCA created or bought requires $DCM, ensuring high demand for $DCM. Ducata ensures a highly deflationary supply of $DCM to maintain its value.
Patrick explains the dual nature of $DCM’s value proposition: massive rewards in growth phases and the ability to protect oneself through LPD (liquidity token) during downturns. The protocol’s design intentionally scares away excess $DCM circulation, ensuring stability.
Patrick details Ducata’s unique distribution model for $DCM. The protocol launches with 7 million tokens out of the total 3.75 billion, with additional $DCM tokens only being distributed at specific price tiers, preventing excessive supply. This approach creates a controlled and predictable increase in $DCM distribution, maintaining market stability.
Kirk asks about the future decentralization of the protocol and how it plans to maintain nimbleness within a DAO structure, especially during emergencies.
Patrick explains that Ducata aims for full decentralization by early next year, with the DAO approving all changes and upgrades. In emergencies, a security council or multisig approach can enact swift changes, which the DAO can later review and potentially revert. This ensures both efficient decision-making and adherence to decentralized governance.
Patrick stresses the importance of balancing quality and decentralization, acknowledging that decentralization often sacrifices efficiency. The protocol’s dual-layer approach aims to combine practical efficiency with decentralized control.
Patrick highlights that Ducata is not a stablecoin but programmatic money. He explains that the protocol’s design allows for value fluctuations without collapsing, building trust over time. He anticipates that it will take several years to fully establish this trust and demonstrate Ducata’s resilience.
Patrick mentions the launch date as July 10th, 2024. On this date, Ducata will be available, and the airdrop will occur. He explains that anyone can participate in the airdrop by buying $DUCA or the US dollar-pegged asset, making it accessible to all interested parties.

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Show Information

Medium: YouTube (Video)

Show: Revelo Intel – DeFi Revelations

Show Title: Ducata: Bringing Programmatic Money to the Masses

Show Date: July 11, 2024