GARD V2 Mainnet Announcement
Foreword
This GARD V2 explainer introduces users to protocol updates and explains the rationale behind them. A comprehensive second white paper will be released in the coming months that goes into more depth.
This document assumes that you have a basic understanding of the GARD V1 protocol and that you've read the V1 white paper. If you'd like to read the original white paper, it can be found here and if you'd like to see the documentation for the new protocol's web application it can be found here.
To access the V1 in order to close out your CDPs you can do so via this new link: https://www.v1.gard.money
Abstract
There is immense cross-chain appetite for a sustainable, decentralized, and stable monetary system. A protocol that manages to marry liquidity purchasing, stablecoins, yield products, staking, and decentralized governance is necessary. The GARD Protocol effectively combines all these different dimensions of DeFi products that users use and love into one protocol governed by its users that will afford them the ability to leverage their capital and profit from the protocol’s growth.
Vision
This page is meant to give GARD's current and prospective users a non-comprehensive list of key updates to the platform.
Intro
The updated GARD Protocol has been designed to be both innovative and useful. First and foremost, V2 carves out a niche in the now more established Algorand DeFi ecosystem and establishes itself as the decentralized monetary system for Algorand. In this section I'll address the updated fee model, improvements to composability, staking, liquidating, and liquidity purchasing.
Fees
In order to create a more dependable revenue stream for the protocol and its stakeholders as well as to lower the barrier to entry for GARD borrowers, the protocol will switch to an APR model instead of a flat fee model. This change affords the protocol to add tremendous utility to GARD and bootstrap its velocity as a currency by implementing revenue sharing via staking. The APR charged by the protocol will be dictated by the holders of its native governance token, GAIN.
Composability
To complement future and existing projects, GARD will accept wrapped ALGOs and other liquid assets for collateral, as approved by the GAIN holders governing the protocol on a per asset basis. We encourage GAIN holders to focus on assets that are liquid, secure, and decentralized, and will facilitate the successful introduction of new assets. This process will boost ecosystem composability and give DeFi participants more opportunity to extend the value of each asset in Algorand DeFi. This will allow for higher yields, deeper ecosystem liquidity, and higher TVL per asset locked in Algorand DeFi. The protocol will add value to the Algorand DeFi community whether or not there is an active governance enrollment period.
Staking
With the launch of V2, users will be able to stake GARD to earn a share of protocol revenue. To begin, there will only be one pool to stake GARD that is native to the platform. In this pool, anyone may stake GARD for any amount of time they desire. In the future, staking will involve different bonding periods where longer periods will earn a greater share of the protocol's revenues. These longer periods will be utilized to create a GARD Staking yield curve. The protocol already supports these periods, but they will be disabled at launch.
Liquidating
In the near future, the protocol will add a new way to liquidate users that involves staking GARD as well. Since the launch of V1, GARD has been the only protocol on Algorand where any user could liquidate another if their position had defaulted and if they had the GARD required to do so. This liquidation process was done via Dutch Auction (accessible directly on chain orvia our WebApp). This has been vital for maintaining the GARD peg and the most fair mechanism implemented on Algorand; still, we believe that the playing field should be leveled further. The new way for users to participate in protecting GARD's peg and liquidating users will be even fairer. Whether a user has 1 GARD or 1M they will be able to stake it in a pool that facilitate liquidations and pays out the base staking reward. When launched, this pool will liquidate any positions instantaneously at a 7.5% discount, swap the assets to GARD on a DEX, and then add the additional earned GARD to the base staking reward that users will earn by participating in staking regardless.
Liquidity Purchasing
The final update still coming to the protocol is its programmatic mandate to purchase and lock up liquidity behind the ALGO/GARD trading pair. In the coming months, we will publish more details on how the protocol will utilize its own governance token GAIN to purchase ALGO/GARD LP tokens at a premium from its users. This process will enable the protocol to quickly decentralize itself and distribute ownership amongst those who are taking actions vital to GARD's long term success. The process will permanently lock up liquidity held on partnering DEXs and use it as a moat in perpetuity which will accrue revenues and increase in value over time as ALGO increases in value relative to GARD.
GARD Stability Mechanisms
GARD is an overcollateralized stablecoin that allows its borrowers to gain leverage on their interest-bearing collateral without selling it. The process by which GARD comes into circulation ensures that GARD is valuable because there is always more than $1.15 locked up in the form of ALGOs or ALGO derivatives for each GARD in circulation. In spite of GARD’s intrinsic value, in low liquidity markets GARD may trade above or below $1 via decentralized exchanges. No matter the price of GARD outside of the protocol, the protocol always treats GARD as $1.
If the price of GARD is too high (which it should gravitate toward in higher liquidity situations/bull markets) users are incentivized to mint more GARD and sell it into the market. This incentive is clear because when a user mints GARD for the price of $1 and can sell it above $1 they have taken advantage of arbitrage. This arbitrage opportunity also helps move GARD back toward $1. The more GARD borrowers sell, the lower the price of GARD should trend and the easier it will be for them to pay it back.
If the price of GARD is too low (which may happen during times of extreme volatility or bear markets) users are incentivized to buy it up for several reasons. First of all, if a user has borrowed GARD and spent it, buying back at a discount to pay back their loan makes sense. Next, if a user hasn’t borrowed GARD but understands how the peg works, they might take advantage of a low price and buy up GARD at the discount to sell it once the price rises. Finally, with the introduction of GARD staking, users may buy GARD and earn more GARD while they wait for the price to return to normal. This ability to stake GARD for protocol revenues gives GARD a higher intrinsic value and will be explained in the next section.
For more information on the underlying stability mechanisms stabilizing GARD please read our V1 whitepaper linked here.
Staking Rewards Explained
In the updated GARD Protocol, 70% of all revenues accrued from borrowing GARD will be distributed evenly and in realtime to the GARD token holders that have GARD staked natively on the GARD platform. This new method of distributing revenues will incentivize the adoption of GARD because it makes GARD more valuable. This increase in value as well as added incentive to hold GARD will bootstrap its adoption and put more in circulation.
During the launch of our staking protocol, it's to be expected that most users who mint GARD will want to immediately stake it given that there aren't many places to use GARD. The more users that stake GARD, the lower these staking rewards will be and likely if a user is borrowing GARD they will be a net loss if they immediately stake it rather than leverage it to buy more ALGOs. To counteract this, we have an Aeneas grant from the Algorand foundation that will enable us to boost staking rewards and ensure that there is incentive to mint GARD and participate in the GARD Protocol.
In time, as more GARD comes into circulation, other platforms will list GARD and liquidity for GARD will become deeper which means that the amount of GARD staked will drop over time relative to how much GARD is borrowed. As this happens it's possible that the 70% of revenues that's being paid out will be well above the fee that is charged to borrow GARD and that this will be sustainable for the long run. The more GARD that is off platform the higher this staking reward will be and the higher the incentive to mint more GARD or buy it off exchanges will be.
It's also important to note that if a user buys GARD or receives it as a form of payment and then stakes it they will earn a positive return denominated in GARD on staking regardless of the number of users/tokens staking on the platform.
Algorand Governance & GARD
The GARD protocol is unique to Algorand in that it’s the only DeFi protocol that allows users to retain custody of their ALGOs while both leveraging them to borrow GARD and to participate in governance to earn rewards. Now, users who participate in Algorand Governance via DeFi protocols like GARD will also earn their share of an extra 7M ALGOs distributed by the Algorand Foundation to DeFi governors.
To participate in Algorand Governance via the GARD Protocol users must send their ALGOs to their own unique smart contract account which they retain control over. Once they’ve sent their ALGOs to the account, they’ll be able to borrow GARD from the protocol’s reserves and vote in governance/earn rewards on their exact ALGO balance. This solution ensures that nobody will be able to take the user’s ALGOs unless, of course, the value of the GARD they’d borrowed exceeds 115% of the value of their ALGOs and they’re liquidated. To mitigate this possibility be sure to overcollateralize borrowed GARD substantially.
What is GARD?
GARD is an overcollateralized stablecoin similar to DAI that can be minted and borrowed against intrinsically valuable collateral. To mint GARD, users can use ALGOs, ALGO derivatives like gALGO, or ALGOs committed to governance via the GARD Protocol that would otherwise be locked in a user’s Algorand Governance position. GARD is hard money as opposed to other competing stablecoins and can now be staked natively on the GARD dApp to earn a share of the protocol's revenue.
What is GARDIAN?
The GARDIAN token is a loyalty token / ASA that will be later redeemable for the protocol’s governance token, GAIN. GARDIAN will be redeemable for the GAIN token on or before April 15, 2025. There will be a total of 1,000,000,000 GARDIAN tokens minted that will be equivalent and later convertible to 5% of the total GAIN token supply (100,000,000 tokens). These tokens will be distributed by our protocol and other ecosystem partners to promote the growth of the GARD Protocol in the Algorand community. The release of GARDIAN is also a vital part of the founding team's commitment to decentralizing the protocol from day one.
What is GAIN?
GAIN is the token that governs the GARD Protocol. Those who hold GAIN will be able to vote on changes to the GARD protocol, vote on the fees that GARD users are charged, vote on and enact the protocol’s monetary policy in regard to staking, vote on where to source pricing data from, vote on assets to add as collateral, and vote on the organization that will protect/further develop the protocol. GAIN will be decentralized so the DAO can make the best decisions for its future without founder interference. Holders that have fulfilled certain participation thresholds (e.g. voting turn-out, proposal submission) are able to extract the accrued rewards they are entitled to by exchanging their tokens with the protocol's Treasury. In order to protect the GARD Protocol and its value for all stakeholders, GAIN has not yet been released.