The steady yield coin.
Crypto is all about decentralization, that is, taking the power to make decisions over monetary policy out of the hands of the few and putting it into the hands of the many. One snag in implementing this is that the current system in crypto is heavily reliant on stablecoins, which because of their relationship to government-issued currencies can be more tightly regulated than other crypto coins - not very decentralized! A need has been identified for a reserve currency which is relatively stable but is NOT pegged. This reserve token would be able to avoid excessive regulation as well as the loss of value over time (inflation) which fiat currencies suffer from.
Many tokens known as “rebase” tokens are actually attempts to create a new stable reserve currency. The results of this attempt are somewhat dubious because they often experience extreme highs and lows in price due to their high-risk nature, making them currently unusable as a reserve. Before we explain more about why Temple is different, let’s first talk about those other tokens.
What is a rebase token?
Rebase tokens are a capital investment collecting scheme. A protocol will offer a stratospheric initial APY upon launch as a reward for buying and staking it’s token, with the aim of attracting more buy pressure and adding to the treasury. These new treasury funds are typically then put back into staking rewards, which can create a cycle that drives the price up (yes, like a ponzi).
Minting massive amounts of tokens to maintain high APY rewards actually has an inflationary effect (it places downward pressure on the price of the token). For existing token holders, the hope is that cash will continue to flow in from new buyers who find the high APY attractive, keeping the price stable or even raising it. A rebase token holder is hoping that the growth of their investment is fast enough to outpace the loss in value due to heavy token minting. It is like a high-stakes race between the rebase rewards and token value loss caused by minting.
This is all based on game theory This is where the meme “(3, 3) Stake and Chill” comes from. If everyone acts in their self-interest by doing what is beneficial to the DAO, then business will boom. The trick is to create this incentive properly, with a stable foundation. Rebase tokens encourage staking, the behavior most beneficial to the protocol, by being offered fantastic rewards for doing so. In the graph below, 3 represents the behavior which is most beneficial for the DAO and -3 is the worst.
What is the problem with this strategy? If a token is trading at extremely high multiples of it’s treasury backing (as is the case with rebase tokens), then when people start to rush for the exit there is not much to stop a stampede and the price dropping to the floor. The same cycle we discussed earlier which may drive the price up, can also occur in reverse and cause the price to crash. OHM at one point was trading at ~30x RFV. TEMPLE, at its all time high, was trading at less than 3x RFV. Trading at such a high multiple of RFV means that their value is not being propped up by real assets, just by the premium people are willing to pay for the token with the promise of high rewards. When sell pressure comes and the price starts to drop, the downward momentum can be overwhelming.
What is the main difference between Temple and rebase tokens?
In short, rebase tokens are designed to go down over time. No one even disputes this. It’s a result of heavy token minting which is the hallmark of a rebase token. Temple goes a different route and incentivizes investment by offering long term steady growth and using sustainable minting practices. Temple has the ability to do this mainly because of its in-house AMM.
Instead of minting crazy amounts of tokens to offer insane and unsustainable APY rewards, Temple harnesses buying power to grow the treasury. When the price of TEMPLE is within a certain “normal” threshold, the AMM behaves just like other AMM DEXs like Uniswap or Sushiswap. When the price goes above a threshold, a portion of each buy is routed to the treasury. This is known as Safe Harvest (see the description from the Temple docs). This means the value of Temple does not over-inflate but stays within a threshold. Because of this, the treasury grows in concert with the token value, improving the health of the protocol and ensuring that the price of TEMPLE will continue to go up in the long run.
The APY for staking and chilling in the Temple is 1177% at the time of this writing. Still a handsome reward but not so much that it will dilute the token value. The team has stated that the APY will be reduced in the future in line with this philosophy.
As you can see, you can never get something for nothing. Everything balances out in the end, and that’s what Temple hopes to do. It utilizes Safe Harvest to put the treasury to good use in raising the price of TEMPLE without having an inflationary impact and causing an unstable pump and dump cycle. The key here is long term sustainable growth. This is the vision for Temple’s future.
Editor's Note: Special thanks to Lasso for contributing to this!