thecircle

1/ The first ever paper on Circle (Base).

https://d-l.im/research/65ea4d8a9827a69d3d939555

We analyze the innovative dynamic deflationary asset model that had so many developers excited at EthDenver this year!

story below 🧵👇

2/ Traditionally, deflationary tokens implement 5-10% transaction taxes for two key purposes:

1. Paying for gas fees (token burns/reflection) 🔥

2. Funding token purchases (buybacks) 💰

4/ Circle solves these issues through its implementation of the Circular Burn Loop.

The Circular Burn Loop is a novel mechanism that allows CIRCLE to be burned, without transaction tax.

This is achieved by generating LP rewards through the Uniswap v3 pool, and using them to dollar-cost average burn the token supply.

5/ Not only that, but the Circular Burn Loop also incentivizes and increases liquidity.

External LPs can add their liquidity to the pool and generate significantly higher APRs.

In other words, Circle has created a way to incentivize liquidity without the need for token emissions.

6/ The heart of Circle is known as the Cause Chaos Transfer Protocol (CCTP)

The CCTP's primary function is to implement responsive and dynamic burn. This means that as the price of CIRCLE decreases, the burn of CIRCLE increases.

After a 75% correction in price, the CCTP had a 3000% increase in burn rate!

7/ The CCTP's dynamic burn has an effect on two main things:

1. Pushing the asset up the Uniswap v3 AMM curve

2. Increasing user's % holdings of the entire supply

8/ We can illustrate the deflationary pressure on the Uniswap v3 AMM using the constant product formula:

x*y=k

Using simple algebra, we find that with a 50% reduction on one side of the pool, there is a 400% increase in its relational value.

9/ Additionally, as the supply is burned, holder's proportional share is increasing.

The initial total supply is 1,000,000 CIRCLE. We can calculate holder's new % holdings using the formula below

10/ The CCTP also goes through different Phases, similar to upgrades in its capacity and burn. This can be explored in the chart below.

11/ There is also an unrevealed Phase, titled Autonomy

This Phase seeks to push the CCTP into full decentralization and autonomy.

Additionally, there will be the inclusion of new mechanisms that can be called on by external users.

12/ Circle is a highly ambitious, egalitarian project that has already introduced several groundbreaking innovations in DeFi.

I highly recommend reading the paper for traders and builders alike.

Special thanks to the Circle dev for crafting such an innovative and truly singular project for the Crypto space (and Base)

Learn more through Circle

Telegram: https://t.me/BurningCirclePortal

Twitter: https://twitter.com/CircleOnBase

Website: https://circlecoin.blue/

3/ However, the issues with this strategy are very clear:

1. Expensive transaction costs (high taxes)

2. Reduction in market volume (less active trading)

Ultimately, this deliberately transfers the financial burden and restrictions directly onto token holders.