LSD vs Other Stablecoins

How does LSD differ from other stablecoins?

Lottery Set Dollar is not the first algorithmic stablecoin in the market. It has taken inspiration and design mechanisms from different projects. It was designed to learn and avoid the mistake of previous protocols.

LSD vs USDT, USDC, BUSD (USD collateralized stablecoins)

USDT, USDC, and TUSD are example of collateralized stablecoins. For every 1 USDT in the market, there should be 1 US dollar in its balance sheet. This way, any time that the price is below the $1, arbitragers can buy from the market and request the US. This arbitrage pushes the price back up.

On the downside, collateralized stablecoins are very capital inefficient. Scaling the supply is also an issue. And lastly, there are transparency problems since these are centralized operations.

In LSD's case, there is no need for collateralization as it uses an algorithmic balancing system to achieve the $1 peg.

LSD vs DAI, sUSD (overcollateralized stablecoins)

Another approach is to use crypto as collateral. DAI (from Maker) and sUSD (from Synthetix) are two prime examples. Users can mint $DAI or $sUSD in exchange of locking up their assets. However, given the volatile nature of crypto, the collateralization is much higher with DAI having with its over collateralization rate at 150% and 800% for sUSD. This is even more capital inefficient compared to the example above.

Same as above, LSD does not use the collateralization approach and instead uses an algorithmic balancing system to achieve the $1 peg.

LSD vs AMPL (other algorithmic stablecoins)

AMPL is the pioneer in the algorithmic stablecoin space. It also has an elastic supply with a rebase mechanism. In their design, the positive and negative rebase is equally done for all token holders. However, they often run into the problem of the death spiral. Since the rebase (adding and subtracting of supply) is done for all wallet holders, the effect is amplified even to those who are not sure how rebase works. So they end up selling after seeing less tokens in their wallet. This leads to a continuous downward spiral.

So for users, there are days when they have more AMPL or less AMPL in their wallets depending on how the rebase went. Ideally, users will want to buy more AMPL if the price is down. However, as seen on their chart, a negative rebase (AMPL deducted from users' wallet). LSD was designed such that the rebase only affects those who interact and thus understand the lottery system and staking system. In a positive rebase, rewards are given to bonders and LP stakers. In a negative rebase, users can voluntarily buy LSD and burn it into tickets because of the financial incentive.