Empty Set Dollar - A New Elastic Stable Coin

An elastic supply stable coin with a simple incentive structure that might just work

Hey all!

I was recently notified about Empty Set Dollar, an elastic supply stable coin experiment that’s shown some promising results so far and pretty neat to learn about nevertheless.


Broadly speaking, there’s two kinds of synthetic stable coins we see out there.

  1. “Rigid supply” is what I’d refer to something like DAI or sUSD where the amount of supply is solely determined by the amount of the collateral asset deposited.

  2. “Elastic supply” is what I’d refer to as Ampleforth, Basis and ESD (Empty Set Dollar)

As we go through the maze, it’s becoming increasingly clear that rigid supply stable coins are hard to maintain a peg for given the supply and demand shocks they experience. Due to the over-collateralization aspect of their designs, creating arb-incentives can be difficult. That’s where elastic supply stable coins try to attempt and bridge this gap by having a stable coin quite literally created out of thin air.

Here’s a “overly simplistic, yet overly optimistic chart” (credit to Lewis Freiberg):

Image for post

I’m not sure if “no collateral” and “anonymous team” are particularly great things to have but let’s put that aside for now haha.


“Okay okay, so what’s new here” is what you’re thinking. Jumping into it:

The key insight around Empty Set Dollar is the fact that stable coin pegs are ultimately determined by market demand and supply forces and that creating incentive mechanisms around this is key.

  • When a stable coin is trading at a premium, the underlying message that Mr. Market is saying “there’s not enough of this thing, can you please give me more”

  • When a stable coin is trading at a discount, the underlying message that Mr. Market is saying is “there’s too much of this thing, you can take it at a discount”

Ampleforth and BASED offer a solution to this by increasing everyone’s global balance during a rebase to give an answer to Mr Market. However the problem with this approach is that it literally breaks everything you integrate it to and isn’t a very candidate at being composable with the rest of DeFi due to it’s irregular behaviour.

Empty Set Dollar takes the insight of a rebase in a cleaner way by creating “voluntary rebases”.

  • When ESD is trading at a premium, those who have “locked” up their tokens receive more ESD when a rebase happens and more ESD is printed. Easy enough to solve. This is what causes sell pressure when the peg trades at a premium.

  • When ESD is trading at a discount, anyone who purchases ESD on the open market can then lock their ESD to earn coupons. Coupons give a share of the the newly minted ESD during a positive rebase. This is what causes buy pressure when the peg trades at a discount.

There’s some more intricate, finer details such as the fact that “locked” tokens are tokens that are “bonded” or providing liquidity and that earned coupons expire after a certain number of epochs. For brevity’s stake I won’t go into too much detail about it.

Early Results

I’ve been a lurker in the Discord channel recently and the amazing thing about the ESD community is the thoughtfulness and intelligence of the members there. With the first few governance proposals, they’ve been great in navigating and fine tuning the parameters of the protocol to ensure ESD stays on peg.

I hate paywalls as much as you do, however I want to make sure I can continue to write amazing content for you all. Subscribing is a gesture that I’d personally really appreciate since it allows me to keep making DeFi Weekly even better. Learn more: