Named after the Australian bird famous for its ability to mimic various sounds, Lyrebird is an algorithmic stablecoin protocol that can issue stablecoins pegged to any desired currency on the Neo N3 blockchain.
Initially conceived as an entry into the Neo Frontier Launchpad hackathon, Lyrebird won the Best DeFi Project prize and has been quietly building since then. The following is an introduction to the project as we prepare to launch at the end of April.
Lyrebird is an algorithmic stablecoin protocol built on Neo N3. At its core, Lyrebird is a collection of smart contracts that enable the issuance of L-assets — NEP-17 tokens that are soft-pegged to desired currencies. At launch, Lyrebird will introduce the Lyrebird USD Token (USDL) pegged to the US dollar. Other L-assets can easily be issued based on community demand as NEP-17 contracts.
As an algorithmic protocol, Lyrebird follows the same fundamental approach as Terra. Unlike traditional 1-to-X collateral-backed stablecoins, Lyrebird achieves price stability by incentivizing arbitrage activity to maintain its currency pegs.
In order to implement this system of arbitrage, Lyrebird introduces the Lyrebird Token (LRB). LRB is a free-floating token with its value dictated by the market and serves as the backbone of the Lyrebird ecosystem. Lyrebird’s arbitrage opportunities hinge upon the fact that LRB can always be exchanged for an equivalent value of an L-asset at its target price, regardless of the actual price of the L-asset.
Without loss of generality, let’s consider the arbitrage proposition for USDL. The LyrebirdAviary smart contract will allow anyone to swap LRB for USDL and vice versa at the target price of USDL, which is always equal to $1.00. For example, if LRB is trading at $0.10 and USDL is trading at $1.05, an arbitrageur could purchase 10 LRB on an exchange, swap it for 1 USDL, and sell it back on the exchange for a handsome profit of $0.05! Continued arbitrage will exert downward pressure on the price of USDL until the window of opportunity is closed.
Of course, this is an oversimplified model. The actual contract enforces a minimum spread of 0.25% and varies spreads based on trade sizes and frequency to disincentivize malicious actors looking to cheat the Oracle price feed. More detailed information will be released as technical documentation upon launch.
The Lyrebird Token
As the reserve token that backs the aforementioned arbitrage mechanism, LRB must have a large enough market cap to absorb the volatility of the L-assets. Furthermore, in order to have a nonzero market cap, a token must have some value. So where exactly does this value come from?
If Lyrebird is successful and its L-assets are widely adopted within the Neo ecosystem, there will likely be a natural increase in demand and thus price for the L-assets. This opens up arbitrage opportunities that incentivize arbitrageurs to purchase LRB to swap for L-assets. This activity should likely reduce LRB supply and exert upward pressure on its price.
Spread Fee Distribution
LRB token holders will have the ability to stake their tokens on the protocol, with a 30 day unstaking period. This unstaking period ensures that some supply of LRB is held for the long haul, reducing the probability of a flash crash.
With every swap transaction on the LyrebirdAviary contract, the spread fee charged is set aside. This fee is then periodically distributed to LRB stakers in the proportion of their staked tokens.
Staking is a strong bet on ecosystem growth. If the protocol is successful, one can expect there to be more spread fees charged and distributed to stakers.
After launch, Lyrebird will implement voting for LRB stakers. This will allow the community to vote on proposals regarding the development of the protocol, with votes tallied in the proportion of each wallet’s staked LRB.
In the early stages, voting will be enforced simply by an agreement between the development team and the community.
Once the protocol is stable with a large enough community, Lyrebird intends to move to the decentralized governance model pioneered by NeoBurger, transferring ownership of all smart contracts to the collective LRB stakers.
The initial supply of LRB will be 100 million, allocated as follows:
- Team Allocation: 20 million, locked for one year
- Stability Reserve: 20 million
- Project Development: 10 million
- Community Distribution: 50 million
- Airdrops: 10 million
- Reverse Pool Distribution: 20 million
- TBD: 20 million
Lyrebird is proud to launch without any private sales. This allows us to distribute 50% of LRB’s initial supply to the general public without asking for anything in return. The exact schedule of airdrops hasn’t been determined yet, because they need to be carefully planned to ensure that they don’t overwhelm the liquidity pools. For regulatory reasons, airdrops and their eligibility details will never be pre-announced.
Airdrops will typically be in the form of user-initiated claims, such that a wallet owner will be able to see how many tokens they are entitled to and decide to claim (or not) at their convenience. To incentivize long-term holding, all airdropped tokens will be locked for a distribution period of one year.
A large portion of the Community Distribution will be allocated to Reverse Pools. These will be rewards for the liquidity providers of any DEX liquidity pools for LRB and L-assets, used to ensure that the initial circulating supply of LRB is distributed to those who are most likely to be supportive of ecosystem growth.
Many of you are likely to be familiar with the many discussions that we have had on regulatory compliance.
We are happy to announce that there will be no restrictions on the usage of Lyrebird! Anyone will be able to participate in the project as long as they have a valid Neo N3 address.
In exchange for this flexibility, we have given up on pursuing an IDO or any other kind of token sale. More about this in the next section.
Lyrebird will launch in late April, by first opening up the Reverse Pool FRP-FLM-LRB, and later FRP-FLM-USDL on Flamingo once the LRB pool becomes relatively stable in price.
As mentioned above, there will be no private sales and no IDO. The only ways in which LRB enters general circulation will be through the Reverse Pool rewards and airdrops.
You may be wondering how liquidity would enter the FRP-FLM-USDL pool when there was no mention of USDL being distributed. We intend for this pool to grow gradually by liquidity providers swapping LRB to USDL and then staking so that the pool size can reflect natural demand. Don’t worry — we’ll post a guide before this pool is launched.
Lyrebird’s main value proposition is that its stablecoins can change their supply in response to changes in demand. This allows for an efficient allocation of capital as Neo ecosystem participants can freely convert their holdings between risky and stable assets with minimal friction.
Lyrebird will be — in our opinion — a fundamental building block for DeFi in the Neo ecosystem. We can’t wait to see what projects will be built using Lyrebird’s stablecoins.