DOLA is a synthetic stablecoin pegged to the US Dollar. It was launched in February 2021. It is designed to be valued as close to $1 as possible with minimal volatility. DOLA is debt-backed rather than algorithmic, meaning that DOLA is backed by retractable debt. DOLA was initially launched on Ethereum and exists as an ERC-20 token and it is also can be found on Optimism, Arbitrum, BNB, and Avalanche chains. 
DOLA was introduced into supply by "Fed" smart contracts which mint and burn DOLA directly to the supply side of lending markets or to Fed-enabled liquidity pools (e.g. DOLAFraxBP on Curve) in response to market demand. If DOLA demand decreases, they retract and burn DOLA from the supply. This includes FiRM and any lending market officially partnered with Inverse Finance.
In September 2023, DOLA went live on Base. To facilitate the bridging of DOLA to Base, a native Base bridge was utilized. Initially, a custom user interface (UI) provided by Inverse was used for this purpose. This custom is in place until additional third-party tokens are incorporated into the official Base Bridge user interface. 
One criticism of fully collateralized stablecoins, like DOLA and DAI, is their perceived capital inefficiency due to over-collateralization. DOLA addresses the capital efficiency critique in three key ways:
DOLA collateral, deposited within Inverse's Anchor protocol, becomes yield-bearing. Unlike MakerDAO and DAI, assets like ETH staked in Anchor are loaned to borrowers, and Inverse shares a substantial portion of the earned interest with the depositor. In contrast, collateral deposited in MakerDAO does not generate any returns. 
DOLA borrowed can be staked on Anchor to earn interest or utilized in other yield-bearing strategies. Borrowers can engage in a cycle of borrowing DOLA, depositing it, and borrowing again against the original staked collateral to optimize profits. 
Staking Yield-Bearing Assets
DOLA enhances capital efficiency by allowing the staking of yield-bearing assets, as demonstrated by Lido Finance's stETH product. For instance, one strategy involves staking ETH on Lido to obtain stETH, staking stETH on Anchor as yield-bearing collateral, and borrowing DOLA against up to 85% of the staked stETH's value. This approach adds an extra layer of capital efficiency to the system. 
DOLA Stability using Fed
For a USD-pegged stablecoin to remain stable, it must closely track the USD, minimizing price fluctuations. To achieve this, when the price of an algorithmic stablecoin exceeds $1.00, mechanisms like arbitrage or the minting of additional stablecoins are employed to bring the price back down to $1.00. However, maintaining the stability of a stablecoin is more challenging when its price falls below $1.00, especially during market downturns. 
During such instances, some algorithmic stablecoin operators attempt to increase the stablecoin's price by cashing in governance tokens to purchase the stablecoin. Yet, challenges arise due to limited governance token supply, leading operators to consider printing more governance tokens. This approach, if not carefully managed, can result in a downward spiral and potentially lead to a failure of the stablecoin project, especially in extended bear markets. 
In response to these concerns, Inverse Finance employs an approach known as the DOLA Fed to manage and stabilize its stablecoin, DOLA. The DOLA Fed, a DAO-controlled function, serves two primary purposes: managing the supply of DOLA across lending partners and ensuring DOLA maintains its USD peg. 
Controlled by a decentralized autonomous organization (DAO), the DOLA Fed influences lending rates across different chains and lending markets. Adjusting rates can either stimulate demand and increase DOLA borrowing or encourage a reduction in supply. If DOLA's price falls below $1.00, repaid DOLA can be "burned," reducing the supply and pushing the price back up to $1.00. 
The effectiveness of the DOLA Fed was tested during a price manipulation incident targeting Inverse Finance's INV governance token. DOLA quickly returned to its peg, showcasing the resilience and success of the DOLA Fed's architecture. 
INV & DOLA
Firstly, the sale of INV contributes essential decentralized exchange liquidity to DOLA, enabling flexibility in allocation where needed. This liquidity is derived from the sale of INV through Protocol Owned Liquidity bonds on platforms such as Olympus Finance. INV holders have the opportunity to stake their tokens in Inverse’s Anchor money market, earning INV rewards. Also, since INV serves as collateral in Anchor, users can borrow DOLA against their staked INV. INV is also indispensable for participants engaged in the Inverse Finance DAO, providing the sole source of voting power for governance initiatives. 
The INV governance token possesses a unique feature—Revenue Sharing Rewards. Stakers of INV receive a share of DOLA lending revenue generated by the DOLA Fed, spanning across mainnet, Fantom, and upcoming chains. This revenue, distributed in actual DOLA, offers multiple advantages: diminished INV volatility, increased demand for INV, heightened protocol-owned liquidity, and expanded DOLA available for lending. This Positive Sum DeFi strategy transforms INV from a seemingly "useless" governance token into a revenue-sharing mechanism. 
Stakers of the INV governance token not only participate in revenue sharing but also contribute to protocol-owned liquidity through bonding, consequently amplifying their INV share. Unlike zero-sum uncollateralized or undercollateralized stablecoin projects, Inverse's Positive Sum DeFi approach ensures the sustained growth of DOLA lending while concurrently fostering stability in the price of the INV governance token. 
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