Baking and Burning

The bread and butter

Baking

Mechanism: Users can bake $BREAD by depositing $BERA into the protocol's smart contract.

Fee: A 2.69% fee is applied to each baking transaction. Fees are added to the protocol, increasing the $BERA backing per circulating unit of $BREAD.

Dynamic Baking Cap: a baking cap is determined each week. If the cap was reached in the previous week, the baking cap increases by 50%, allowing for new $BREAD baking. If the cap was not reached, then it remains unchanged. The initial supply cap is 6.9 million $BREAD.

Master Baker: The controller of the dynamic baking cap, and can impose whitelists on baking in order to benefit the protocol. This is an ongoing administrative function.

Burning

Mechanism: Users can redeem $BERA by burning $BREAD.

Fee: A 2.69% fee is applied to each redemption. The fees are distributed to the $BERA backing, PoL bribes, and treasury in the same ratio as baking fees.

*2.69% baking and burning fee incurred on each Bake and Burn. 65% of fee increases $BERA backing, 15% is used for liquidity bribes, and 20% is retained by the treasury

**PoL bribes will be split across incentivizing the $BREAD/$OHM reward vault, and the single sided $BREAD staking vault. Furthermore, this split will be 5% instead of 15% prior to $BGT whitelisting due to existing liquidity incentives from Olympus, Yeet, and Kodiak

Example

• Let's assume there are 100 $BREAD tokens in existence, and there is 100 $BERA tokens backing them in the contract. That means the exchange rate between them is 1:1, giving a price of 1 $BERA per $BREAD

• There is a 2.69% bakng fee, so to bake the next $BREAD token a user must pay 1.0269 $BERA. Of the fee collected, 65% or 0.017485 $BERA, is added to the backing

• There is now 101 $BREAD in circulation and 101.017485 $BERA in the backing. The new exchange ratio is now approximately 1.0001731188 $BERA per $BREAD

• This exchange rate still increases in $BREAD's favor if there is a burn. Let's assume a user burns 3 $BREAD to redeem $BERA. There is a 2.69% burning fee. Of the fee collected, 65% or 0.052455 $BERA, is added to the backing

• There is now 98 $BREAD in circulation and 98.06994 $BERA in the backing. The new exchange ratio is now approximately 1.0007136735 $BERA per $BREAD.

• The backing always increases, regardless of a Bake or Burn occurring.

[User Deposits 1.0269 BERA]
         |
         v
+---------------------------+
|  BREAD Token Smart Contract |
+---------------------------+
         |
         |---> Adds to Contract Backing:
         |        - 1.00 BERA (Base Amount)
         |        - 0.017485 BERA (65% of Fee)
         |
         |---> Distributes Fees:
         |        - 0.004035 BERA (15% of fee) to PoL Bribes
         |        - 0.00538 BERA (20% of fee) to Treasury
         |
         |---> Bakes 1 BREAD Token
         v
[User Receives 1 BREAD Token]