Using the Bake/Burn Page

Baking and Burning $BREAD

The Bake page is your gateway to acquiring $BREAD tokens and redeeming them for $BERA. Let's explore how to use this functionality effectively.

Baking (Minting) $BREAD

Baking allows you to mint new $BREAD tokens by depositing $BERA into the protocol.

Baking BREAD Interface

Step-by-Step Process:

1. Enter Amount: Input the amount of $BERA you wish to convert to $BREAD.

   • You can use the "HALF" and "MAX" buttons to quickly set amounts based on your available $BERA balance.

2. Review Exchange Rate: The interface shows the current exchange rate between $BERA and $BREAD.

   • This rate will only increase over time due to the bonding curve mechanism.

3. Review Fees: A 2.69% fee is applied to each baking transaction.

4. Confirm Transaction: Click "Bake BREAD" to execute your transaction.

Example: If the exchange rate is 1 BERA ≈ 0.949 BREAD and you input 1 BERA:

• You'll receive approximately 0.924 BREAD

• A fee of 0.0269 BERA will be taken

Burning $BREAD

Burning allows you to redeem your $BREAD tokens for $BERA from the protocol.

Baking BREAD Interface

Step-by-Step Process:

1. Enter Amount: Input the amount of $BREAD you wish to burn and redeem for $BERA.

   • Similarly, you can use "HALF" and "MAX" buttons for quick selection.

2. Review Exchange Rate: The current exchange rate between $BREAD and $BERA is displayed.

3. Review Fees: A 2.69% fee is applied to each burn transaction.

4. Confirm Transaction: Click "Burn BREAD" to execute your transaction.

When you burn $BREAD, the fees still contribute to increasing the backing ratio, meaning the price of $BREAD in terms of $BERA will continue to rise regardless of whether users are baking or burning.

Baking and Burning FAQ

Q: What happens if $BREAD price drops in USD terms?

A: $BREAD is designed to be "up-only" against $BERA, not USD. The $BREAD/$BERA exchange rate will continue to improve regardless of market conditions, but the USD value can fluctuate based on $BERA's price.

Q: Is there a limit to how much $BREAD can be baked?

A: Yes, the protocol has a dynamic baking cap that is adjusted weekly based on demand, set by the Master Baker. The initial cap is 6.9M BREAD

Q: Why is there a fee for both baking and burning?

A: The fees serve multiple purposes:

1. They create a mathematical guarantee that the $BREAD/$BERA exchange rate always improves

2. They fund protocol development and growth

3. They incentivize liquidity provision through bribes

Q: What is the benefit of holding $BREAD instead of $BERA?

A: Holding $BREAD gives you:

1. Exposure to the continuously improving exchange rate against $BERA

2. Access to the protocol's borrowing functionality

3. The ability to participate in the broader BakerDAO ecosystem

Q: Can I lose money when baking or burning $BREAD?

A: If you immediately bake and then burn $BREAD, you would incur both the baking fee and the burning fee (total of 5.38%). However, if you hold $BREAD long enough for the exchange rate to improve by more than 5.38%, you can offset these fees.

Q: How does baking or burning affect the protocol as a whole?

A: Both actions contribute to the protocol's health:

• Baking increases the total supply and adds to the backing

• Burning decreases the supply while still adding to the backing

• Both actions improve the backing ratio per $BREAD token