Governance

Ducat governance is controlled by holders of DUCAT tokens. The economic security of the Ducat network relies on a set of parameters that users manage through governance proposals. These parameters include:

1. Liquidation threshold [135%]: The collateralisation threshold at which a borrower’s BTC vault is liquidated.

2. Minimum Reserve Threshold Allocation [5,000 sats]: The minimum quantum of sats for a transaction.

3. Repossession tax rate [15%]: The tax rate levied on liquidated vaults.

4. Subsidy rate [0.6%]: The rate at which the liquidation subsidy grows per 1% below the collateralisation level in a liquidated vault.

5. Subsidy threshold [124%]: The vault collateralisation ratio at which the protocol begins to subsidise the liquidation process.

6. Vault minimum balance [10,000 sats]: The minimum amount of sats required to instantiate a vault.

7. Minimum borrow collateralisation threshold [160%]: The minimum collateral ratio required to mint UNIT from a vault.

8. Reserve accrual rate [50%]: The percentage of protocol profits that accrue to the Reserve, rather than to DUCAT tokenholders.

9. Treasury target size [10 BTC]: The target size of the BTC reserve used to insure against failed liquidations, periodically clear stranded vaults, and create protocol-owned UNIT liquidity.

All earnings above the level required to top up the Reserve will be governed at the discretion of DUCAT tokenholders.

These governance parameters are essential for protocol operation. Initial values are defined by the Ducat Foundation but can be modified at any time through a governance vote.

Because carrying out governance directly on Bitcoin is logistically difficult due to BTC’s reliance on basic m-of-n multisigs, Ducat instead uses a combination of the validation layer and Rune token counting on a given token proposal to determine the canonical contract location, as voted by DUCAT tokenholders.