The Colt ecosystem is powered by natural credit expansion and contraction cycles of Saga Dollar (D). While this mirrors traditional credit cycles, it differs fundamentally in how interest rates influence growth.
In TradFi, central banks employ top-down monetary policies: low interest rates spur borrowing, expand the money supply, and stimulate growth, while high rates restrict credit to combat inflation. These levers are often politically influenced and artificially imposed.
In DeFi, interest rates emerge from decentralized market forces. Most lending protocols utilize interest rate models based on real-time supply and demand: low rates typically signal weak credit appetite in bear markets, while high rates reflect strong borrowing demand during bull runs.
Colt’s design turns this dynamic into an advantage. By subsidizing borrowers, the protocol can lower net borrowing costs and maintain attractive yields for lenders across market cycles. This, in turn, stimulates demand/utilization and attracts more deposits, creating more subsidies and credit supply to fuel the flywheel.
This is a commonly used metric to evaluate protocol growth in terms of supply-side liquidity. For Colt, it is the TVL of D’s reserve.
This is a new metric used by Colt to measure D’s debt expansion, i.e., demand-side credit. It is the sum of actively subsidized, D-denominated loans on lending protocols.
While TVL measures supply-side liquidity within Colt, TDL represents demand-side credit actively circulating through the system—together providing a complete macro view of ecosystem health. TDL reflects D-denominated debt that will eventually return to reserves as borrowers repay, transforming credit demand into fresh liquidity supply.
TVL, on the other hand, only accounts for assets directly locked within the protocol, excluding externalized credit still tied to Colt’s ecosystem. During credit expansion phases, TDL typically outpaces TVL growth, signaling strong borrowing activity and leverage creation. As the cycle contracts, TDL naturally converges back into TVL, restoring balance as debts are repaid.
The continuous growth and contraction dynamics between TDL and TVL illustrate Colt’s self-regulating credit cycles, where liquidity and credit flow in equilibrium—ensuring the ecosystem remains elastic and sustainable over time.
A theoretical illustration of D’s interest rate dynamics during credit expansion and contraction cycles.