There's a new stablecoin coming to ETH mainnet. It will be immutable, governance free, fully collateralized, and includes some fun PVP & NFT elements.
In this thread, I'll briefly go over what @DYADstable is, how it works, and what to expect come launch. 👇
First, lets try to identify the ideal stablecoin protocol/design in order to better understand Dyad's design. The ideal stablecoin will balance Supply and Demand side dynamics, creating a Dyad between the two.
For the Demand Side, a stablecoin protocol needs to: - Be stable - Be decentralized and immutable - Be redeemable for 1 worth of collateral at any time - Maintain overcollateralization to absorb extreme volatility
For the Supply Side, a stablecoin protocol must: - Have minimal carrying costs - Have compelling upside potential - Be a function of volatility, and not just price
With this in mind, lets dig in!
DYAD is a fully collateralized stablecoin pegged to 1, backed by ETH, with no governance token or upgradable smart contracts, balancing supply and demand dynamics.
Not everyone can mint DYAD against their ETH, this ability is limited to only 10,000 dNFT, Dyad NFT, holders.
Holding a dNFT allows you to mint DYAD by depositing ETH into the collateral vault.
Think of a dNFT as a central bank inside your wallet with unique monetary policies. You have the ability to control your dNFT's balance sheet, collateral ratio, leverage, and debt.
As a dNFT holder, you choose how much of your mintable DYAD you draw and put into circulation. The greater proportion of your DYAD in circulation, the greater your leverage on price movements in the ETH collateral vault.
Here's where things get interesting.
When you deposit ETH into the collateral vault, your dNFT is allocated DYAD which you can withdraw as you wish.
This DYAD is "deposited" into your dNFT until the moment you decide to withdraw. At which point, your DYAD is still on your balance sheet, but it is not "deposited."
DYAD "deposited" in a dNFT stays inside the "Damping Vault." The protocol has the ability to burn these DYAD tokens when ETH goes down and mint new DYAD tokens to this pool when ETH goes up.
Each dNFT’s "Deposited DYAD" trait tracks its share of this pool.
Thanks to NFT's and metadata, it's possible to fine tune monetary policy granularly across all individual dNFTs.
XP, or Experience Points, is a metadata trait on your dNFT. It represents your dNFT's ability to absorb volatility from price movements in the ETH collateral vault.
When DYAD is deposited into a dNFT, it absorbs some of the volatility of ETH.
This means when ETH goes up, more DYAD is available for you to withdraw, when ETH goes down, less DYAD is available for you, but relative to other dNFT holders' XP.
In other words, XP determines your upside or downside exposure to the price movements on ETH, while also determining your collateralization ratio, and how much DYAD you can draw from your dNFT.
It represents both your Burn Liability, and your Mint Entitlement.
dNFT holders are constantly competing for the most XP. Those at the top of the XP leaderboard absorb significantly more upside volatility (higher Mint Entitlement) than those at the bottom of the leaderboard.
Similarly, those at the bottom will incur some of the Burn Liability of those at the top, but will accrue XP more efficiently in order to climb the leaderboard faster. XP does not decrease, it is only inflationary.
It is also not a token, and therefore cannot be purchased.
XP shifts ETH upside exposure of the bottom 80% of dNFTs to the top 20%, and shifts the top 20%’s downside exposure to the bottom 80%. This creates a nearly magical position for the top 20% of dNFTs that is profitable regardless of ETH price direction.
XP allows the protocol to provide competitive incentives for LP's without adding an inflationary yield farming governance token. XP will still be priced in the secondary NFT market. dNFTs with more XP will command higher prices.
Why would anyone hold a dNFT in the bottom 80% of the leaderboard if you're just going to be absorbing negative price movements on ETH? Because XP accrual per DYAD burned is more efficient the lower a dNFT is on the leaderboard.
This means you will acquire XP faster than the top 20% of dNFT holders, giving you a reasonable chance to climb the leaderboard and receive the leveraged upside exposure.
XP accrual efficiency falloff for the top leaderboard positions gives every dNFT holder a reasonable chance to make it into the top 20% by aggressively deploying liquidity for the protocol to burn when necessary.
DYAD is fully collateralized with ETH. Anyone who holds DYAD (not just dNFT holders) can redeem it for 1 worth of ETH in the collateral vault at any time.
Redeeming DYAD for ETH is the only way to decrease a dNFT’s Total Minted DYAD on their balance sheet.
A dNFT’s Burn Liability is based on DYAD minted into circulation, while Mint Entitlement is based on its deposited DYAD.
Both of these use XP as a modifier to amplify or dampen these values.
When a dNFT’s burn liability exceeds its deposited DYAD balance, the protocol will burn all of its deposited DYAD and continue pushing its deposited DYAD balance into the negative.
When a dNFT is in debt, it continues to accrue burn liability according to its Total Minted DYAD balance, but it does not accrue XP or newly minted DYAD. This incentivizes the holder to either deposit more DYAD to clear the debt or sell the dNFT at a discount on secondary.
Until a dNFT’s debt is cleared, every other dNFT absorbs the collateralization of circulating DYAD on the insolvent dNFT’s balance sheet in the form of slightly more leverage. A socialized loss.
To prevent an abandoned dNFT from becoming a debt black hole, the protocol will burn any dNFT whose debt exceeds 0.01% of protocol TVL at any point. A new dNFT will then become claimable in its place.
So how do you get a dNFT anyway? Mint it! It's free. Although, there is a caveat. In order to ensure the protocol has enough TVL at launch to be meaningful, you must deposit 5k worth of ETH into the collateral vault.
The dNFT is yours, and the deposited DYAD allocated to your dNFT when you committed ETH is yours, so by extension the ETH is still yours.
You can withdraw all of your deposited DYAD and redeem it for all of your ETH back if you like. Again, minting is free.
At launch, the protocol will mostly be PvP as dNFT holders attempt to capture leveraged upside, while shifting their downside exposure to those at the bottom of the leaderboard.
However, we may see some very interesting "PvE" elements where users pool capital in order to own a dNFT, as well as team up to manage individual monetary policy for their dNFT, maximizing value for their "shareholders."
That's right, because these collateralized debt positions are NFTs, it opens them up to fractionalization and further composability within DeFi. Instead of forking DYAD, consider a friendly (or fractal) fork owning a dNFT and composing its monetary policy on another chain! 🥳
I tried to keep this thread short, but had to leave some of the nitty gritty details out. Consider joining the Discord and the upcoming testnet campaign rolling out in the next few weeks. Links below!
If you want to get a better understanding of the protocol, please join the Discord here:
Be sure to follow @DYADstable and turn notifications on to be alerted to updates! =)
If you liked this thread, please consider giving me a follow and please like and retweet the first tweet in the thread! 🙏 Link to first post here:
this twitter thread.