Dyad: Countdown to ignition

Changing the flywheel mechanisms

Some context (2:10)

Kerosene's deterministic value = (TVL - DYAD Supply) / Kerosene Supply. A stable deterministic value is crucial for users to mint DYAD without fear of liquidation due to volatility.

Kerosene serves as the yield within the system. A higher Kerosene market price enhances the attractiveness of farming yields, but Kerosene's value becomes very shaky.

There were strategies where users intentionally increased the TVL to increase KERO's price and get more yields. Dyad's goal is to increase Total Value Locked (TVL) without increasing the collateralization ratio.

The changes (6:40)

Moving away from relying on Merkl to a proprietary staking contract for better control and efficiency in rewards distribution

Previously, farming Kerosene didn't require owning a Note (Dyad-specific NFT to mint DYAD stablecoins), leading to less efficient farming and immediate selling.

Now, users are required to hold a Note to get XP. Hence, they are more invested in the protocol and can farm more efficiently.

Transition from Uniswap V3 to Curve to simplify liquidity provision and eliminate the complexities of managing concentrated liquidity.

Introduction of DYAD Minted Balance as a Boost Factor. The DYAD minted balance boosts the effective size of a user's LP position in the staking contract, so this encourages TVL growth without increasing the overall collateralization ratio.

Simplification of XP Mechanism (12:40)

Old System: XP accrued over time based on the amount of Kerosene deposited in a node.

New System: Users instantly earn XP by burning (igniting) Kerosene.

Burning Kerosene sends it back to the multisig wallet, effectively reducing the circulating supply. For each Kerosene burned, a user gains one XP.

Benefits of the New XP Mechanism:

• Encourages behavior directly aligned with protocol goals: increasing TVL and stabilizing Kerosene's value.
• Users are motivated to burn Kerosene to gain XP, enhancing their farming efficiency.
• As Kerosene is trading below $1 (approximately $0.09), burning it for XP is a rational choice for users seeking higher yields.

Considerations on fairness and growth

The team aims to ensure the protocol remains attractive to new users regardless of when they join or the size of their investment.

However, it is preferable to maximize benefits for all users rather than minimize disparities.

While some users may gain more due to early adoption or larger investments, the protocol provides compelling value to all participants.

Joey draws an analogy to economic models that prioritize improving material conditions over reducing income inequality.

Addresses potential issues with extreme outliers (20:30)

Hyperbolic tangent scaling

Some users can have Notes with disproportionately large influence. Dyad must ensure that no single node or user can achieve uncatchable dominance in the system.

So the team applied a hyperbolic tangent function to scale rewards and incentives, encouraging the distribution of resources and liquidity among multiple notes.

The scaling effect is minimal for most users and only becomes significant for extreme outliers.

Previously considered halving XP balances every five weeks has been removed. The new scaling approach provides a more gradual and fair adjustment without abrupt changes.

The overall impact on the flywheel mechanism

• Enhanced stability and efficiency. It supports the protocol's primary goals of TVL growth and Kerosene value stabilization.
• User experience improvements, with simplified participation requirements and benefits calculations.
• Future-proofing the protocol by creating a system that rewards both early and new users appropriately, the protocol is positioned for sustained growth.

Questions & Answers (25:50)

If XP is no longer going to be time-based with kerosene deposits, does that mean withdrawing kerosene is no longer going to reduce our XP?

Yes, withdrawing kerosene will no longer reduce XP. Depositing kerosene is now completely separated from earning XP and is strictly used as backing collateral for DYAD.

XP now functions as a multiplier that boosts efficiency for earning kerosene from providing liquidity to the pool. This change removes unnecessary friction for users with multiple notes.

Depositing Kerosene gives users maximum optionality:

• Price exposure to Kerosene
• Ability to ignite it later for XP if needed

How did this evolve? It's totally different from what was originally understood.

The change was precipitated by issues with the time-based accrual of XP, particularly regarding the synchronization of relative boosts for notes providing liquidity.

Previous systems using Merkl for off-chain calculations made it impossible to surface critical information about a node's actual yield bonus.

The new staking contract will do calculations completely on-chain, allowing for a more transparent information display with more rational inputs:

• Burn-based XP accrual
• Scaling using hyperbolic tangents

Relative positions of nodes now only change when note holders execute specific transactions:

• Igniting kerosene for XP
• Minting or burning DYAD
• Increasing or decreasing LP size

What's the timeframe looking like?

The new system is currently being audited, and scheduled to be completed this week. Could be longer if critical issues are found and need to be addressed.

Concurrently, changes are being made to the front end to explain and make the new functionalities accessible.

What happens to the existing XP that users have already earned?

All existing XP will be carried over to the new system, there will be no reset. The conversion rate is being finalized, based on kerosene's market value at the time of switchover.

There will likely be a multiplier applied to the current XP, ranging between 10x and 100x. The multiplier will reflect the commitment users made to earn their XP.

Is there any incentive to mint DYAD anymore, or is it purely about burning kerosene?

There are three main components in the new system:

1. Igniting Kerosene
2. Carrying a DYAD minted balance
3. Providing liquidity

DYAD minted balance is equivalent to additional XP in terms of boosting rewards, and earning XP itself is done by igniting kerosene.

The function to boost effective LP size for kerosene emissions allocation is:

(XP + DYAD minted balance) * actual LP size (with hyperbolic tangent scaling applied)