Key Concepts and Stakeholders
The Dexponent Protocol operates as a unified ecosystem where various stakeholders contribute to and derive value from the network. By ensuring transparency, security, and sustainable returns, the protocol incentivises meaningful participation. Below are the primary stakeholders and their roles: Liquidity providers(LPs) are investors, retail or institutional, who provide liquidity to the protocol to get fixed returns on their principal(Usually they have the largest component). These providers can lock their assets (eg., ETH, Stablecoins) into the protocol which are then used to generate yield through various DeFi strategies. LPs will have the largest component of reward.
Farm Owners
Farm Owners, typically institutional entities, are responsible for designing and managing yield generating strategies. These strategies include staking pools, lending mechanisms, and other asset-specific approaches (e.g., $BTC, $ETH). Farm Owners establish key operational parameters, such as verifier allocation and incentive distribution, ensuring alignment with their investment objectives.
To uphold transparency:
Farm Owners cannot act as Verifiers within the protocol.
A reduction in the number of Verifiers, aimed at lowering costs, will be visible to all participants and may impact community trust in the Farm's reliability.
The number of Farms will be limited to start with, in order to maintain the quality of investors and strategies, only the most performant farms in terms of the consistency and reward generation will remain on the network.
Liquidity Provision
When LPs decide to contribute to a protocol, they effectively lock up their assets, which can include cryptocurrencies like Ethereum (ETH) or various stablecoins. These assets become part of a pool within the protocol, which is then utilised to generate yield. This yield generation is achieved through various strategies that the protocol employs, often referred to as "DeFAI strategies." These strategies might include lending, borrowing, or participating in other financial activities that generate interest and fees.
Rewards and Returns:
Instant Rewards: Upon allocation of their assets and locking them into pools within the protocol, LPs receive instant rewards in $DXP tokens as an incentive for their participation, this incentive is basically an early payout as a percentage of the reward which they would have gotten after maturity..
Return Mechanics: Most farms generate returns in the input asset although some farms might produce additional subsidiary assets as well depending on the specifics of the strategy, these returns are typically unlocked at the contract's maturity.
Pre-Mature Exit: After locking their assets, for getting the full returns LP’s need to serve the entire maturity period. However, If an LP opts to terminate their participation before maturity, they will need to return the rewarded $DXP and will incur a fee deducted from the yield generated during their tenure.
Compliance and KYC Requirements:
Security and compliance are pivotal in DeFAI, given the increasing regulatory scrutiny. For farms that require compliance with Know Your Customer (KYC) regulations, LPs must first acquire a Draft NFT (Non-Fungible Token). This step is crucial as it facilitates the generation of a Soulbound NFT, which is linked to the LP's wallet address. This process not only ensures regulatory compliance but also secures the LP’s identity and eligibility to participate in the pool.
Transparency and Optimisation:
Transparency is another cornerstone of the DeFAI ecosystem. The protocols offer transparent performance metrics that allow LPs to track and monitor their investments’ performance. LPs can see how their funds are being utilised, what yields are being generated, and how the market movements affect their investments. This transparency enables them to make informed decisions and optimise their investment strategies for better returns.
In summary, being an LP provides a unique opportunity to earn returns in the DeFAI space while contributing to the liquidity and efficiency of the protocols. With the added layers of compliance, transparency, and optimisation, LPs can navigate the DeFAI landscape with confidence and security.
Yield Yodas
Yield Yoda earns yield while providing this LP’s liquidity to the DeFAI ecosystem. Yield Yodas receive fees based on yield reward and decided by Farm owners.Yield Verifiers closely monitor them and rank their performance. Yield Verifiers evaluate how well different strategies are working within the protocol. This ranking encourages Yield Yodas to improve their strategies to maximise their yields.
Yield Generation Mechanisms
Yield Yodas encompass a diverse array of yield-generating strategies, including:
Proof-of-Stake Validators: For example, staking on Ethereum.
Collateralised Debt Obligations (CDOs): Used for stablecoin minting.
Automated Market Maker (AMM) Pools: Liquidity pools facilitating decentralized trading.
Lending and Borrowing Pools: Mechanisms to generate returns through interest-based transactions.
Performance Optimisation and Monitoring
The protocol employs a rigorous ranking and weighting system, managed by verifiers, to ensure optimal performance and equitable liquidity distribution across Yield Yodas. Key aspects include:
Dynamic Competition: Performance is monitored on a block-by-block basis, creating a competitive environment where only the most efficient and reliable Yield Yodas retain their positions. Underperforming entities are systematically removed from the network to maintain high standards of yield generation.
Customisable Deployment: Each farm may deploy between 1 to y Yield Yodas, with the value of y defined by the Farm Owner based on their strategy and objectives.
Purpose Driven Functionality
The protocol's emphasis on real time monitoring and competition ensures that liquidity is directed to the most effective Yield Yodas, aligning performance with investor returns and reinforcing the protocol's commitment to transparency and efficiency.
Verfiers
These entities play an important role in the ecosystem by distribution of liquidity to the Yield Yodas based on a miner’s weightage and ranking. Verifiers verify the yield generated and also benchmark the yields, and also monitor the risk exposure and reliability of Yield Yodas to ensure the distribution of rewards to LPs using the help of “Proof of return” models.
Performance Monitoring: Actively validating the performance of Yield Yodas to ensure transparency and sustained efficiency.
Intelligent Benchmarking: Setting performance benchmarks using advanced AI algorithms to incentivise high-performing strategies.
Liquidity Allocation: Distributing liquidity among Yield Yodas based on their performance metrics and APY targets.
To ensure accountability, the protocol requires Verifiers to stake $DXP tokens. This staking acts as a deterrent against malicious behavior, with penalties such as slashing imposed for dishonest attestations although the specific slashing criteria are yet to be defined. Farm Owners can also supervise Verifiers to provide an additional layer of oversight.
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