Dynamic redemption tranches

Lafachief
4 min readMay 26, 2022

A game theoretical approach to solving the Prisoners dilemma

DEUS dynamic redemption game theory

The best action for the protocol would be if everyone redeems, as valued above with +3.

The second-best action would be to acquire Bonds valued at+1.

Currently, most users are holding out, valued at -3.

As shown in this graph, the only way for everyone to win the most in this environment is by collaborating, in some way or form, to reduce the supply of DEI and increase its USDC backing.

If a majority holds and the other majority redeems, we are at least in neutral territory, at this point, it makes sense to release Bonds.

Neutral territory Redeems & Holds +3,-3 = 0.

Given the payoff matrix for the protocol above, the priority for rewards goes from redeemers → to bond buyers → to regular holders.

To adjust for this, once the redemption phase is over, there will no longer be an opportunity to redeem DEI at such a high valuation.

The longer someone waits and holds, the lower their redeem value will be.

As a protocol, to move to the next phase where we can open Bonds, we first need to have significant participation in the redemption or reach neutral ground displayed in the graphic as yellow and green colors. Otherwise, Bonds will just kick the can down the road by pushing the problem into the future.

This is also visible in the risk early redeemers face compared to the low risk of late redeemers. Early redeemers are more suitable for the protocol than late redeemers, as they kick off more redeems for others.

updated:06.06.2022
The final tranche, a game-theoretical approach

Introducing the dynamic redemption

update after DIP-8 passed

The vDEUS dollar values owed to redeemers will get paid out according to specific DEUS prices and corresponding liquidity-drip thresholds, which are defined as follows:

Threshold: $250, $500, $750, $1000
Liquidity Drip: 2%, 3%, 4%, 5%

The liquidity drip represents the % number of total aggregated DEX liquidity (only DEUS part and not the secondary token), as of today, DEXes are Spiritswap, BeethovenX, Solidly and Spookyswap.
If the market conditions allow it, the team will have the liberty to adjust the drip % upwards, in order to facilitate faster payback of debt, without hurting the market.

Example:
The price of DEUS reaches $270 and stays there for 3 days, the total liquidity at that time is $7MM across ALL DEUS liquidity pools on DEXs.

The total daily payout would then be $140,000 or 560 DEUS given equally to all the vDEUS holders.

Debt payback will trigger once the DEUS price reaches above $250 and it maintains the price for 3 days consecutively.

In case the price falls below $250 again, the payouts will pause.

vDEUS staking:
vDEUS can be staked into contracts for 3, 6 and 12 months, the corresponding APRs are 10%, 20% and 40%. The APRs are fixed but can only be guaranteed at a DEUS price of $40 or above.

In case the $250 trigger cannot be reached,

vDEUS to veDEUS conversion:
Anytime after 3 months, people can burn their lock to convert vDEUS into veDEUS, the amount will be determined by vDEUS total value owed divided by DEUS market price.

Reverse options

because of the update, we made it possible for people to reverse their vDEUS positions and while we are working on the contracts receive some redemption rewards.

Also in case $250 cant be reached, redeemers will generally have the following options to exit their vDEUS position:

3 months: 120-day locked reverse into original redeem amount or 100% conversion to 4-year-locked veDEUS at market price (vDEUS value owed divided by DEUS market price)

6 months: reverse into original redeem amount or 100% conversion to 4-year-locked veDEUS at market price (vDEUS value owed divided by DEUS market price)

12 months: reverse into original redeem amount or 100% conversion to 4-year-locked veDEUS at market price (vDEUS value owed divided by DEUS market price)

Once the price reaches $250, all exit options are permanently closed and all APRs from vDEUS staking go to 0%. All locks (no matter when they expire) will expire in that moment and people can withdraw their NFTs from that lock and start the DEUS redemption process.

Unlisted

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