As DEUS v3 begins to generate substantial revenue, it is crucial to understand the intricacies of the xDEUS model and its practical applications. This article aims to provide a detailed overview of the xDEUS system, examining its simplicity and how it fits into the broader DEUS ecosystem.
If you have not read about the role that xDEUS and DEUS play inside the DEUS ecosystem, please take a look at Part 1 of the series:
Section 1: The End of Incentives for xDEUS LPs
With the implementation of the new xDEUS model, liquidity providers (LPs) will no longer be incentivized. This step is taken because users can swap their xDEUS for DEUS using protocol-owned contracts anytime, eliminating the need to provide liquidity.
Section 2: Key Components of the New xDEUS Model
The new xDEUS model comprises several moving parts:
Embedded Staking in the ERC Token: In the new model, xDEUS is automatically staked while it resides in a user’s wallet. This new model eliminates the need to mint xDEUS and stake it in a contract. Examples of similar liquid staking tokens include Yearn Vaults, Compound Debt tokens, and sETH from Lido.
Simplified Minting & Redeeming: Minting & redeeming xDEUS will be as straightforward as staking/unstaking in a yearn vault.
Users deposit DEUS into a contract and receive xDEUS in return, with minting & redeeming occurring at a fixed ratio. This process indicates that there will be no price fluctuations between DEUS and xDEUS and completely removes the speculative element between DEUS & xDEUS.
Dynamic Fee and Loyalty Boost: A penalty fee and loyalty boost system will be implemented, penalizing users for unstaking early. The design is inspired by the reliquary LP model of Beets, GMX’s loyalty staking, and other Loyalty Boost and prematurely unstaking penalty models.
This system includes a maximum stake period, a linear boost of rewards, and a decay of unstaking fees from the day of staking until unstaking.
loyalty stake duration: 16 weeks
linear maximum boost: 2.5x
linear decaying unstake penalty: 10%
Flat redemption fee: 0.3%
Section 3: Understanding the Early Exit Penalty
The early exit penalty is applied as follows:
Maximum penalty: 10% if a user unstakes on the same block as he staked.
Staking 100 DEUS into 100 xDEUS
Staking for 1 second: 10% penalty, receiving 90 DEUS back.
Staking for eight weeks: 50% penalty, receiving 95 DEUS back.
Staking for 16 weeks or more: no penalty, only a standard redeem fee, which is 0.3%, receiving 99.7 DEUS back.
The penalty users pay for early unstaking will flow back into xDEUS backing, permanently increasing the DEUS to xDEUS ratio.
Section 4: Reward Multiplier
The reward multiplier system ensures that users who stake for more extended periods receive boosted rewards compared to those who just started staking. For example, staking for 16 weeks will grant the maximum boost, while only one week offers a 1/16 max boost.
Section 5: Potential Disclaimer
Moving xDEUS between wallets will be treated as a new staking period. However, a whitelisting process will enable protocols like Yearn to build a vault that ensures users will not lose their loyalty staking period while staking with them.
The new xDEUS model offers a simplified staking experience, removing the complexities associated with the current LP model. With a predictable risk-to-reward ratio and eliminating uncertainties surrounding xDEUS price fluctuations, this model ensures that xDEUS can only increase in value compared to DEUS by funneling the unstaking penalties back into the hands of loyal stakers while paying most rewards accrued through v3 and other endeavors to long term stakers.
In conclusion, the proposed changes to the xDEUS model will effectively eliminate the complexity surrounding the relationship between xDEUS and DEUS. Additionally, these modifications will end speculation regarding the xDEUS and DEUS ratio. Investors can now accurately predict the value of their xDEUS tokens in advance, alleviating concerns about the fluctuating xDEUS and DEUS ratio. This streamlining of the system removes friction and simplifies the decision-making process for investors, enabling them to quickly determine whether staking DEUS for a specific duration is worthwhile in pursuit of a certain level of revenue. As a result, the xDEUS model will offer a more transparent, predictable, and user-friendly experience for all parties involved.