Author: Justin Baba, Messari Research Analyst; Translated by: 0xjs@Golden Finance
The crypto industry has long been struggling to solve the stablecoin trilemma, namely creating a stablecoin that is decentralized, capital efficient, and value-stable.
Centralized stablecoins such as USDT and USDC meet scalability requirements, but their reliance on centralized entities makes them vulnerable to government intervention.
On the other hand, decentralized stablecoins, especially the collateralized debt position (CDP) model like MakerDAO’s DAI, offer a more censorship-resistant alternative but face significant scaling challenges due to the fact that these stablecoins have high collateralization ratios (meaning that the value of the collateral backing the stablecoin is higher than the value of the stablecoins minted). This results in an inefficient use of capital.
Hence DYAD, a CDP stablecoin designed to solve the capital efficiency problem while remaining decentralized.
DYAD can mint stablecoins at a 1:1 ratio with collateral. This is achieved through DYAD’s utility token, KEROSENE.
To mint DYAD, users must first obtain a Note NFT. Notes can be minted directly from the protocol or purchased on the secondary market, with costs increasing over time. Once a Note is obtained, users can deposit various collateral types such as WETH, wstETH, tBTC, and sUSDe and mint DYAD against that collateral.
Liquidation occurs when the collateral value falls below the required collateralization ratio (CR) of 150%. In this case, other note holders can liquidate their positions and receive their collateral and a 20% bonus.
KEROSENE is the key element to unlock the DYAD mechanism, enabling users to mint stablecoins with higher loan-to-value ratios.
KEROSENE tokenizes excess collateral deposited into the protocol, allowing users to utilize this previously unused collateral. However, it is important to note that, unlike Luna, KEROSENE does not increase the TVL of the protocol.
Its value is deterministic and can be calculated by subtracting the value of the total DYAD supply from the amount of exogenous collateral deposited, and then dividing that value by the total supply of KEROSENE tokens.
Note holders can earn KEROSENE by providing liquidity to the DYAD-USDC liquidity pool. In addition, users can increase their earnings through XP, which is earned over time by liquidity providers based on the amount of KEROSENE held in their notes. When a user withdraws KEROSENE from their Note, the XP balance of the Note will be slashed.
Source: @coffeexcoin’s Dune Dashboard
DYAD represents an attempt to redefine decentralized stablecoins by combining improved capital efficiency with flywheel token economics. If the protocol can continue to grow DYAD supply and its TVL, then demand for KEROSENE will increase as users look to access this additional capital.
