EtherealDAO is a Decentralized Autonomous Organization (DAO) that is developing the EtherealUSD stablecoin protocol on Radix. The initiative is inspired by projects like MakerDAO and Liquity on the Ethereum network. By taking the lessons learned from these decentralized financial (DeFi) primitives, EtherealDAO seeks to innovate in the smart contracts and decentralized stablecoin space.
EtherealDAO, governed by the $REAL governance token, aims to establish a CDP-type stablecoin protocol that brings stability to the Radix network ecosystem. It features unique mechanisms designed to maintain a tight peg to the U.S. dollar. The DAO uses the PoS staking rewards incentive structure native to the network to drive development and maintain the ecosystem's health.
The design of EtherealUSD is unconfirmed but the Litepaper proposes using a system called Ethereal Collateralized Debt Positions (ECDPs). ECDPs is a balance sheet of assets to liabilities, a user-owned position with market-making capabilities via a function called "Mandatory Pegging". This system focuses on a single-collateral, single-liability system for V1, named EtherealUSD.
The system derives a Collateral Ratio (CR) from ECDP, which is the value of assets over liabilities. If the CR goes under the Minimum Collateralization Ratio (MCR), the ECDP is liquidated. The liquidation process involves a Dutch auction to sell assets of the ECDP, and any difference between sold and total assets goes to the Treasury.
"Mandatory Pegging" is a module that allows anyone to either mint or burn the stablecoin directly against the system without creating an ECDP. This module ensures that the peg of the stablecoin is maintained in the market.
The system operates in different "System Modes" depending on the Total Collateral Ratio (TCR), which is the total assets in all ECDPs over total liabilities. Various percentage values (RecoveryPoint, BackstopPoint, ConvexityPoint, and CriticalPoint) act as triggers for the system to change its behavior. These system modes provide mechanisms to deal with different market conditions and potential attacks.
Motivations for these design choices are to address issues seen in other DeFi protocols, such as inefficiencies in capital usage, maintaining a tight peg, and handling market volatility in a smoother manner.
Initial Validator Offering (IVO)
One of the innovative methods employed by EtherealDAO is an Initial Validator Offering (IVO). This approach enables DAOs to crowdsource support for projects contributing to the network while advancing the ecosystem. It operates by the DAO registering a validator and calling upon community members to delegate their stake with them. The variable fee is adjusted to 100%, effectively redirecting all emission rewards to the DAO treasury for later use in incentivizing protocol participation and running operations. As a reward for their support, delegators receive the project's tokens at a later date.
To participate, users need to delegate to the validator for a duration of six months. The validator operates at 100% fees during this time, with the airdrop amount dependent on the stake size. An hourly snapshot is taken to reserve tokens pro rata for everyone. Post-IVO, the validator operates at a 7% fee. The airdrop is split into two drops - one approximately two months into the IVO and the second after the IVO concludes.
EtherealDAO operates with the $REAL Tokenomics system. Of the total token supply, 20% is allocated to the IVO airdrop and 80% is reserved for the DAO, under the control of the token voters. There is no predetermined allocation towards early contributors or the team.
The DAO's initiators will request a 10% allocation vested over two years. All aspects of the EtherealDAO tokenomics will be decided through a DAO vote. Proceeds from the validator go directly to the DAO treasury, controlled by the tokens, less the transaction fees to deliver the airdrop.
The EtherealDAO airdrop will be in the form of 20% $REAL tokens and 80% $unREAL tokens. $UnREAL tokens are a 1:1 $REAL claim that unlocks after staking liquidity in the protocol. After the Babylon hard fork, only smart wallets holding the Ethereal Validator LSU will qualify for the airdrop.
Once the EtherealUSD protocol is live, participants will be able to engage in both the protocol and the IVO. EtherealDAO continues to welcome contributions and support from those interested in advancing the Radix ecosystem.