EtherealDAO was a Decentralized Autonomous Organization (DAO) that was developing the EtherealUSD stablecoin protocol on Radix. The initiative was inspired by projects like MakerDAO and Liquity on the Ethereum network. By taking the lessons learned from these decentralized financial (DeFi) primitives, EtherealDAO sought to innovate in the smart contracts and decentralized stablecoin space.
Overview
EtherealDAO, governed by the $REAL governance token, aimed to establish a CDP-type stablecoin protocol that brought stability to the Radix network ecosystem. It featured unique mechanisms designed to maintain a tight peg to the U.S. dollar. The DAO used the PoS staking rewards incentive structure native to the network to drive development and maintain the ecosystem's health.
EtherealUSD
The design of EtherealUSD was unconfirmed but the Litepaper proposed using a system called Ethereal Collateralized Debt Positions (ECDPs). ECDPs was a balance sheet of assets to liabilities, a user-owned position with market-making capabilities via a function called "Mandatory Pegging". This system focused on a single-collateral, single-liability system for V1, named EtherealUSD.
The system derived a Collateral Ratio (CR) from ECDP, which was the value of assets over liabilities. If the CR went under the Minimum Collateralization Ratio (MCR), the ECDP was liquidated. The liquidation process involved a Dutch auction to sell assets of the ECDP, and any difference between sold and total assets went to the Treasury.
"Mandatory Pegging" was a module that allowed anyone to either mint or burn the stablecoin directly against the system without creating an ECDP. This module ensured that the peg of the stablecoin was maintained in the market.
The system operated in different "System Modes" depending on the Total Collateral Ratio (TCR), which was the total assets in all ECDPs over total liabilities. Various percentage values (RecoveryPoint, BackstopPoint, ConvexityPoint, and CriticalPoint) acted as triggers for the system to change its behavior. These system modes provided mechanisms to deal with different market conditions and potential attacks.
Motivations for these design choices were 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 was an Initial Validator Offering (IVO). This approach enabled DAOs to crowdsource support for projects contributing to the network while advancing the ecosystem. It operated by the DAO registering a validator and calling upon community members to delegate their stake with them. The variable fee was 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 received the project's tokens at a later date.
To participate, users needed to delegate to the validator for a duration of six months. The validator operated at 100% fees during this time, with the airdrop amount dependent on the stake size. An hourly snapshot was taken to reserve tokens pro rata for everyone. Post-IVO, the validator operated at a 7% fee. The airdrop was split into two drops - one approximately two months into the IVO and the second after the IVO concluded.
Tokenomics
EtherealDAO operated with the $REAL Tokenomics system. Of the total token supply, 20% was allocated to the IVO airdrop and 80% was reserved for the DAO, under the control of the token voters. There was no predetermined allocation towards early contributors or the team.
The DAO's initiators would request a 10% allocation vested over two years. All aspects of the EtherealDAO tokenomics would be decided through a DAO vote. Proceeds from the validator went directly to the DAO treasury, controlled by the tokens, less the transaction fees to deliver the airdrop.
The EtherealDAO airdrop would be in the form of 20% $REAL tokens and 80% $unREAL tokens. $UnREAL tokens were a 1:1 $REAL claim that unlocked after staking liquidity in the protocol. After the Babylon hard fork, only smart wallets holding the Ethereal Validator LSU would qualify for the airdrop.
Once the EtherealUSD protocol was live, participants would be able to engage in both the protocol and the IVO. EtherealDAO continued to welcome contributions and support from those interested in advancing the Radix ecosystem.