Launch of CNYx

In a few hours, CNYx will launch on Dollar Protocol (pending governance vote), marking it as the first synthetic asset to the ecosystem.

The successful launch of CNYx will mark an important milestone as it sets the stage for the handover of governance admin keys to the protocol, which will make this project community-owned and fully decentralized.

How will CNYx work?

CNYx will utilize the CNYx-USDC 12-H TWAP from UniswapV2. It will compare this against the ChainLink CNY-USD aggregate data-feed to determine the supply deltas every rebase.

When CNYx > CNY in terms of dollar value, the protocol will mint new CNYx to 2 parties.

1: 85% of new CNYx will go to CNYx-USDC Liquidity Providers on Uniswap

2: 15% of new CNYx will go to Staked Share holders

When CNYx < CNY in terms of dollar value, the protocol will debase all CNYx holders to repeg.

Initial Supply/Distribution

The initial supply of CNYx will be 21,100. 21,000 CNYx will be distributed to staked Share holders and 100 CNYx will be distributed to the user who deploys the CNYx contract, which will be immediately used to create and provide the initial liquidity into Uniswap’s CNYx-USDC pool.

Why are xBond / USDx LPs not included in the distribution?

While xBond users and USDx LPs are important ecosystem players, we need to evaluate new synthetic launches from a first-principles approach.

There are 2 main ways of launching synthetics:

1: Market Purchase / OTC

With a market purchase or OTC order, the game rewards users with the fastest gas prices, as they will likely buy up the limited supply of new synthetics. This is not scalable as it will ultimately be a game of front-running.

2: Airdrop

Option A: Airdrop to all ecosystem participants weighted by “relative” importance

For Option A, this works well for the first few synthetic launches as there are only a few stakeholders (USDx LPs, xBonds, Share holders). But as the system adds more and more synthetics, this model scales poorly as more and more players will need to be included.

On a technical level, adding support for new synthetic asset distribution to existing users becomes an untenable solution as the number of stake holders exponentially increases.

For those familiar with network effect analysis and Metcalfe, in the graphic above, instead of telephones, each network node would represent a stakeholder. On the 10th synthetic launched, it would be impossible from a functional gas perspective to include every single stakeholder while attempting to weigh their initial distribution of the new synthetic asset.

Option B: Airdrop to staked Share holders

It is much more straightforward from an economic and technical perspective to distribute the initial new synthetic tokens to stake share holders, who represent the governance of all synthetics in the ecosystem.

Economic Argument against Fragmented Distribution

Another way of thinking about this is asking yourself, what is the lost opportunity cost of NOT distributing to xBond and LPs? In our current model, the initial distribution is 21,100 CNYx which at current market prices is roughly $3,200. If we assume a hypothetical distribution model of 33% staked share, 33% USDx-USDC LP and 33% xBond, that means 66% of $3,200 is the opportunity cost, which is roughly $2,112. The cumulative gas costs in the current market off claiming the CNYx for all 500+ xBond holders and over 200 LPs would of course be greater than the opportunity cost, which also proves the point against a fragmented distribution model.

From a game theory perspective, any initial staked Share user would be highly inclined to provide CNYx-USDC LP as that is the only way he/she can earn more seigniorage. Any CNYx held holds less chance at producing a return as you do not receive 85% of the seigniorage.

By providing CNYx-USDC LP, any user can buy into CNYx (most likely at a premium) to increase their LP stake. By doing so, this kickstarts the flywheel for expansion cycles again.

Why can’t I burn USDx for CNYx?

While it is technically feasible to allow USDx to CNYx burns, we are deciding against it for reasons.

1: it again doesn’t scale well for future synthetics (imagine burning 20 different synthetics for 1 new one; this will require additional upgrades to all existing synthetics to allow burning into a new synthetic for a fixed time period)

2: it transfers baggage from one synthetic to another. USDx holders will now be waiting to sell on CNYx. It would be much better to create a USDx-CNYx pool post initial distribution to allow seamless conversion between the two asset classes.

Is there a CNYx Bond?

No — with the passing of RFC 1 for USDx’s xBond, subsequent synthetics in Dollar Protocol will follow the pattern of 85% seigniorage reward to LPs and 15% to staked Share. Of course, each synthetic will eventually have it’s own stake holders via Share and each synthetic may deviate slightly in design.

In Closing…

• ❗️Vote to approve the new CNYx contract
• Stake your Share to receive a portion of the new CNYx
• Developers, keep an eye on Github for new integration tests and CI/CD to allow for seamless open-source protocol upgrades, lead and initiated open-source

governance forum: https://gov.dollarprotocol.com

twitter: https://twitter.com/@dollarprotocol

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