March 3, 2023

rDPX v2 for the Mentally Challenged

Dopex-Papers Dopex-Essentials

“If you’re reading this, you probably saw the rDPX v2 documentation and thought to yourself “what in tarnations is going on here”?

Fret not, my silly bean, as the CEO presents to you a dumbed down v2 explainer for the mentally challenged.

Read on, people!

What is the v2 Upgrade?

Right now $rDPX does nothing.

When v2 is launched, $rDPX will do something.

That “something” is minting synthetic assets such as $dpxETH via a neat little bonding mechanism.

Utility for $rDPX?

This allows us to issue it as a rebate token for option writers.

Rebate for writers = lower cost of providing liquidity = more liquidity on Dopex

Wot mean synthetic?

Synthetic Asset = Pretty much its target asset

A synthetic is an asset that imitates another asset.

For $dpxETH, the asset it aims to imitate is $ETH (the ‘target asset’).

For the purpose of cryptographic currency enthusiasts, what we care about for synthetic is its ability to maintain peg to its target asset.

1 dpxETH = 1 ETH

This is what we want.

The way this tends to be done is via deep liquidity (lots of tokens) in a stableswap automated market maker (“AMM”) such as Curve. To achieve this, Dopex and our dear affiliates have been accumulating $CVX, a token with large voting power on Curve.

This voting power will be used to increase $CRV and $CVX emissions to our dpxETH-ETH pool.

High emissions = High APY = High dpxETH and ETH deposits = deep liquidity

Deep liquidity = strong peg = strong synthetic.

Quick mafs.

Wot mean bonding?

You bond, you earn bonding discount

In DeFi, bonding is the process of providing X to receive > X after a bonding period.

For v2, bonders will be able to provide X $ETH (in 25% $rDPX and 75% $ETH) to receive > X $dpxETH.

Note that bonders will also have to provide the premium for a 25% OTM rDPX-ETH perpetual put. Fret not, nuggets, this will be covered shortly.

The difference between > X (what the bonder receives) and X (what the bonder gives) is known as the bonding discount. This is what incentivizes bonders to bond.

The bonded assets can be deployed by the rDPX treasury to earn yield and further grow backing while the bonder benefits from $dpxETH at a discount!

Wot mean backing?

Backing = bonded assets that support value of synthetic asset

In the v2 context, backing refers to the assets held by the treasury that support the value of $dpxETH minted.

Pretend there is 1,000 $dpxETH in circulation and nothing in the rDPX Treasury. The $dpxETH is not backed.

This is not good.

For $dpxETH, backing is created via the bonding process, with the bonded $rDPX and $ETH serving as $dpxETH’s backing.

But wait a damn minute... $rDPX is not $ETH!

rDPX up. rDPX down. rDPX stable. Wot mean. Wot mean.

WAIT WAIT WAIT.

What if, Nutoro forbid, $rDPX goes to ZERO?

WHAT IN TARNATIONS??? ONLY 75% BACKED???

I shall not stand for this!

Steady on lads… put those 25% OTM rDPX-ETH Perpetual Puts into action!

Wot mean 25% OTM rDPX-ETH Perpetual Puts?

25% OTM rDPX-ETH perpetual put = rDPX can fall by at most 25% before further losses offset by put payoffs

As you can see above:

$rDPX price up = $dpxETH collateralization increases
$rDPX price down = $dpxETH collateralization decreases

Down = not good.

Now you may recall from “Wot mean bonding?” that the bonding process requires the purchase of 25% OTM rDPX-ETH perpetual puts.

What the devil does that mean?

In brief, the puts pay out if the price of rDPX/ETH falls by 25%. The more that rDPX/ETH falls, the more the puts will pay out.

This creates a backstop on the $rDPX component of backing to be 75% - if it falls by any more than 25%, any additional depreciation will be fully offset by the 25% OTM perpetual puts.

Putting that strong noggin to good use!

Me big brain me want understand (skip if not big brain)!

Minimum backing of dpxETH = 93.75%

For those that think they have 50+ IQ, allow CEO to explain:

$dpxETH is backed by 75% $ETH (grey area). This amount is constant.

$dpxETH is also backed by 25% $rDPX (blue area). This area will fluctuate based on the rDPX/ETH price.

The use of a 25% OTM put means that if rDPX/ETH falls by more than 25%, the puts will pay out the excess amount.

An example calculation:

Pretend the price of $rDPX is initially $100 which means the strike price of the put is $75.

If $rDPX falls to $50, the put will pay out $25 (payout = strike - spot price = 75 - 50).

If $rDPX falls to $0, the put will pay out $75 (payout = strike - spot price = 75 - 0).

Maximum drawdown? 25% (Drawdown to $75 from $100 = $25; 25/100 = 25%)

This places a backstop on $rDPX of 75% (1 - 25%) of its initial value. Since $rDPX is 25% of $dpxETH’s backing, the minimum backing proportion of the $rDPX component is 18.75% (25% * (1 - 25%).

If we add back the 75% $ETH backing, this means the minimum possible backing of $dpxETH is 93.75% (75% + 18.75%).

Floor protection - powered by options!

Obviously, this assumes the worst case scenario for $rDPX’s price. Contrarily, if the price increases, $dpxETH’s backing amount will also increase.

Absolutely incredible.

Who gib put liquidity?

You gib liquidity = you receives premiums, fundings, incentives → collateral slashed if puts triggered

Now in order for there to be 25% OTM rDPX-ETH puts to be used, there must be people willing to write these puts.

Who are these people? You and me, my silly student.

As a put writer, you will deposit $ETH into a perpetual put pool.

You will earn:

Premiums paid in $ETH by the bonder
Funding fees paid in $ETH by the treasury
Incentives paid in $DPX by the treasury (3k $DPX/year for the first 3 years)

As a put writer, if the price of $rDPX does fall below the 25% OTM strike price, your $ETH collateral will be slashed to pay the treasury.

Additionally, since this is a perpetual pool, you will only be able to withdraw your deposit if it is unutilized. While deposited, however, you can continue earning from premiums, funding fees, and incentives!

Splendid.

Wot use treasury assets for?

Treasury assets used for rDPX/ETH LPing

You will notice from “Wot mean bonding?” that the bonded $rDPX and $ETH may be deployed to earn yield for the treasury

Let’s be more specific.

V2 will be accompanied by a permissioned rDPX/ETH AMM that will only accept deposits by the rDPX Treasury and will have added sales tax for $rDPX sales. The treasury will pair $rDPX with $ETH to provide liquidity, allowing traders to swap $rDPX for $ETH as they desire (the remaining $ETH will be kept in the treasury.

Now, since the treasury owns this liquidity, it will earn fees from all transactions.

Buy $rDPX? Treasury earns fees. $dpxETH's $rDPX backing increases.

Sell $rDPX? Treasury earns fees. $dpxETH's $rDPX backing decreases (price down) while $ETH backing increases (amplified by the sales tax).

Intriguing indeed.

Wot mean scary formula?

Bond assets = rDPX removed from rDPX/ETH AMM and burned

If you had the displeasure of perusing the nerd version of the v2 docs, you may have ran into a scary formula.

What in Nutoro’s name?

Don't even worry about it - what this means is that every time somebody bonds, some amount of rDPX will be removed from the liquidity pool and burned. The rate of burn will be affected by a number of factors, such as the current supply of $rDPX, $rDPX available in the LP, and treasury $rDPX reserves.

A supply shunt on rDPX supply?

Comedy ensues.

$dpxETH down. $dpxETH up. Wot mean?

Peg stability modules = protect $dpxETH ≈ $ETH

While the intention of $dpxETH is to be a perfect $ETH synthetic, if our Curve pool discussed in “Wot mean Synthetic” is imbalanced, the price of $dpxETH may deviate.

This is where our Peg Stability Modules kick in to return $dpxETH price to its peg to $ETH.

$dpxETH > 1.01 $ETH

We have too much $ETH and too little $dpxETH in the pool!

Users can mint $dpxETH 1:1 with $ETH. This will allow them to swap the $dpxETH in the pool and profit the difference while returning the pool to a balanced state.

We call this “arbitrage” where I come from.

$dpxETH < 0.99 $ETH

We have too little $ETH and too much $dpxETH in the pool!

The treasury has a function that can be called by veDPX holders which will allows it to remove $dpxETH from the Curve pool until the pool is balanced.

Incredible.

$dpxETH < 0.985 $ETH

Oh bollocks!

We have far too little $ETH or far too much $dpxETH in the pool!

At this point, holders with > 1k veDPX will be able to redeem $dpxETH for its $ETH and $rDPX backing.

This will allow them to purchase (for example) 1 $dpxETH for 0.985 $ETH and redeem it for 1 $ETH worth of the underlying. This will rebalance the pool while allowing the redeemers to once again so-called “arbitrage” the difference.

Splendid.

How tie in to the rest of Dopex?

Rebate for writers = lower cost of providing liquidity = more liquidity on Dopex

To understand the importance of the system, you have to understand the mint mechanism of $rDPX. With the v2 system upgrade, $rDPX will be given as rebates for option writers to compensate for a portion of their losses.

The intention for this is to make providing liquidity on Dopex the least costly in the event of losses, creating a liquidity moat for our platform that will make us simply the greatest ever.

Now, these rebates will not be given as vanilla $rDPX - rather, it will be given in the form of decaying bondable $rDPX (dbrDPX).This is a special token whose only function is to substitute for $rDPX in the bonding process. Simply provide the 75% $ETH and get back 100% + bonding discount in $dpxETH.

This is what we mean by bondable.

Now, dbrDPX cannot just sit in your hot little wallet forever. Rather, **each dbrDPX has an expiry date - if it is not bonded by expiration, it will expire worthless.**

This is what we mean by decayable.

The value of this is that we can provide benefits to our liquidity providers in the form of a non-dilutive version of $rDPX which can only be realized via bonding.

Option writers benefit from $dpxETH without needing to purchase $rDPX - they can simply use dbrDPX as a substitute.

Dopex benefits from deeper liquidity and increased bonded assets to our treasury.

Truly groundbreaking!

Closing Comments

I hope that this has been a helpful little run through of the rDPX v2 upgrade and will help you on your way to getting a deeper understanding of some of the key mechanisms.

If you still have any questions, feel free to DM 0xSaitama directly on Discord.

Warm regards,

Nutoro

CEO of Diamond Pepes Pty Ltd.
CA CFA MBA PhD LLM

—

About Dopex

Dopex is a decentralized options protocol that aims to maximize liquidity, minimize losses for option writers and maximize gains for option buyers — all in a passive manner.

Dopex uses option pools to allow anyone to earn a yield passively. Offering value to both option sellers and buyers by ensuring fair and optimized option prices across all strike prices and expiries. This is thanks to our own innovative and state-of-the-art option pricing model that replicates volatility smiles.

📱 Stay Connected

Follow our official social media accounts and visit our website to stay up to date with everything Dopex.

Twitter | Discord | Website

🚨 IMPORTANT

Be careful of fake Telegram groups, Discord servers and Twitter accounts trying to impersonate Dopex.

Always verify that you are on our official Discord server, Twitter page, or website.

Thanks for your support!

Dopex reserves the right in its sole discretion to amend or change or cancel this announcement at any time and for any reasons without prior notice.

—

About Dopex

Dopex is a decentralized options protocol that aims to maximize liquidity, minimize losses for option writers and maximize gains for option buyers — all in a passive manner.

Dopex uses option pools to allow anyone to earn a yield passively. Offering value to both option sellers and buyers by ensuring fair and optimized option prices across all strike prices and expiries. This is thanks to our own innovative and state-of-the-art option pricing model that replicates volatility smiles.

📱 Stay Connected

Follow our official social media accounts and visit our website to stay up to date with everything Dopex.

Twitter | Discord | Website

🚨 IMPORTANT

Be careful of fake Telegram groups, Discord servers and Twitter accounts trying to impersonate Dopex.

Always verify that you are on our official Discord server, Twitter page, or website.

Thanks for your support!

Dopex reserves the right in its sole discretion to amend or change or cancel this announcement at any time and for any reasons without prior notice.

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March 3, 2023

rDPX v2 for the Mentally Challenged

*“*If you’re reading this, you probably saw the rDPX v2 documentation and thought to yourself “what in tarnations is going on here”?

Fret not, my silly bean, as the CEO presents to you a dumbed down v2 explainer for the mentally challenged.

Read on, people!

What is the v2 Upgrade?

Right now $rDPX does nothing.

When v2 is launched, $rDPX will do something.

That “something” is minting synthetic assets such as $dpxETH via a neat little bonding mechanism.

Utility for $rDPX?

This allows us to issue it as a rebate token for option writers.

Rebate for writers = lower cost of providing liquidity = more liquidity on Dopex

Wot mean synthetic?

Synthetic Asset = Pretty much its target asset

A synthetic is an asset that imitates another asset.

For $dpxETH, the asset it aims to imitate is $ETH (the ‘target asset’).

For the purpose of cryptographic currency enthusiasts, what we care about for synthetic is its ability to maintain peg to its target asset.

1 dpxETH = 1 ETH

This is what we want.

The way this tends to be done is via deep liquidity (lots of tokens) in a stableswap automated market maker (“AMM”) such as Curve. To achieve this, Dopex and our dear affiliates have been accumulating $CVX, a token with large voting power on Curve.

This voting power will be used to increase $CRV and $CVX emissions to our dpxETH-ETH pool.

High emissions = High APY = High dpxETH and ETH deposits = deep liquidity

Deep liquidity = strong peg = strong synthetic.

Quick mafs.

Wot mean bonding?

You bond, you earn bonding discount

In DeFi, bonding is the process of providing X to receive > X after a bonding period.

For v2, bonders will be able to provide X $ETH (in 25% $rDPX and 75% $ETH) to receive > X $dpxETH.

Note that bonders will also have to provide the premium for a 25% OTM rDPX-ETH perpetual put. Fret not, nuggets, this will be covered shortly.

The difference between > X (what the bonder receives) and X (what the bonder gives) is known as the bonding discount. This is what incentivizes bonders to bond.

The bonded assets can be deployed by the rDPX treasury to earn yield and further grow backing while the bonder benefits from $dpxETH at a discount!

Wot mean backing?

Backing = bonded assets that support value of synthetic asset

In the v2 context, backing refers to the assets held by the treasury that support the value of $dpxETH minted.

Pretend there is 1,000 $dpxETH in circulation and nothing in the rDPX Treasury. The $dpxETH is not backed.

This is not good.

For $dpxETH, backing is created via the bonding process, with the bonded $rDPX and $ETH serving as $dpxETH’s backing.

But wait a damn minute... $rDPX is not $ETH!

rDPX up. rDPX down. rDPX stable. Wot mean. Wot mean.

WAIT WAIT WAIT.

What if, Nutoro forbid, $rDPX goes to ZERO?

WHAT IN TARNATIONS??? ONLY 75% BACKED???

I shall not stand for this!

Steady on lads… put those 25% OTM rDPX-ETH Perpetual Puts into action!

Wot mean 25% OTM rDPX-ETH Perpetual Puts?

25% OTM rDPX-ETH perpetual put = rDPX can fall by at most 25% before further losses offset by put payoffs

As you can see above:

Down = not good.

Now you may recall from “Wot mean bonding?” that the bonding process requires the purchase of 25% OTM rDPX-ETH perpetual puts.

What the devil does that mean?

In brief, the puts pay out if the price of rDPX/ETH falls by 25%. The more that rDPX/ETH falls, the more the puts will pay out.

This creates a backstop on the $rDPX component of backing to be 75% - if it falls by any more than 25%, any additional depreciation will be fully offset by the 25% OTM perpetual puts.

Putting that strong noggin to good use!

Me big brain me want understand (skip if not big brain)!

Minimum backing of dpxETH = 93.75%

For those that think they have 50+ IQ, allow CEO to explain:

$dpxETH is backed by 75% $ETH (grey area). This amount is constant.

$dpxETH is also backed by 25% $rDPX (blue area). This area will fluctuate based on the rDPX/ETH price.

The use of a 25% OTM put means that if rDPX/ETH falls by more than 25%, the puts will pay out the excess amount.

An example calculation:

Pretend the price of $rDPX is initially $100 which means the strike price of the put is $75.

If $rDPX falls to $50, the put will pay out $25 (payout = strike - spot price = 75 - 50).

If $rDPX falls to $0, the put will pay out $75 (payout = strike - spot price = 75 - 0).

Maximum drawdown? 25% (Drawdown to $75 from $100 = $25; 25/100 = 25%)

This places a backstop on $rDPX of 75% (1 - 25%) of its initial value. Since $rDPX is 25% of $dpxETH’s backing, the minimum backing proportion of the $rDPX component is 18.75% (25% * (1 - 25%).

If we add back the 75% $ETH backing, this means the minimum possible backing of $dpxETH is 93.75% (75% + 18.75%).

Floor protection - powered by options!

Obviously, this assumes the worst case scenario for $rDPX’s price. Contrarily, if the price increases, $dpxETH’s backing amount will also increase.

Absolutely incredible.

Who gib put liquidity?

You gib liquidity = you receives premiums, fundings, incentives → collateral slashed if puts triggered

Now in order for there to be 25% OTM rDPX-ETH puts to be used, there must be people willing to write these puts.

Who are these people? You and me, my silly student.

As a put writer, you will deposit $ETH into a perpetual put pool.

You will earn:

As a put writer, if the price of $rDPX does fall below the 25% OTM strike price, your $ETH collateral will be slashed to pay the treasury.

Additionally, since this is a perpetual pool, you will only be able to withdraw your deposit if it is unutilized. While deposited, however, you can continue earning from premiums, funding fees, and incentives!

Splendid.

Wot use treasury assets for?

Treasury assets used for rDPX/ETH LPing

“If you’re reading this, you probably saw the rDPX v2 documentation and thought to yourself “what in tarnations is going on here”?

Now, dbrDPX cannot just sit in your hot little wallet forever. Rather, **each dbrDPX has an expiry date - if it is not bonded by expiration, it will expire worthless.**

CEO of Diamond Pepes Pty Ltd.
CA CFA MBA PhD LLM