DYAD is the first truly capital efficient decentralized stablecoin. Traditionally, two costs make stablecoins inefficient: surplus collateral and DEX liquidity. DYAD minimizes both of these costs through Kerosene, a token that lowers the individual cost to mint DYAD.
Notes are ERC-721 NFTs into which holders deposit approved ERC-20 tokens. These tokens are currently wETH and wstETH, and will soon include LSTs and LRTs, other types of yield-bearing collateral, as well as Kerosene. Note holders can then mint DYAD against the combined USD value of tokens they deposit at a 150% minimum collateralization ratio.
Each DYAD stablecoin is backed by at least $1.50 of exogenous collateral. This surplus absorbs the collateral’s volatility, keeping DYAD fully backed in all conditions. Kerosene is a token that lets you mint DYAD against this collateral surplus. Kerosene can be deposited in Notes just like other collateral to increase the Note’s DYAD minting capacity.
The protocol sets Kerosene’s value as DYAD collateral deterministically:
$$ X = \frac{C - D}{K}
$$
Kerosene is thus as valuable as the degree of DYAD’s overcollateralization. Kerosene is not additional collateral; it’s a mechanism for allocating the right to mint against existing surplus collateral (C-D) in the system.
The secondary market may trade Kerosene above its deterministic protocol-defined value. If it trades below, arbitrageurs will quickly bid its price back to par. This is because Kerosene available for less than its deterministic value as DYAD collateral is free DYAD.
There is a total supply of 1 billion Kerosene tokens emitted over 10 years. Users will earn Kerosene by providing liquidity for DYAD and staking the LP tokens.
If a Note’s collateral value in USD drops below 150% of its DYAD minted balance, it faces liquidation. The liquidator burns a quantity of DYAD equal to the target Note’s DYAD minted balance, and in return receives an equivalent value plus a 20% bonus of the target Note’s backing colateral, which the liquidator can direct to any other Note, usually their own. The target keeps the remainder of their collateral, if any.
Users may also burn DYAD stablecoins that they hold, which reduces their DYAD minted balance and allows them to withdraw more collateral or avoid liquidation.