Dual token system — or is it?
Let us start simply by saying that DEUS and xDEUS are not competing.
The contrarian is the case; they form a symbiotic relationship, and moving in, out, and between them will be converged long term to a simple stake/unstake experience at a 1:1 or higher ratio based on underlying backing of xDEUS increasing via swap fees.
currently, you can convert DEUS to xDEUS and vice versa via the xDEUS swap https://app.deus.finance/xdeus/swap
The two tokens have a simple characteristic:
DEUS is to pay less fees on the v3 trading engine.
xDEUS is to earn fees from the v3 trading engine.
Let us start with a simple diagram & a quick glossary.
DEUS is an ERC-20 token inside the DEUS ecosystem. It gives holders and platforms building on top of DEUS v3 fee rebates.
On top of giving rebates for holding/staking, users can LP it in various Decentralized exchanges.
However, users can also swap it for xDEUS.
The best place to get DEUS is via firebird. finance
xDEUS will become an ERC-4626 vault token, earning platform fees of v3 directly to claim without depositing them into staking contracts.
Currently, users can convert DEUS > xDEUS and stake it here:
Later as soon as the ERC-4626 vault mechanism is implemented, converting DEUS to xDEUS and holding it in a wallet will be enough. Read more about the vault standard here:
Hedgers are liquidity providers on v3 that stream their OrderBook / Quotes to Dealers.
Read more about Hedgers here:
Dealers are frontends that could be compared to “Price comparison” websites in e-commerce. Dealers are neutral players aggregating Hedger quotes and displaying them to users. Dealers are doing all the technical heavy lifting concerning selecting the best hedgers based on price or other preferences. They help their users to find the best deal.
When all DEUS is burnt to xDEUS, everyone pays maximum fees to the protocol, a perfect equilibrium. On the other hand, if all xDEUS are burnt to DEUS, no one should pay any fees to the protocol.
DEUS is the token of desire for hedgers and dealers. They can increase their margins and reduce platform fees to compete against other dealers/hedgers without DEUS.
In the current dSynths setting, a ten basis point protocol fee is paid to xDEUS stakers. However, as soon as the protocol is implemented fully, staking DEUS for dSynths would mean their ten basis points protocol fee would get less. Therefore, they are better positioned to compete against other dealers that do not hold any DEUS and still pay ten basis points.
The system should be optimized constantly to find the perfect equilibrium between demand for DEUS, xDEUS, and incentives to become a Hedger or Dealer.
For the bigger picture, it's not enough to only focus on the xDEUS fee side. The fee rebate side of DEUS also has to be considered.
In the DEUS ecosystem, fees & rebates are the currency manifested by holding DEUS or xDEUS.
In conclusion, DEUS and xDEUS are not competing; xDEUS and DEUS holders have different goals, and the fee rebate of a hedger is profit for him.
Fees and Rebates, and therefore DEUS and xDEUS, are the same thing
just in a different form.
For every dollar earned by xDEUS holders, the involved Hedgers & Dealers earned less.
The Role of DEUS for Hedgers
Every dollar we pay as fees to xDEUS holders is a dollar a hedger could have earned more.
Hedgers want to optimize their margin to be competitive against others and earn a better APR on their liquidity provision and therefore need to buy DEUS.
The role of DEUS for Dealers
Every dollar we pay to xDEUS holders is a dollar a dealer could have charged less.
Dealers want to optimize the fees they charge from users to stay competitive against other dealers.
The conclusion is that there will be competition between DEUS and xDEUS, but not a match for competing incentives for the question.
Do users want to earn from v3 or spend less on v3?
There will be an ever-increasing institutional demand for DEUS when v3 generates considerable volumes.
Additionally, there will also be an ever-increasing retail demand on xDEUS to earn the fees generated by that volume.
The goal is to find the perfect equilibrium of both.
Now that we covered the future roles of DEUS and xDEUS in the DEUS ecosystem.
The next part of this thread series will focus on how moving between DEUS, and xDEUS should be facilitated technically.