Proof of Trade
A breakdown of the underlying protocol mechanics.
Last updated
A breakdown of the underlying protocol mechanics.
Last updated
The Dexible Proof of Trade framework is a minting methodology designed to simplify the value of the $DXBL token in the open market, incentivize trading, and provide utility to the community. Instead of pricing $DXBL based on supply and demand in the open market, $DXBL market prices are determined by the volumes executed through the Dexible Protocol affecting the Net Asset Value (NAV) of the token. The more volume through the protocol, the more the Community Vault-approved fee token pools grow. These pools will grow within a fixed range, between 2-4bps (0.02% - 0.04%), depending on the trader's holdings of $DXBL. At the same time, the Outstanding Token Supply will grow at a variable rate based on the nominal volume of assets executed. On a Rolling 24-hour Basis, as volume changes, so will the difficulty of minting new $DXBL tokens. The more volume within that 24-hour Window, the more difficult the next token is to mint. The less volume, the easier.
A new hour will be calculated as having passed at the turn of each new hour on a UTC clock. Within the last 24 hours before the next hour passes, the 24-Hour Window looks back on all volume executed by the Proof of Trade Protocol on a particular chain. This means that different networks will experience different trading pressure, thus resulting in different difficulties in minting new $DXBL tokens per network. Where trading is happening more, the higher the minting difficulty.
The more difficult it is to mint $DXBL, the tighter the supply, the higher the NAV.
The difficulty of minting new $DXBL tokens is captured by the Minting Rate (MR); the difficulty required for minting one full new $DXBL token on a particular chain. The Minting Rate is a metric recorded with each trade and the number of tokens minted in relation to it. A trade that is executed with a nominal amount underneath the Minting Rate threshold required to mint a full new $DXBL will still earn $DXBL, but it will not be a whole number amount.
As Minting Rate increases, more volume is required to mint a $DXBL token.
A Minting Rate of $100 requires a user to trade $100 to mint an entire token. If $100 is executed, 1 $DXBL will be minted, and between $0.02-0.04 of the fee token will go into the Community Vault, depending on any discounts.
If $1,000 is executed, 10 $DXBL will be minted and this time $0.2-0.4 worth of fee tokens will go into the Vault (10x the previous example).
At the end of these scenarios, there is a total of 11 outstanding $DXBL and a Vault value of $0.22-0.44. As a result, each token can be redeemed for between $0.02-0.04 worth of Community Vault assets.
The amount for which $DXBL can be redeemed is called the Net Asset Value (NAV).
Now let's say Minting Rate has increased to $250 (2.5x the original example), and a user trades $1,000. This time only 4 $DXBL will be minted (volume/minting rate), but the same $0.2-0.4 of fee tokens go into the Vault, derived from the amount being traded. In this scenario, those tokens could be redeemed for $0.05-0.1 of Vault assets (i.e NAV).
For clarity, the amount getting traded or executed through the Proof of Trade Protocol is the Nominal Executed (NE). The NE is different from the Principal Executed, which is the pre-transaction fee amount of input tokens. The NE has successfully swapped through the protocol to be counted.
Net Asset Value (NAV) is the value of each token outstanding in circulation. It can be calculated by simply dividing the total value of the Community Vault (Pool) by the total outstanding tokens in circulation (TokenSupply).
In the above examples, each scenario was described in a vacuum. However, what would happen to NAV if those scenarios were combined? In other words, what would NAV look like if all 3 trades occurred at different Minting Rates:
$100 traded at a MR of $100
$1,000 traded at a MR of $100
$1,000 traded at a MR of $250
In this case, $2,100 of volume traded, 15 $DXBL tokens minted, and between $0.42-0.84 of fee tokens are in the Vault.
As we know, NAV is Pool/TokenSupply. So, our new NAV is between $.028-0.056.
For the traders that minted $DXBL at a MR of $100, the value of their minted tokens has gone from $0.02-0.04 to $.028-0.056; a gain of $0.008-0.16 (40%).
As volume increases in the Proof of Trade Protocol, the Community Vault will grow within a fixed linear range while the growth rate of the outstanding token supply will decrease. Conversely, as volumes decrease outstanding token supply growth rate will increase, providing more favorable Minting Rates.
Users that were able to mint tokens at a more favorable Minting Rate will be able to redeem their $DXBL tokens for a higher NAV than they minted at.
This framework provides the community with a token linked directly to Dexible volumes. By design, $DXBL is not influenced by market sentiment, buy/sell pressure, or other supply/demand tokenomics.
A likely outcome will see $DXBL on each chain trade on the open market at or slightly above the NAV for which it could otherwise be redeemed.
