Introduction
Dystopia is an innovative Decentralised Exchange built as a dApp on the Layer 2 chain, Polygon. Originally tracing back as a fork of the infamous Solidly exchange, Dystopia has made several improvements to the concept and added unique features to ve (3,3) as we know it.
A problem plaguing the original Solidly protocol was excessive inflation being counter-productive and hence causing a cascading sell-off of its token, SOLID. Moreover, the heavy influx of bugs making the User-Interface highly complex for ordinary users rendered Solidly an inefficient DEX; secondary emission layers built on top of the exchange made it nothing more than an inflationary token incentivizing only a handful of Fantom blue-chip tokens at the expense of its own token price. Similarly, the full non-dilution effect for ve lockers created limited incentives for liquidity providers to deposit their liquidity, knowing that their gained emissions also went to ve lockers at a 1:1 ratio. All of these issues resulted in the DEX failing to achieve its ve (3,3) experiment and made it inefficient for the average user.
Dystopia acknowledges the immense potential of Solidly, enshrines it in the new, and revolutionizes the concept as we know it.
Improvements Made
Dystopia has introduced some fundamental changes to the concept of Solidly. It has shifted from “non-dilution” to “reduced dilution” as for each DYST minted, veDYST holders would get 10% of all emissions while the remaining 90% would be given to Liquidity Providers.
To further incentivize locking, it has increased the swap fees to 0.05% of all trades from a former 0.01% with 0.2% of the DYST supply needed to whitelist tokens to be eligible for pools that receive emissions. Solidly, being plagued with spam tools struggled to deal with them and their prevalence negated the efficiency of emissions — to combat this, Dystopia has introduced a “downvoting” concept. To facilitate sustainability, Dystopia has smoothened the emissions scheduled, prioritizing the longevity of the protocol.
In terms of technical and UI changes, Dystopia has had a massive overhaul to Solidly’s code and has come up with an entirely new and sleek UI design for a more attractive user interface and has fixed Solidly’s bugs.
How USD+ Compliments Dystopia’s ecosystem
The inherent problem of Liquidity Provisions is that highly lucrative APYs are increasingly rare. In most cases, less than 10% of the liquidity deposited into a liquidity pool is actually used to facilitate trades at any given time. The other 90% sits idle and acts as a reserve fund — this model is capital inefficient. While this problem has been solved via Curve for stables & Boosted Pools from Balancer, it still applies to the most widespread DEX, Uni V2, and its recent derivatives — Dystopia, Solidly. In their case, capital efficiency is not achieved and USD+ resolves this shortcoming.
Overnight’s stablecoin, USD+ is a yield-bearing asset generating 8–12% APY for its holders on a daily horizon via a rebase mechanism. These rewards are financed via Overnight’s carefully selected Yield-Farming strategies. Liquidity Pairs with USD+ have an advantage over other stablecoins like USDC owing to the APY generated via its Yields. Overnight puts your idle assets to work — even in Liquidity Pools.
Liquidity Pools with USD+ generate more yields than any other stablecoins would generate (FRAX, MAI, etc) owing to its yields. USD+ is fully collateralized via stablecoins: USDC, USDT & DAI and uses its collateral to farm on stable-to-stable protocols & liquidity pools. These yields are then passed onto users via daily rebases. Liquidity Pools involving USD+, therefore, witness a “forced appreciation” owing to being tied to an appreciating stablecoin.
This, in turn, allows Yield-Farmers to earn more on their LPs owing to the magic of USD+, and hence, this model is massively more efficient than having liquidity pools via any other stablecoin. Think of USD+ as being a “boosted token” generating much more APYs than boosted tokens from Yearn (used by Balancer) but making this model accessible to DEXes apart from Balancer.
Since its inception on Dystopia thus far, USD+ has enabled Yield-Farmers to generate much more yields and increase profitability for Liquidity Pools across the board. Since 100% of the swap fees go to veDYST holders, Liquidity Providers only get DYST emissions as a reward for their LPs. Through offering an alternative source of revenue for Yield-Farmers — yields from USD+ — reduces the reliance on constant DYST emissions to keep up with the ever-growing TVL that Dystopia has.
Why Dystopia over Quickswap?
Overnight opted for Dystopia over Quickswap to begin implementing the future of Liquidity Provisions because of the decentralization aspect that Dystopia offers. In this instance, emissions are allocated in a completely permissionless manner via a Gauge Voting (concluding every Thursday, 00:00 UTC) via a user’s veDYST holdings. A rational voter would vote for whichever Liquidity Pair in return, offers them the highest ROI (bribes & trading fees from the given pair), and hence, this ensures that voters have “skin in the game.” On the contrary, emissions via Quickswap are allocated in a more centralized manner.
A decentralization narrative ensures that voters allocate their vote for whatever they think champions the protocol’s growth via effective governance. After educating veDYST holders about the benefits of USD+, the stablecoin found deep liquidity on the exchange with liquidity as high as $3M — all of which is market-based and allocated by prospective veDYST holders wanting to cash in on the USD+ hype.
