The insurance mining program is a unique system for capitalizing the insurance fund for the DerivaDEX protocol, fully launched and managed by the DAO. Users will be able to stake in the insurance mining program and bootstrap the DerivaDEX insurance fund, receiving DDX and thus governance participation in return.
Insurance mining is live: insurance.derivadex.com
See launch announcement for more details.
For more information about the insurance mining program, and how it functions within the DerivaDEX protocol, read on!
What is DerivaDEX?
DerivaDEX is a decentralized exchange protocol for derivative contracts built on top of Ethereum. Traders currently have to choose between the performance of centralized exchanges, and the autonomy and security of decentralized exchanges. DerivaDEX resolves this tradeoff, leveraging trusted hardware and a unique architecture. Managed by the DerivaDAO from day one, DerivaDEX is resistant to single-point-of-failure and censorship concerns. DerivaDEX features an open order-book and on-chain settlement, bringing a familiar, performant, and highly capital-efficient UX to the DEX space. The off-chain price feed, matching engine, and liquidation operators enable speed and efficiency, meaning DerivaDEX is capable of synthetically representing any asset, and offering a tighter bid/ask spread. The liquidity mining model DerivaDEX uses encourages participation in the governance and operations of DerivaDEX.
Insurance mining
An insurance fund is a critical part of any exchange that offers leveraged products and other derivatives. This insurance fund covers traders in the event that a counterparty has losses that are more than they have deposited as collateral. This can happen when there is low liquidity or during volatile price movements.
DerivaDEX is initially capitalizing the insurance fund via a year-long community staking program that in return distributes DDX to participants. The native DerivaDEX token (DDX) allows users to participate in the governance and operations of the exchange. Over time, organic capitalization of the insurance fund via trader liquidations and fees will also occur.
Note: DDX enables users to participate in the governance and operations of the exchange. It is not a fundraising device nor an investment opportunity. DerivaDEX insurance mining and exchange are not available to U.S. residents.
Insurance mining by the numbers
This summary describes how parameters will be initialized when DerivaDEX protocol contracts are deployed. All parameters are subject to future modification via the DerivaDAO.
- Length: 2,102,400 blocks — approximately 1 year
- DDX Token: 1.189117199391172 DDX tokens will be issued continuously per block proportional to a participant’s stake. This number was chosen such that by the end of the program, roughly 5% of the 50mm DDX liquidity mining token supply will have been issued. The emission ratio is subject to change via governance.
- Supported collateral types: USDT, cUSDT, aUSDT, USDC, cUSDC, aUSDC, HUSD, and GUSD. Additional collateral types may be added via governance.
- Fees: ETH gas fees per transaction; 0.5% unstaking fee
- Note: All deposit types are weighted equally, there is no difference in DDX earned whether staking USDT or USDC (or any other of the supported types).
Insurance fund capitalization
The organic capitalization of the insurance fund may quickly be greater than the amount bootstrapped by the insurance fund, once the exchange is live. The insurance fund is capitalized in three ways:
- Insurance mining program (staking), where participants stake a variety of stablecoins to the insurance fund contract.
- Liquidations on the live exchange (organic capitalization), where the spread between the liquidation price and the bankruptcy price is added to the insurance fund.
- A portion of trading fees (organic capitalization) accrue to the insurance fund.
Drawdown policy
Insurance funds are used when traders have positions that are liquidated below their bankruptcy price. The insurance fund is used to cover the winning trader in this scenario, and prevent auto de-leveraging. The frequency and severity of these “drawdowns” can be ameliorated via good liquidity and a robustly-sized fund. There are several policies in place to protect insurance miners:
- There will be no drawdowns prior to exchange mainnet launch.
- The DerivaDEX insurance fund consists of two tranches: staked funds, and organically capitalized funds (liquidations and fees). Organic capitalization is always used before staked capitalization during liquidations.
- Staked funds that have been reduced due to a drawdown are recouped up to their initial value from organic liquidations in the event stakers are underwater.
These policies are intended to protect staked funds whenever possible, and to mitigate permanent losses in the insurance mining program.
Governance cliff, token claims and withdrawals
DDX tokens are non-transferrable at the start of insurance mining. This period will last until tokens are unlocked via governance (“the governance cliff”), which is expected to occur prior to exchange protocol launch. Potential dates for the governance cliff will be submitted as a proposal to the DerivaDAO. This “governance cliff” will indicate the launch of DerivaDEX mainnet, and there is no circulating DDX before this cliff is reached. Importantly, DDX tokens can be claimed, and used to participate in governance via the DerivaDAO, at any time (even during this pre-mainnet phase prior to governance cliff). For example, users who have obtained DDX via insurance mining can vote to approve the governance cliff.
- Claiming tokens will mint DDX to your on-chain wallet.
- From there, DDX tokens are initially non-transferable until governance deems otherwise.
- Even prior to transferability, DDX tokens can always be used in governance.
- When tokens are transferable, there are no further restrictions on insurance-mined tokens.
The purpose of the pre-governance cliff period is to account for the lack of drawdown risk during the period when insurance mining is live but the exchange function is not, as well as to minimize risk surface of the protocol at launch. It also enables the community to develop understanding and maturity around the DerivaDAO governance process prior to a mainnet launch.
Governance
DerivaDEX is governed by the DerivaDAO from day one. All upgrades and modifications to the DerivaDEX contracts must be submitted and incorporated via governance. The DerivaDEX token (DDX) is a utility token used for governance and operations on the exchange. It has baked-in voting and delegation functionalities. All parameters in the system can be adjusted via governance, including, but not limited to fees, emission rates, product listings, and allocations.
Governance contract parameters
- Proposals: these are made by participants with 1+% of the circulating DDX supply and consist of on-chain executable commands if successful.
- Voting: the voting period starts 1 block after the proposal is made, and lasts for 17,280 blocks (approximately 3 days). Participants can vote during this time and their voting power is defined by how many tokens they were holding at the time the proposal vote period began. Proposals are deemed successful if one of two conditions is met:
1) the voting period has ended and there is a majority of for votes vs. against votes, and the minimum quorum of 4% has been met, or
2) enough votes in either direction have taken place such that the proposal can immediately be rejected or queued (successful).
- Execution: successful proposals are placed in a 3-day queue, and then executed.
- Emergency management: Proposals that consist of a pause command, and only a pause command, are subject to a fast-track approval process to help accommodate emergency protocol pauses.
The DerivaDAO forum and governance website will go live shortly after the insurance mining launches. Share your thoughts on governance at the Discord.
Token model summary
DerivaDEX follows a philosophy of progressive decentralization, where the DerivaDAO foundation initially incubates the exchange by taking a more active role in guiding and building the protocol. The token emission schedule and initial allocation reflect this approach, where a large proportion is controlled initially by partners and the DerivaDAO foundation, and over a 10-year period of liquidity mining programs, this proportion becomes more evenly distributed. This structure is key for DerivaDEX to grow into a robust protocol that is competitive with centralized exchanges.
Key facts at a glance:
- Supply fully-diluted: 100,000,000.
The total supply of DDX is broadly divided into two tranches:
- Initial circulating supply: 50% of the total supply to the foundation, partners, subject to industry-standard vesting. This is minted when DerivaDEX contracts are deployed. This will also be the pool from which community reward programs, ecosystem grants, and other marketing and operational alloctions are drawn.
- Liquidity mined supply: 50% of the total supply, with 5% of that (approx. 2,500,000 DDX) distributed throughout 12 months for insurance mining, and the rest distributed over a 10-year period.
Audit
All DerivaDEX code related to governance, token emission, and insurance mining has been audited by Quantstamp, including specification review, manual review of code as well as testing and automated analysis. DEX Labs have also conducted thorough in-house reviews. Per the Quantstamp audit, the code and documentation was found to be of “very high quality.” At the conclusion of the audit, all high-risk issues have been resolved or mitigated, and all issues have been resolved, mitigated, or acknowledged. The full audit report will be published shortly.
Community
DerivaDEX is uniquely positioned to create a trader-focused exchange, where parameters like the capitalization of the insurance fund, product offerings, and fee schedules are adjustable based on community governance. Effective community participation and governance is key to building out this vision. Expect upcoming opportunities for community participation and feel free to propose new ideas from the community!
The best way to participate and to learn about the governance process is via the Discord , and by following along with discussion of draft proposals on the forum, which is where proposals can be discussed formally prior to submission. The forum will be made available when governance and insurance mining are launched.
Changelog
Any modifications or clarifications to this document will be tracked and dated below.
12/5/2020 9:47am EST
Clarification added to indicate all deposit types are weighted equally.
12/4/2020 12:00pm EST
Links to insurance mining and insurance mining announcement have been added.
2/14/2022 12:00pm EST
Update links, consistent terminology.
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