Motivation & context
This post provides a beginner-friendly introduction to the Gyroscope protocol in different levels of complexity. It is predominantly for people that are new to DeFi. It will be updated to reflect community suggestions and will be expanded with more complex explanations.
The starting point is an ELI5 explanation — ‘Explain it Like I’m 5’ . Afterwards, the level of detail and complexity will increase in three incremental steps.
Explain it Like I’m 5
Gyroscope makes a new, better kind of money.
More specifically, Gyroscope provides an openly-accessible, stable currency for the blockchain ecosystem and beyond. But there is more to it!
You don’t have to trust anyone in order to know that this money does what it says it does. If you want to learn what is going on behind the curtains you just have to look. No need to ask for permissions, all relevant information is readily available. Last, but not least, Gyroscope prides itself to be one of the so called ‘money legos’ — it is created by rearranging and combining various other ideas and is openly out there, so it in turn can be used to build something even greater.
Gyroscope benefits & explanation
What Gyroscope itself sets out to do, is to create a digital currency that has a stable price and can always be used. A lot of diligent work went into specifying the design from every conceivable angle.
The most important thing to understand is that the value of Gyroscope stablecoins comes from locking valuable assets (i.e., mostly currencies, alternatively, crypto-assets) to create it. It is thus a fully-backed stablecoin. Gyroscope also algorithmically defines prices to ensure a stable value of Gyroscope stablecoins even if things go wrong. Gyroscope thus has algorithmic price bounding. And lastly, Gyroscope is a stablecoin with an ‘all-weather’ reserve that is designed to withstand shocks.
In summary, Gyroscope is a fully-backed stablecoin with algorithmic price bounding and all-weather reserves. It’s goal is to guarantee open access to a future-proof stable currency.
Gyroscope is the form of money for the new internet. It aims to always be a value-stable, dependable currency, but can be used on a blockchain.
Gyroscope leverages the typical benefits of blockchains, such as allowing anyone open, unpermissioned access. Because of these two factors — stability and open access — it can particularly help people that do not have access to a stable currency.
However, anyone can decide to subscribe to the following principles that steered the development of Gyroscope:
- Technology should empower individuals and provide them with alternatives to trusting service providers
- It should not be possible to exclude people from access to a stable currency
- It should always be possible to ‘look behind the curtains’ and see what really happens when you use a product or service
- Open collaboration and modular, lego-like product stacks should be preferable to alternatives
Gyroscope benefits & explanation
Gyroscope is actually not one single currency, but is the product of a clever arrangement of various collateral assets and algorithmically adjusted prices. It is thus fully-backed, with algorithmic price bounding and all-weather reserves. But don’t worry! No need to go too deep into technicalities.
More importantly, there is a simple reason why one would want to set up something so complicated. With this design, Gyroscope can carefully balance a range of different risks and make sure that not any single event can endanger the entire protocol. If something bad happens it is isolated and handled locally so that it can not affect the larger system.
However, Gyroscope does not rely on this mechanism alone. Instead, Gyroscope has a second and a third line of defense. The second line of defense is made up of the Gyroscope AMMs (automated market maker). Gyroscope stablecoins are minted and redeemed in a primary market AMM (PAMM). Based on the current demand for Gyroscope stablecoins, the PAMM adjusts the price of Gyroscope stablecoins algorithmically to balance supply, demand, and sustainability. The secondary market AMMs (SAMM) make sure it is always possible to execute a trade around the prices provided by the PAMM. The third line of defense includes various additional mechanisms, such as selling governance tokens as a backstop or keeping the yield from assets in the reserve. It also includes controls against protocol governors extracting value at the cost of Gyro holders.
The goal is always the same: to guarantee open access to a future-proof stable currency. Naturally, this goal must be accompanied with ‘true decentralization’: the ambition to do all this in a manner that provides the user with as much power as possible.
This document will be maintained to reflect comments and community suggestions. Two levels with higher complexity & more detail are planned and will be added later on.
Similarly, an equivalent doc for DeFi natives may follow.