Paradox DAO is a DeFi 2.0 protocol, but at the same time, it is similar to an airplane. Various parts of the aircraft are interlocked, and there are many things to be considered simultaneously. Aeronautical engineering ain't easy to understand, neither are the mechanics behind Paradox, but we'll explain it all step by step.
The term ‘Reserve currency’ may sound daunting at first, but one can consider the dollar TradFi counterpart. Since the purpose of DeFi is literally Decentralized Finance, it aims to break away from being issued and controlled by the U.S. Fed(or other specific country or organization). Ironically, however, the most commonly used Stable-coin is pegged to the dollar. The goal of Olympus is to create a market-driven floating digital currency.
The Stable-coins like DAI, are pegged to $1. However, Paradox DAO native token, $PDX is backed, not pegged. What does this phrase mean?
The protocol supports 1 PRDX being backed by at least 1 DAI. If 1 PDX falls below 1 DAI, the protocol buys back PRDX and burns it to support the 1 DAI backing. However, there is no price cap, so the price floats on 1 DAI. In other words, backing means that it can be equal to or greater than 1 DAI.
This means the price of 1 PDX can be determined by the market. The initial price begins as supported by 1 DAI, but as the protocol begins to make profits, it will begin to create RFV (Risk-Free Value), and it could be maintained at a higher price than RFV at least.
Staking is the primary value accrual strategy of Paradox DAO. Stakers stake their PRDX on Paradox DAO website to earn rebase rewards. The rebase rewards come from the proceed from bond sales, and can vary based on the number of PDX staked in the protocol and the reward rate set by monetary policy.
Staking is a passive, long-term strategy. The increase in your stake of PDX translates into a constantly falling cost basis converging on zero. This means even if the market price of PDX drops below your initial purchase price, given a long enough staking period, the increase in your staked PDX balance should eventually outpace the fall in price.
When you stake, you lock PRDX and receive an equal amount of sPRDX. Your sPRDX balance rebases up automatically at the end of every epoch. sPRDX is transferable and therefore composable with other DeFi protocols.
When you unstake, you burn sPRDX and receive an equal amount of PRDX**.** Unstaking means the user will forfeit the upcoming rebase reward. Note that the forfeited reward is only applicable to the unstaked amount; the remaining staked PRDX (if any) will continue to receive rebase rewards.
Most protocols rent tokens from users to bootstrap the market but it costs a lot and has a high risk of unstaking liquidity.
At Paradox DAO you can benefit from a Bond mechanism for the protocol, giving users a chance to buy PRDX much cheaper than the current market price and with a vesting period (5 days) before redemption(you can redeem 20% of it per day during that period).
Discount rate of Bonding, you can compare the current discount rate with staking ROI for 5 days.
Bonds can be purchased in the form of DAI, DAI-PRDX LP, CRO, CRO-PRDX LP, wETH, and through this, users can purchase PRDX at a discount by handing their asset over rather than lending their LP to the protocol. This also allows the protocol to stabilize the liquidity of PRDX.
This is completely different from the conventional way DeFi has bootstrapped liquidity and is also innovative because token discounts can increase the liquidity possessed by allowing users to give up LP or other liquidity, and lock it for a certain period of time!
The profits from bond sales are used to issue more PRDX. For example, if there are 2,000 DAI from revenue, the protocol issues 2,000 DAI, of which 90% is distributed to stakers and the remaining 10% is distributed to DAO. This is where the high APY comes from!