Exploring DYAD: A New Approach to Decentralized Stablecoins

Sneak Peek

DYAD is a new algo-stablecoin slated to launch by end of year or early next year. It borrows some concepts from Ampleforth and DAI and ties them in a novel way by throwing NFTs into the mix. In this report we will break down its components. But right off the bat, here are its main characteristics:

1. It uses ETH as the sole collateral asset.
2. It’s built on immutable smart contracts. No governance mechanism and/or governance token.
3. It can only be minted by holders of 10,000 limited-supply dNFTs (DYAD NFTs).

Understanding DYAD

Let’s start with minting. If you’re the owner of one of the 10,000 dNFTs – lucky you, you can mint new DYAD whenever you wish. 

DYAD enters into circulation through two steps. In the first step, NFT holders deposit ETH into what’s called an “ETH collateral vault.” For every $1 worth of ETH deposited, 1 DYAD gets minted. 

However, the newly-minted DYAD doesn’t enter into circulation just yet. It sits in what’s known as the “DYAD damping vault.” The NFT that minted DYAD into existence is marked as its exclusive owner. Only the holder of that NFT can withdraw it from the damping vault. NFTs keep track of their share of the damping vault. Thus, an alternative way to think of DYAD in a damping vault is as an NFT’s DYAD balance. 

This balance is dynamic and changes based on ETH’s price; it expands when price is up and contracts when price is down. Expansion and contraction is automatically executed by the protocol. This allows the DYAD damping vault to match the USD value of ETH in the collateral vault regardless of ETH’s price. As expansions or contractions occur, NFT holders will notice an increase or decrease in their DYAD balances in the damping vault (an experience Ampleforth users are accustomed to). 

DYAD inside the NFT can only be released into circulation by the NFT holder. When the NFT holder withdraws DYAD from their NFT balance (or more precisely, from the damping vault, which each NFT owns a share of), DYAD goes directly to the NFT holder’s address. From there on, it can be freely transferred as an ERC20 token. Thus, withdrawn DYAD can be thought of as getting out of the NFT and entering into circulation. As a result, the NFT’s DYAD balance decreases.

Once DYAD is in circulation, its supply can no longer be expanded or contracted by the protocol. This allows DYAD to be used as a stablecoin in DeFi, payments, or other use cases.