UNIT: Specification

Dec 7, 2023

3-Token System

Stable Token: UNIT

Reserve Token: ETH

Recapitalization Token: MINE

Stability Mechanism

The objective is to keep UNIT price at around Target Price.

Target Price

  • Starts at 1 UNIT = 1 USD, with price growth rate pegged to long-term inflation. This price growth rate is expected to roughly preserve purchasing power over the long run.

Reserve Asset

  • Starts with simple ETH

  • Transitions to credibly neutral staked ETH

Reserve Ratio

  • RR := Market capitalization of ETH reserve / UNIT liabilities

Minting and Redemption

  • If RR ≥ 1, UNIT minting and redemption around target price

  • If RR < 1, UNIT redemption is around RR; minting is disabled

Recapitalization Auctions

The objective is to raise Reserve Ratio as high as possible.

Recapitalization Token: MINE

  • MINE income sources

    • Excess ETH reserves

    • Minting and Redemption fees

  • MINE emission

    • fully decentralized, no pre-mine (and therefore no VC or team token)

    • initial daily emission of 350,000; 4-year halvening; run forever

  • MINE valuation

    • Statically and at equilibrium, let’s say RR = 5, there are 5 ETH in the reserve, 4 of which from MINE buyers and 1 of which from UNIT minters. The MINE buyers are entitled to 5/4 = 1.25x ETH leverage plus mint-redeem fees.

    • However, MINE is anything BUT static. It is entitled to all expected future ETH surplus and mint-redeem fees. So its valuation is a discounted cashflow of a collection of future static pictures, fully path dependent on protocol growth trajectory. Additionally, MINE distribution is skewed towards early adopters, creating more uncertainties.

    • MINE also has a book value based on the amount of excess ETH in treasury.

Recapitalization Auctions

  • At all times, all MINE emission (minus the OP tax) is sold for ETH at periodic auctions. ETH proceeds are deposited into the reserve. The auction format is as follows:

    • A genesis auction that sells a large fixed x-number of MINE in a t-day long auction. This is to establish proper price discovery.

    • Then, going forward for the next 20 years, every 23 hours a fixed number of MINE (according to the emission schedule) will be sold for whatever ETH is deposited into the bidding pool.

    • The settlement price of each auction is freely determined.

UNIT Supply Operations

Contraction operations are analogous to liquidation: they are used to raise RR in bad markets by shrinking liabilities quickly and forcefully. Expansion operations are analogous to marketing discounts: they are used to gradually increase UNIT’s supply when things are good.

Target RR, Low RR

Starts at target_RR = 5. low_RR = 3. Could be reduced over time through governance.

Contraction Auctions

Quickly and forcefully incentivizes UNIT supply to shrink when RR is too low.

If RR < low_RR, ETH from reserve is used to buy back UNIT until RR is restored to ≥ low_RR. UNITs bought back are burned.

The buyback is implemented as a dutch auction with progressively higher buyback prices until RR is restored, subject to the following invariants:

  • Incoming bids that reduce RR are reverted.

Expansion Auctions

Slowly incentivizes UNIT supply to grow when RR is too high.

If RR > target_RR, UNIT is minted and sold for ETH until RR drops back down to target_RR. ETH proceeds are deposited into the reserve.

The auction format is a dutch auction with progressively lower mint prices, subject to the following invariants:

  • Mint price is never lower than redemption price.

  • Incoming bids that lead to RR < target_RR are reverted.

Endogenous Oracle

Oracle front-running is prevented through a dynamic mint/redemption spread.

  • The dynamic spread is made of min and max oracle price for the last x-days, padded by a minimum base spread.

Contract Amendments

The smart contracts are treated as the equivalent as a Constitution, which can be amended, but only with extremely high levels of consensus.

The voting system is as follows:

  • Mandatory vote delegation: implemented at MINE auction claiming. Can self-delegate, but must delegate.

  • Pre-vote rallying, such as through forum or snapshots is strongly encouraged for establishing legitimacy. But no such process is required because there is no SC code to enforce it.

  • On-chain voting.

    • 2 day voting period, 5 day timelock

    • 20% token supply required to submit a proposal.

    • 51% token supply required to to vote 'yes' to pass.

  • Notes

    • MINE holders alone will have voting power, in order to ensure entitlement to excess reserves.

    • UNIT holders will always have the option to exit the protocol at full value if over-reserved, and best-efforts if under-reserved. This is implemented through long governance delays and permission-less exits.

    • Smaller voters can concentrate their voting power to “Overseers” (delegates that has credible neutrality, mainly non-profit orgs such as ETHWarsaw, university groups etc.) in order to counter-balance the voting power of OPs.

    • A good way to enforce a rulebook for pre-vote rallying is for a delegate bloc to publicly endorse a rulebook and vote against any proposals that hadn’t follow the rulebook. This can allow for discretion: for example, if it is considered an “emergency”, the proposal can have nearly no rallying time; in contrast, if it is considered a “large” upgrade, then it will need to have more discussion time.