(3,3) is the idea that, if everyone cooperated in Twilight, it would generate the greatest gain for everyone (from a game theory standpoint).
Currently, there are three actions a user can take:
Staking and bonding are considered beneficial to the protocol, while selling is considered detrimental. Staking and selling will also cause a price move, while bonding does not (we consider buying ZONE from the market as a prerequisite of staking, thus causing a price move). If both actions are beneficial, the actor who moves price also gets half of the benefit (+1). If both actions are contradictory, the bad actor who moves price gets half of the benefit (+1), while the good actor who moves price gets half of the downside (-1).
If both actions are detrimental, which implies both actors are selling, they both get half of the downside (-1). Thus, given two actors, all scenarios of what they could do and the effect on the protocol are shown here:
If we both stake (3, 3), it is the best thing for both of us and the protocol (3 + 3 = 6).
If one of us stakes and the other one bonds, it is also great because staking takes ZONE off the market and put it into the protocol, while bonding provides liquidity and DAI for the treasury (3 + 1 = 4).
When one of us sells, it diminishes effort of the other one who stakes or bonds (1 - 1 = 0).
When we both sell, it creates the worst outcome for both of us and the protocol (-3 - 3 = -6).
Why is PCV important?
As the protocol controls the funds in its treasury, ZONE can only be minted or burned by the protocol. This also guarantees that the protocol can always back 1 ZONE with 1 DAI. You can easily define the risk of your investment because you can be confident that the protocol will indefinitely buy ZONE below 1 DAI with the treasury assets until no one is left to sell. You can't trust the FED but you can trust the code. As the protocol accumulates more PCV, more runway is guaranteed for the stakers. This means the stakers can be confident that the current staking APY can be sustained for a longer term because more funds are available in the treasury.
Why is POL important?
Twilight owns most of its liquidity thanks to its bond mechanism. This has several benefits: Twilight does not have to pay out high farming rewards to incentivize liquidity providers a.k.a renting liquidity. Twilight guarantees the market that the liquidity is always there to facilitate sell or buy transaction. By being the largest LP (liquidity provider), it earns most of the LP fees which represents another source of income to the treasury. All POL can be used to back ZONE. The LP tokens are marked down to their risk-free value for this purpose.
Why is the market price of ZONE so volatile?
It is extremely important to understand how early in development the Twilight protocol is. A large amount of discussion has centered around the current price and expected a stable value moving forward. The reality is that these characteristics are not yet determined. The network is currently tuned for expansion of ZONE supply, which when paired with the staking, bonding, and yield mechanics of Twilight, result in a fair amount of volatility. ZONE could trade at a very high price because the market is ready to pay a hefty premium to capture a percentage of the current market capitalization. However, the price of ZONE could also drop to a large degree if the market sentiment turns bearish. We would expect significant price volatility during our growth phase so please do your own research whether this project suits your goals.
What is the point of buying it now when ZONE trades at a very high premium?
When you buy and stake ZONE, you capture a percentage of the supply (market cap) which will remain close to a constant. This is because your staked ZONE balance also increases along with the circulating supply. The implication is that if you buy ZONE when the market cap is low, you would be capturing a larger percentage of the market cap.
What is a rebase?
Rebase is a mechanism by which your staked ZONE balance increases automatically. When new ZONE are minted by the protocol, a large portion of it goes to the stakers. Because stakers only see staked ZONE balance instead of ZONE, the protocol utilizes the rebase mechanism to increase the staked ZONE balance so that 1 staked ZONE is always redeemable for 1 ZONE.
What is reward yield?
Reward yield is the percentage by which your staked ZONE balance increases on the next epoch. It is also known as rebase rate. You can find this number on the Twilight staking page.
What is APY?
APY stands for annual percentage yield. It measures the real rate of return on your principal by taking into account the effect of compounding interest. In the case of Twilight ZONE, your staked ZONE represents your principal, and the compound interest is added periodically on every epoch (8 hours) thanks to the rebase mechanism.
One interesting fact about APY is that your balance will grow not linearly but exponentially over time! Assuming a daily compound interest of 2%, if you start with a balance of 1 ZONE on day 1, after a year, your balance will grow to about 1377.
How is the APY calculated?
The APY is calculated from the reward yield (a.k.a rebase rate) using the following equation:
It raises to the power of 1095 because a rebase happens 3 times daily. Consider there are 365 days in a year, this would give a rebase frequency of 365 * 3 = 1095.
Reward yield is determined by the following equation:
The number of ZONE distributed to the staking contract is calculated from ZONE total supply using the following equation:
Note that the reward rate is subject to change.
Why does the price of ZONE become irrelevant in long term?
As illustrated above, your ZONE balance will grow exponentially over time thanks to the power of compounding. Let's say you buy a ZONEfor $400 now and the market decides that in 1 year time, the intrinsic value of ZONE will be $2. Assuming a daily compound interest rate of 2%, your balance would grow to about 1377 ZONE by the end of the year, which is worth around $2754. That is a cool $2354 profit! By now, you should understand that you are paying a premium for ZONE now in exchange for a long-term benefit. Thus, you should have a long-time horizon to allow your ZONEbalance to grow exponentially and make this a worthwhile investment.
What will be ZONE's intrinsic value in the future?
There is no clear answer for this, but the intrinsic value can be determined by the treasury performance. For example, if the treasury could guarantee to back everyZONE with 100 DAI, the intrinsic value will be 100 DAI. It can also be decided by the future DAO. For example, if the DAO decides to raise the price floor of ZONE, its intrinsic value will rise accordingly.
How does the protocol manage to maintain the high staking APY?
Let’s say the protocol targets an APY of 100,000%. This would translate to a rebase rate of about 0.6328%, or a daily growth of about 2%. Please refer to the equation above to learn how APY is calculated from the rebase rate.
If there are 100,000 ZONE tokens staked right now, the protocol would need to mint an additional 2,000 ZONE to achieve this daily growth. This is achievable if the protocol can bring in at least 20,000 DAI daily from bond sales. If the protocol fails to achieve this, the APY of 100,000% cannot be guaranteed.