General Architecture
Last updated
Last updated
At its core, the entire DexToro Liquidity system is a Collateralized Debt Position (CDP) protocol. Similar to MakerDAO/Liquity, you take your collateral (ETH/stablecoins), deposit it into a contract, and then generate a stablecoin. In DexToro's case, the system-generated stablecoin is dUSD (DexToro USD).
The differentiator for DexToro Liquidity is that you can instead delegate your entire CDP, collateral and all, to a larger basket of collateral called a Pool.
Pools can be considered a collective CDP, with baskets of collateral used to generate dUSD and allocate liquidity to derivative markets for traders to utilize. Pool owners are the deciders of how liquidity is allocated. Because of this, even though anyone can create and manage a pool, most stakers will likely direct their collateral to more ‘trusted’ pools recognized by DexToro Protocol.
Pools then use this collateral and allocate it to derivative Markets. Markets are arguably the most important piece of the entire protocol, as they're the logic that turns LP liquidity into on-chain financial instruments. Well-designed markets hope to generate delta-neutral fees for LPs - which, in this case, means that the fees earned by liquidity providers are unaffected by perps trader profit and losses, ensuring stable returns regardless of volatility. DexToro perpetual futures have built-in risk management designs like price-impact and dynamic funding rates, which work together to maintain market delta neutrality.
Before we proceed, let's quickly examine the flow of liquidity in the DexToro Liquidity system.
Liquidity Provider -> Pools -> Markets -> Traders
This is the entire system in a nutshell: LPs provide the initial collateral, pools receive this delegated collateral, and pools use this collateral to generate dUSD and allocate it to markets. Markets deploy this dUSD to provide liquidity for markets like DexToro Perps (which can be traded on DexToro Exchange), and traders utilize this liquidity for trading.
The flow of fees goes the opposite way
Traders -> Markets -> Pools -> Liquidity Providers
All pools within the DexToro Liquidity system will distribute fees on a pro-rata basis, meaning that those who provide more collateral to the pool will receive more fees. There's one caveat here in that Pool Owners can create a rewards distributor. This distributor can siphon off a percentage of the generated fees and distribute them to any address, collateral type, etc., in any way. Additionally, the rewards distributor can receive incentives from an outside source, and distribute these additional rewards to LPs, these can include token rewards, inflationary rewards, etc.
A rewards distributor, managed by the pool owner, could decide to allocate 5% of all fees to the original creator of the market or 15% of all fees to DTORO stakers. Alternatively, the rewards distributor can distribute additional rewards to LPs in the market—an example is inflationary DTORO, which would be distributed through a rewards distributor. It's maximally configurable. To learn more about it, read the official DexToro Liquidity Docs.
Before delving into markets, let's begin with a broad overview of the entire system. Below is a graphic of the DexToro Liquidity system to visualize the structure.
