Shade Protocol — A Community Series: Synthesis
Article #6
author: VJ
Synthesis: Understanding the Core Functionality of Shade’s DAO
What determines whether or not an asset has actual value?
Your response might touch on wisdom as deep as the philosophy of money, investment criteria, behavioral economics, supply, and demand, or Metcalfe’s Law on network effects.
While there are so many angles we might explore to look at value, one that cannot be missed is governance.
If something is valuable, what is the governance structure that perpetuates that value? How are economic parameters for that asset put in place? How do economics evolve based on new data through consensus?
Those are the questions that really test the value proposition of any digital asset. These are the bright lights of the interrogation room.
Part of the goal in this piece is to put Shade Protocol under the lights, in the hot seat… A big part of answering these questions on value prop is taking a look under the hood at Shade’s DAO — known as Synthesis. Let’s focus on its core functionality…
Function #1 — Protocol Governance
There’s a familiar saying, “Adapt or die.” That’s true for just about everything, including your favorite crypto project. So how will Shade Protocol adapt as the future emerges?
Imagine for a minute that we had developed the most stable asset on the planet… I dunno, let’s call it Silk :) Something pegged to a basket of assets and global currencies that served as the ultimate hedge against volatility.
But here’s the catch, Shade will die if this index and its weights are the same in 2028 as they were in 2022. Who knows what the global economy will look like then. From Shade’s perspective, it doesn’t matter.
The index could contain carbon credits, Bitcoin, a weird meme coin that took over the world, the digital peso, or any other assets that are critical to the global economy.
So in any future scenario, you can drum up for 2028, Shade is able to calibrate the basket, establish consensus, and fine-tune Silk for maximum stability.
Function #2 — Decentralized Asset Management
Another key part of the DAO’s function is managing assets for Shade Protocol. You might remember that SHADE and SILK are fully collateralized (via sSCRT).
But these assets don’t blow away into the wind. Synthesis brings these onto a balance sheet and then manages them to optimize rewards for Shade holders.
In addition to the underlying collateralization, this balance sheet of assets might be used for buybacks, hedged positions, leveraged positions, liquidity provision, batched SHADE burns.
That’s a lot, but ultimately there are primary mechanisms Synthesis uses to make the magic happen.
First is a burn. Shade gets burned sometimes. But don’t be sad. That makes it more valuable. The burn percentage on minting is variable (and decided via governance).
The second mechanic of Synthesis is… synthesizing. That means an unburned percentage of Shade would be transferred to the Synthesis balance sheet contract address, upon conversion to Silk. Or, upon an initial mint of Shade or Silk, sSCRT would be synthesized and accrued by the balance sheet.
All of that adds up to the main thing: user incentivization and dividend generation.
Function #3 — Rewarding Shade Holders
Basically, if you hold Shade and Synthesis was somehow imbued with English language proficiency, it would say, “I like you because you hold Shade. My goal in life is to create additional value for you.”
Whoa. Thank you very much Synthesis. You are such a nice piece of code.
You might say that function #3 here is really the outcome of function #2. When Synthesis leverages liquidity to provide additional rewards to Shade holders, you get a quarterly dividend.
These dividends will come to you in the form of your favorite stablecoin: SILK.
Of course, if you’re just beginning your research into Shade Protocol, you should know that Shade’s value is truly multi-dimensional and extends beyond these dividends — great as they are. To learn more, check out “Understanding Shade’s Multidimensional Value”.
The Ridiculous Resiliency of Shade Protocol
It’s not enough for a project to be great today. Because tomorrow is unknown.
The real difference-making digital assets are those that have both a strong use case today and the ability to adapt the function of that use case as the future comes into focus. You might call it protocol resiliency.
And when it’s time to adapt or die, are there clear mechanisms in place to guide decision-making? In the case of Shade’s DAO, the answer is a resounding “yes”.
Silk is your best hedge against volatility because the protocol is ready to adapt to any potential future for our world economy.
We anticipate that Shade will be quite valuable because the economic parameters of the protocol are, in part, designed to increase its scarcity.
Big picture: We’re working hard to create a future of democratized access to privacy-preserving finance. Thanks for being a part of this community. We look forward to living in that future alongside you!
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