Behind Pluto
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July 12th, 2022

Pluto Mechanics

Pluto is an innovative reserve currency design. It is a financial instrument resistant to bear markets that provide long-term and planned growth in the market price of an asset.

TL;DR:

  • PLUTO tokens are backed by treasury funds.
  • The treasury maintains a market price no lower than the backed price.
  • The onboarding mechanics build up the treasury and increase PLUTO's backed price.
  • PLUTO onboarding and staking bring triple-digit %APY to the participants. Treasury-driven price model

The treasury is a core of the Pluto protocol.

Most of the treasury (at least 80%) consists of the low-risk lp tokes such as Vires_USDT, Vires_USDC, and Waves Exchange USDT/USDN pool, which are essentially stablecoins invested in protocols and generating interest. The treasury will also include LP tokens from the Pluto pool launched on Puzzle Swap in order to guarantee a sufficient level of liquidity.

The key objective of the Pluto protocol is to drive the growth of the treasury along with the backing of each PLUTO token.

There are several key parameters in Pluto's mathematical model that ensure the stability of the system:

Market price — PLUTO price in USDN on the market.
Backed price — the value of the treasury assets for each PLUTO token issued, that is, the value of the treasury / amount of PLUTO.
Maximum price — the backed price multiplied by K. Currently, K = 3, in the future the multiplier value will be controlled by voting.
Growth factor — market price to backed price ratio.

If the market price of a PLUTO token falls below the backed price, the smart contract will start to buy back the tokens in the Puzzle Swap mega pool and burn them. Thus, the treasury maintains the market price of PLUTO at or above the backed price.

Conversely, if the market price of PLUTO surges above the maximum, the smart contract issues and sells PLUTO, increasing the treasury until the price returns to the established range.

In this way, the market price of PLUTO may decrease during short periods of time, but in the long run, it steadily grows.

Example.

The treasury holds 1 million USDN worth of assets, which are generating interest on Vires and Puzzle Swap. Meanwhile, 500,000 PLUTOs have been issued.

This means that the backed PLUTO price is 1000 / 500 = 2 USDN, and the maximum price is 2 × 3 = 6 USDN.

The market price of PLUTO can range from 2 to 6 USDN. At the point when the market price equals 4 USDN, the growth factor is 4 / 2 = 2, or 200%. This is the optimal value when the model generates a high yield and attracts new participants.

Basic mechanics

The Pluto protocol includes two main mechanics that create demand for the PLUTO token:

  • Onboarding. This is a mechanism for attracting new assets to the treasury and issuing new PLUTO tokens. Onboarding is designed to simultaneously raise the backed PLUTO price, pay significant interest to onboarding participants, and (if the current growth factor is high enough) payout the incentive portion of the staking rewards.
  • Staking. This is passive income generation for PLUTO holders.

Onboarding

To become a participant in onboarding, a user brings stablecoins or LP tokens into the treasury. In return, he gets PLUTO tokens at the market price. PLUTOs remain blocked for a few days. The protocol accrues Onboarding APY on issued Pluto until the end of lock-up period.

The blocking period and onboarding APY depend on the growth factor at the time of onboarding start:

Pluto growth factor
Lock-up period
Onboarding APY (with compounding interest)

Example

suppose:
treasuryValue = 100000 usdn
totalSupply = 50000 pluto
backedPrice = treasuryValue/totalSupply = 2 usdn
marketPrice = 4 usdn
plutoGrowthFactor = marketPrice / backedPrice = 200%
onboardingAPY = 2641%
lockup = 8 days

Hence investing 1000 usdn through onboarding results in: onboardingBonus = investedAmountInPluto*(1+onboardingAPY)lockup/365 = 1000/2*(1+2641%)8/365=268.8 pluto worth of 1075.3 usdn if marketPrice stays the same. However, the price can fluctuate, but since backedPrice increases, marketPrice tends to increase.

Why are interest rates so high?

The onboarding yield comes from the "gap" between market price and backed price. The user receives the resulting amount of PLUTO at a price lower than the market price at the moment the onboarding starts, but higher than the backed price. It means each onboarding increases Treasury by more value than backed price.

The onboarding APY is designed to increase the collateral value per PLUTO token, so the backed token price increases due to onboarding.

Below you can see how onboarding in previous example affects backedPrice, totalSupply and treasuryValue:

totalSupply = 50000+268.8=50268.8 pluto
treasuryValue = 100000 + 1000 = 101000 usnd
backedPrice = 101000/50268.8≈2,01 usdn
As you can see, the protocol is designed to increase the minimal price of pluto. Consequently, maxPrice and market price will also grow. To put it simply, the protocol is calibrated so that the amount of tokens grows at a slower rate than the value of the treasury.

Additionally, if the difference between the market price and the backed price is considerable, a portion of new value is allocated to back incentive rewards for staking. Staking rewards are capped by a governed level.

Staking

PLUTO holders can stake their tokens. PLUTO staking does not involve locking, tokens can be withdrawn at any time.

All PLUTOs are backed and staking rewards are no exception. This is why any staking requires growth of the treasury. There are two parts to the staking yield: unconditional and incentive.

The unconditional part of the yield is formed with the interest that the treasury's LP tokens generate. For example, if the treasury grew due to interest by 20% a year, then 20% of the new PLUTO tokens are issued and distributed among the stakers. The unconditional yield of staking is independent of PLUTO's market price.

The incentive part of the yield is backed by the onboarding-driven growth of the treasury. This part depends on growth factor: the higher it is, the higher incentive staking is distributed to stakers.

The maximal staking emission is capped by a figure governed by the community. Initially, this figure is expected to be 70% per year. The yield is calculated in proportion to the amount of PLUTOs in staking. So if there were only half of all existing PLUTOs in staking, the unconditional yield would be 140%.

Staking yield is compounded: the gained rewards are subject to the following interest accruals.

Why Pluto is sustainable

Pluto tokenomics are sustainable due to the design of incentives:

  • Minting of any Pluto is backed by the growth of the treasury.
  • The onboarding mechanics increase the backed price of each PLUTO token i.e. the price floor. Detailed calculations are given in the white paper of the project, and everyone is welcome to review them.
  • The Treasury maintains the market price at a level no lower than the backed price, which gradually increases. The protocol can buy back all minted PLUTO at the backed price.
  • The Protocol is designed to decrease the risk of investors: max price is bounded below 3*backedPrice, which means that downside under normal conditions on the market is no higher than 3.

You may wonder what if market price sets at backed price level, onboarding ceases and staking yield is reduced to the unconditional portion? The Pluto protocol has another buyback mechanism that will push the market price up to the midpoint between the minimum and maximum. Read more about the buyback in our next article.

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