$LSDoge and game theory. An update on 0xAcid Protocol. - by Evix

If you've never heard of ACID, I refer you to these two articles:

Newest updates

LSDoge

LSDoge is a Meme Token that was introduced into the ACID ecosystem.

There are three ways to get $LSDoge:

• Airdrop to holders of $ARB, $AIdoge, $ACID, $vACID, $esACID and $sACID (No longer available)

• Bond of $ACID (1 $ACID = 34.5 billion $LSDoge) (No longer available)

• Stake LP LSDoge-ETH LP (Available)

By staking $LSDoge you will get 100% of the yield generated by the 0xACID treasury. This token was the chosen alternative to counter the dilution of $ACID stakers.

Every on-chain operation of $LSDoge, with the exception of Staking, is subject to an 8% tax. Of these 8%, 2% will be burned, and 3% will go to LSDoge-ETH LP stakers. The remaining 3% is converted into $ETH and goes into the 0xACID treasury.

It does not have inflation, and due to the burn mechanism, it is deflationary.

Staking

Before, staking $ACID allowed you to receive the returns from the treasury + a percentage of the bonding sales. Now, you will only receive 5 to 10% of bonding sales in the form of $wstETH.

Cross-Chain Bonding

As Bonding is an integral and essential part of the system, its scope has been extended to Ethereum. It is now possible to use this system directly on Ethereum and receive $ACID on Arbitrum.

Game Theory

As you know, the 0xACID protocol will liquidate its treasury when $ETH reaches $10K and distribute it proportionally to $ACID holders.

This is very important because since the introduction of the end game, the protocol has taken on a new scale.

Let's assume that there are three levels of play:

• Short term

• Medium term

• Long term

Short term

The short term represents two particular cases:

1. Bonding, which sometimes allows you to receive a discount on $ACID. This $ACID can be instantly dumped on the market for profit.

2. Speculation, i.e., trying to profit from the price of $ACID.

Medium term

The medium term represents the staking of $ACID. You are subject to two things here:

1. $ACID inflation via lockers who choose to dump their rewards

2. Market fluctuations

You hope here that the yield obtained in $wstETH + the price at which you will sell your $ACID or the part of the treasury that you will obtain if $ETH reaches 10k will be higher than the simple holding of $ETH/LSD. This is, in my opinion, the least interesting position, you have much more to lose than to gain, especially since the treasury rewards no longer go to you.

In the medium term box, I can also add the $ACID lockers who decide to dump their rewards. Here you will need to be careful, as you are subject to a 60-day vesting period, so the price has time to fluctuate. Others were there before you.

The surprise

Between the medium term and the long term, you have the staking of $LSDoge. By staking this, you get the rewards from the 0xACID treasury. We can consider this as "backed" by the treasury's yield.

Let's assume that the treasury generates 5% annual yield and that the price of ETH remains the same. For a treasury containing ~$9M of $ETH, this amounts to $450k/year.

Let's also say that 100% of $LSDoge are staked.

If you own 1% of the supply, you then get $4.5k/year in $WETH.

What you need to understand here:

• 100% of $LSDoge are not staked

• The supply is deflationary → Once acquired, your share of the supply increases over time, so your share of the revenue also increases

• If the price of $ETH goes up, your yield also goes up (This can be nuanced by the fact that over time the APR of $ETH staking will decrease due to a larger number of stakers)

• The yield lasts until the liquidation of the treasury ($ETH = $10k)

• The fluctuation of the principal's price is not as important as in the old model

Long term

For the long term, it's about locking your $ACID to the maximum time with a perpetual relock of the principal as well as the rewards. You are betting here on the fact that $ETH will one day reach $10k.

You no longer care about the price, it can go -95%, the supply multiply by 150, it no longer impacts you. On the other hand, you say goodbye to your liquidity as long as this $10k target is not reached.

Several things:

• Given that not all of the $ACID supply is locked and not all lockers will opt for this strategy, your share will increase over time, and in the case where 100% of the supply and lockers opt for this strategy, your share will remain constant.

• This strategy can be optimized based on the price of $ACID. For example, at the current price of $ACID, it amounts to leveraging the bet that $ETH will go to $10k:

  Treasury - ($ACID + $LSDoge) = $9.28M

  Treasury // MC = 2.2 → The Treasury 2.2x higher than the MC

  $ETH Price = $1,770

  Let's assume that I buy 1% of the $ACID supply ($42k) today, and I lock it. I also consider that I do not increase my share of the supply over time but maintain it & that the 0xACID treasury does not increase in quantity of $ETH/LSD.

  For $ETH to reach $10k, it must do 5.6x its current price. The treasury would therefore be multiplied by 5.6 ($52M).

  As we said, when ETH reaches $10k, the treasury is liquidated and distributed to $ACID holders. At that moment, I would then get 1% of the treasury, so $520k.

  If I had simply bought and held $ETH all this time, I would have done a x5.6 whereas here I have done a x12.4.

  So I took leverage on my belief that $ETH would go to $10k. It should be added that I have deliberately omitted the increase in $ETH held in the treasury, and the increase of my share of it as explained earlier.

However, be careful. The liquidation is something that will be done by the multi-sig. It is stated in the documentation that this would potentially be open to new entrants but currently, it is governed by the Toxin Labs Team. So all this is a promise and not something immutable.

Conclusion

0xACID is a protocol that, in my opinion, has added a little spice to the LSDs and in the belief of an ETH at $10K.

The different approaches I mentioned may not be easy to understand but are really interesting.

The protocol indeed evolves very often, but it's each time to add something that is ultimately more relevant than what one might think at first glance.

The negative point of the addition of $LSDoge in the system is the de-gamification between lockers and $ACID stakers. It is now much less interesting to use staking, so the share of the number of $ACID lockers has increased. This means that a locker who chooses the long-term approach will compete with more people, and will therefore see his increase in his share of the supply decrease.

I find that the old version was more interesting for this reason, but the protocol remains, as you will have understood, always relevant. However, be careful not to break a well-oiled mechanism.