Citadel’s ongoing Funding is an essential part of the protocol’s continued growth and success. By allowing users to swap any predetermined asset for xCTDL at a discount to market price, Funding allows for the continued growth of Citadel’s treasury. In this post, we will dive deeper into the mechanics of Citadel’s approach to Funding and what this means for the protocol and end-users.
As outlined in the Tokenomics Deep Dive post, Citadel introduces a novel emissions allocation model, referred to as Elastic Emissions. This model adjusts the portion of emissions going to lockers & stakers vs. Funding based on two factors: (1) the percent of supply that is staked and (2) the ratio between the market cap and treasury value. For a more in-depth explanation of the Elastic Emissions mechanism, refer to the Token Economics post linked above.
Emissions allocated to Funding will be sent to a Funding contract (one contract per funding asset) at an interval of 3 times per day and will be distributed as xCTDL. Emissions sent to the Funding contract will remain as CTDL until a user purchases from the contract, upon which, the CTDL will automatically be converted to xCTDL. The goal of the Funding contract is to create a hands-off mechanism for xCTDL to be exchanged for any liquid token.
With that in mind, the Citadel Funding mechanism will consist of two components, (1) an oracle that tracks the price of the target asset to acquire relative to CTDL and (2) a function that auto-manages a discount rate. By introducing a dynamic discount rate that regularly responds to market volatility, Funding operations will approximate a DCA type strategy.
To ensure there is sufficient volume through Funding, and in turn treasury growth, xCTDL purchased through Funding will be offered at a discount to CTDL’s market price. However, due to price volatility and market demand, the “efficient” discount amount will continually change — making static discount rates or manual discount management extremely inefficient. To address this issue, Citadel has developed an Automated Discount Adjustment Manager (ADAM), allowing the Funding discount rate to respond to demand shifts.
The four key variables in the discount manager are (1) the Top Up Rate, (2) the Discount Adjustment variable (3) the Minimum Balance variable and (4) the Maximum Discount. As mentioned above, the Funding contract for a given asset will be topped up with CTDL approximately 3 times daily. When the funding contract for a given asset is topped up, the Discount Adjustment variable will set the percent at which the discount should be adjusted. The direction that the discount is adjusted (positive or negative) is determined by the balance of CTDL in the given assets funding contract — this threshold is set by the Minimum Balance variable. When the Funding contract is topped up, the CTDL balance will be checked and if the contract balance is below the threshold the discount will decrease. Conversely, if the balance in the contract is greater than the minimum balance the discount will increase.
The outcome of using the above Funding discount manager is an automated method to adjust the Funding discount based on current (sub-daily) demand. For example, when demand for CTDL is high, the funds in the Funding contract will be quickly purchased, due to the discount to market price. So, when the contract is topped up and the CTDL balance is below the Minimum Balance threshold, the discount to market price will be reduced by the Discount Adjustment variable — meaning the treasury does not sell xCTDL at an unnecessarily high discount. Additionally, the Minimum Balance parameter can be tuned by the Policy team to best reflex changes in overall demand trends.
BTC Funding Contract Example
Acquisition Asset: wBTC
Discount Adjustment: 0.5%
Minimum Balance: 100
Current Discount: 10.5%
Maximum Discount: 20%
Top up is called and Balance = 1000:
- Current Discount = +0.005 (0.105 + 0.005 = 0.11)
Top up is called and Balance = 50:
- Current Discount = -0.005 (0.105–0.005 = 0.1)
Funding Gauges & Governance
Funding, as outlined above, is Citadel’s mechanism for continued treasury asset accumulation — in addition to treasury strategy yield generation of course. In the initial weeks following launch, funding assets will be set to initial key treasury assets such as BTC, Badger, and CVX. However, through governance, xCTDL lockers will be able to propose and vote on adding (or removing) assets to accumulate through Funding — creating dynamic Funding gauges. It is possible, in time, that a “meta game” will develop around these gauges, which, if it occurs, could benefit xCTDL lockers as well as protocols.
Additionally, if an asset is removed from the active acquisition list and its balance is below the minimum then that contract can be made dormant and will be removed from the front end. Implementing Funding gauges allows both users and DAOs to have a say in what treasury assets Citadel accumulates and the strategies we implement — an essential component of being the people’s Bitcoin whale.
Funding and Emissions Fees
As previously outlined, Citadel will distribute a portion of the revenue generated through Funding, paid out in BTC, to users who lock their xCTDL (vlCTDL holders). The frequency at which Funding is paid out to lockers has not yet been solidified, but will likely be weekly or faster. The funding revenue breakdown is as follows:
- 10% vlCTDL
- 90% Citadel Treasury
Previously, there was an additional 10% fee on Funding that was paid to the DAO in BTC, which has now been removed. Additionally, there will be a 20% fee on CTDL emissions to keep the DAO’s allocation in line with its initial allocation — since the DAO will eventually be diluted to what the emissions fee is set to. We believe that this fee will be sufficient to support ongoing operations and liquidity growth. The fee will function by distributing 20% of each CTDL mint to the DAO and the remaining 80% to lockers, stakers, and Funding.
The primary goal of the 20% emissions fee is to protect the DAO and wBTC/CTDL LP position from dilution — since the DAO’s CTDL allocation will not be staked. Therefore, the emissions fee paid to the DAO will be used for two activities, (1) to continue to grow and support the treasuries wBTC/CTDL LP position and (2) to protect the DAO from dilution, ensuring there is a substantial CTDL runway for ongoing operations.
Needless to say, we are incredibly excited with how Citadel’s core mechanics are unfolding. With launch fast approaching, we will continue to share details around Citadel’s functionality, treasury composition, and governance structure on the forums in a Request For Feedback (RFF) format. If you are excited as we are, head over to the Discord to engage in the discussion!