Pirex ETH

ETH is deposited into the Dinero protocol on-chain via immutable PirexETH smart contracts. pxETH, an LST token, is minted 1:1 for deposited ETH. The majority of the ETH is staked by Dinero protocol validators and used to validate transactions. The remainder is kept unstaked and is referred to as the “ETH buffer”.

architecture diagram

ETH can be withdrawn from the Dinero protocol in exchange for pxETH. This ETH either comes from the pxETH buffer (if there is ETH available) or from the spinning down of validators and the unstaking of ETH. In cases where the withdrawal requires spinning down validators, a user will receive upxETH, issued as an ERC-1155 token, in exchange for their pxETH, which can be redeemed for ETH once the relevant validator(s) has been spun down.

A withdrawal fee is levied on withdrawals, with a larger fee for withdrawals from the pxETH buffer, reflecting the greater ease of withdrawal. These withdrawal mechanisms allow for ETH:pxETH peg maintenance and for greater liquidity, especially during times of market volatility.

Withdrawal Pool

There are limits on the rate at which validators can enter and exit the Ethereum network, based on the number of validators there are in total. Therefore, if there is a significant ETH unstaking queue, this can hamper the timeliness of ETH withdrawals from the Dinero protocol from the spinning down of validators.

In these circumstances, an incentivized withdrawal pool can be used to improve pxETH liquidity from ETH unstaking. Users can deposit ETH into a pool and receive rewards whilst they provide liquidity to that pool. Where there is an unstaking queue and ETH from the spinning down of validators is not readily available, ETH from this pool is provided to users in exchange for pxETH, with the exchange rate or price being determined by demand for ETH from the pool. As pxETH is redeemed and validators are spun down, ETH is replenished in the pool. Depositors into the withdrawal pool therefore receive rewards in exchange for potential ETH illiquidity.

As pricing depends on the demand for ETH in the pool, rewards on deposited ETH increase during periods of high demand, allowing the pool to scale when demand is high. This makes liquidity provision more efficient and cost effective.

ETH Buffer

A small percentage of the ETH deposited into the Dinero protocol is kept unstaked. This helps to facilitate staking and unstaking, which occurs in 32 ETH increments, while also allowing for some ETH withdrawals from the Dinero protocol and self-sufficient meta transactions via the Redacted Relayer RPC. The Redacted DAO’s policy arm will adjust the ETH buffer and other pxETH variables following a transparent process approved by the DAO.

buffer diagram

The size of the pxETH Buffer is going to be relative to the pxETH TVL according the following formula:

buffer formula

where b is the buffer size, t is the pxETH TVL and c is the buffer coefficient that can be changed by governance and now is set to x.