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Everything You Need to Know About Dinero.

June 15, 2023

In conclusion

If you’ve been around DeFi for a while, chances are that you’ve heard of Redacted. If you haven’t, don’t worry. Let me quickly refresh your memory. 

Redacted initially started by taking inspiration from the Olympus DAO model which saw its native token BTRFLY skyrocket in popularity & price. After attracting liquidity, they quickly pivoted away from the Olympus model and diversified into a DAO that created a suite of DeFi products. Their most popular products are Pirex & Hidden Hand. 

Pirex simplifies the management of staked tokens while Hidden Hand is a marketplace for bribes. Appropriately enough, this makes them akin to a butterfly floating in the middle of DeFi making different aspects of the industry click with one another.

I could go on and on about how impressive Redacted is and what they have built, but unfortunately, I do not have the time to write a 50-page PhD thesis. So for today, we will talk about their newest product. Dinero. 

If you do want to get stuck into a thesis you can read our previous Redacted article here. 

Why Dinero?

Something that has been on everyone’s mind for the last few months is LSDs. No, not the hallucinogen, we’re talking about Liquid Staking Derivatives. 

Following The Merge or Eth 2.0 put into effect a monumental change to the Ethereum network. It transitioned from Proof of Work to Proof of Stake which essentially means that to become a validator and validate blocks on the Ethereum Blockchain, one has to stake their ETH. 

Earlier this year, a subsequent update was released, dubbed the Shapella (Shanghai + Capella) Upgrade. This essentially began the process of  ETH withdrawals from the Beacon chain (Ethereum’s POS chain). So all those who staked their ETH for the transition could now begin to unstake it if they like. Of course, many didn’t. 

Info: https://dune.com/hildobby/eth2-staking 

The spillover effect of this has been a rise in LSDs. From roughly 15% prior to Shapella, to now (at the time of writing) over 19%. The basic premise is to create a liquid derivative so users can have their ETH staked to validate the network and earn the yield, all the while, still being able to transact in DeFi as they normally would. Many have entered this race but Lido has remained dominant holding over 70% market share of LSDs and over 31.61% of the total staked ETH on the entire network.

Today we will introduce a new challenger: Redacted and Dinero. 

Dinero: Overview 

You’ve probably already seen every DeFi threadooor talk about Dinero, but few have been very comprehensive in their explanation. You may know from what you read on Twitter that Dinero is a decentralized stablecoin that is in some way linked to LSDs. While that is somewhat true, it’s far from the entire picture. So let me explain. 

Dinero has 3 elements to it:

  • Pirex ETH
  • DINERO 
  • MEV 

What is PIREX? - Redacted.

Info: https://pirex.io/ 

Pirex is a product that has already been built by Redacted. It provides auto-compounding, yield management, and gives users access to liquid wrappers for staked tokens.

They will use this as a base layer for their own LSD called Pirex ETH (pxETH). It works similarly to stETH in that users deposit their ETH on Pirex and get pxETH in return which is soft pegged around the 1 ETH mark. 

The ETH staked here is directed towards the Dinero Validators who will be operating a custom Ethereum execution client. Redacted will bootstrap liquidity for the pxETH/ETH pair and since withdrawals are now live, there is a quick redemption mechanism which means arbitrage for peg restoration between pxETH:ETH is possible. 

DINERO

The second element is the DINERO stablecoin. The Redacted team identified 3 key issues with prior stablecoins.

  • Centralization risks 
  • Liquidity challenges 
  • Lack of product market fit 

DINERO is the solution to all 3 problems. 

Dinero (Spanish for Money) is a collateralised debt position (CDP) stablecoin, which is somewhat similar to DAI. In its initial stages, it will operate very similar to DAI in that it will be overcollateralized by ETH and pegged to $1 - nothing else to begin with. Where things really start to get interesting for DINERO is when it is combined with the Redacted Relayer which we will discuss in further detail below. 

Essentially, the end goal for DINERO is to use a portion of the protocols underlying ETH for the abovementioned Relayer and protect Dinero users from MEV attacks. In addition, DINERO will become the de-facto gas token for the Dinero protocol with all transactions on it requiring a user to have DINERO. 

So now let’s get to the meat & bones of the Dinero protocol. The Redacted Relayer introduces the MEV element to it. Or MEV-protection to be more precise.  

You’ve probably heard of MEV at some point as this mysterious thing that the on-chain MEV femboys & Jared From Subway use to steal your money when you trade. While that may be true (lol), it is a lot deeper than that. 

The way Ethereum validation works, unconfirmed transactions are always susceptible to MEV attacks in the form of sandwich attacks and frontrunning, something that all protocols are battling to fight against. 

Transactions are essentially sent to this waiting room called the mempool (memory pool) where validators essentially pick transactions to be added to the chain. Whilst a transaction i.e. a swap sat patiently waiting to be confirmed into the next block by the validators, MEV bots are looking for specific inefficiencies in said transactions to potentially exploit for maximum extracted value, hence MEV. This can come in the form of front-running, back-running, sandwich attacks, just-in-time liquidity or many other more inventive and intricate ways that benefit the attacker. All you need to know is that they are winning and you are losing… 

Dinero hopes to protect its users from all of this with its Redacted Relayer. 

For those who don’t know, a relayer essentially sends transactions to the blockchain on behalf of a user to provide a layer of abstraction. The purpose is simply to enhance the user experience by reducing costs and speeding up execution. 

The Redacted Relayer has 3 elements to it:

  • Meta Transactions 
  • Searchers Ethereum Reserve 
  • Private transactions 

Meta transactions are transactions where the one executing doesn’t have to pay the network fees in ETH. They simply sign the transaction for authentication and the data is sent to an operator or relayer. These guys publish the final transaction on the chain. 

The Redacted Relayer will play this role for Dinero users. Those who transact through Dinero will pay no fees in ETH, they simply use their DINERO to tip the Relayer. This gives DINERO instant utility and potential product market fit. 

The second aspect is the searcher's reserve which will be powered by pxETH. Most of the ETH underlying pxETH will be used for validation but the remainder will be used to cover ETH transaction fees through the burning of DINERO for the relayer. 

Once this ordeal gains traction, the relayer will be able to have private transactions. This means the Redacted Relayer can process transactions and construct blocks with DINERO being the gateway token to unlock the pxETH block space. From here, Dinero users can get access to things like private order flow all the while being protected from Jared and the fellas. Sounds pretty neat doesn’t it?

The cherry on top 

Everything together for Redacted by coming full circle and looking at that almighty treasury of theirs. 

They leveraged Olympus-style bonds in the early days to amass a massive treasury of various tokens, and that brilliant chess move is paying dividend till today. I mean is there any team in DeFi that can sway Curve votes in favour of their pools quite like Redacted? 

They have a well-diversified treasury consisting of well over 40 different assets which at the bottom of the bear market is worth around $13.5M. 

Having such a large treasury will play a vital role in incentivizing stablecoin liquidity, which as we discussed earlier, is a cornerstone piece of ensuring DINERO succeeds. 

They are now armed with all the tools for success, so don’t be surprised if you see Dinero being another Redacted product that is up amongst the best in DeFi. 

Concluding Thoughts 

For all the cool and weird things that have come out of the crypto industry, block space is certainly the most important. It’s the commodity of the future, and Dinero will offer unprecedented access to Ethereum block space once everything is built out. This is not just another stablecoin, anon. Keep close tabs on this one.

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