Farms / Investment Strategies

The Core Primitives of Dexponent

Farms are the fundamental building blocks of Dexponent, each representing a unique yield-generation strategy ranging from staking and lending to advanced delta neutral strategies that leverage offsetting positions to generate market-agnostic returns while minimizing directional risk and algorithm-driven portfolios. Each Farm is deployed as an independent smart contract capable of handling various asset types (ERC20 or native ETH) while ensuring security, transparency, and performance.

When a Farm is created, liquidity providers deposit their principal asset (e.g., USDC, ETH, etc) into a non-custodial pool and receive claim tokens, a dedicated ERC-20 token minted on a 1:1 basis with their deposit that represent a direct claim on the underlying asset. These claim tokens enable seamless transfers and secondary market trading of principal claims, while also serving as the redemption mechanism for retrieving staked assets upon maturity or early exit. Each Farm implements slash fees for early exits, keeps track of positions, and invests liquidity via a Strategy contract. Yields accrued in the principal asset are swapped into $DXP, which the Protocol then pulls for stakeholder distribution.

The Protocol features two types of Farms:

General Farms: These accept various principal assets (e.g., USDC, WETH etc) and implement slash fees for early exits. When a liquidity provider deposits funds, the Farm mints claim tokens on a 1:1 basis with the principal. These tokens represent a verifiable claim on the underlying asset, enabling seamless transfers and secondary market liquidity. For non-root farms, a deposit bonus can be requested from the Dexponent Protocol. This pinned bonus is reversed if the user exits early. For instance, the minting is done as follows:

// Mint claim tokens 1:1 to the LP upon deposit

claimToken.mint(msg.sender, amount);

A key innovation in the protocol is that each farm has an AMM pool corresponding to that farm, which pairs $DXP with the principal asset of that farm. This creates deeper liquidity for $DXP across multiple trading pairs and helps stabilise its value.

RootFarm (Specialised): The RootFarm is a special type of Farm that uses $DXP as its principal deposit token. When liquidity providers deposit $DXP into the RootFarm, they receive $vDXP on a 1:1 basis, with their deposited $DXP locked in the RootFarm. If a user transfers $vDXP to someone else, a small portion is burned as a transfer fee, and an equivalent amount of locked $DXP is "unlocked," effectively counting as new yield to the RootFarm. Early exit from the RootFarm also incurs a small slash fee (in $DXP), which is added to the farm's revenue pot.

Each Farm references a Strategy contract that invests the principal in an external protocol or a DEX liquidity pool. The Strategy's `harvestRewards()` function brings back the yield in principal form to the farm. If the farm's principal is not $DXP, it is swapped to $DXP.

The RootFarm employs a specialised "Root Anchor Market-Making Strategy" (RAMM) that utilizes a price anchoring mechanism to help maintain the intrinsic value of $DXP. The strategy automatically injects liquidity when the price of $DXP dips below a set anchor, helping preserve its value and ensuring the system remains rewarding for all stakeholders.

Yield accumulation is tracked continuously, and when the maturity period is reached, liquidity providers can claim their yield net of protocol fees. The fee rate is determined dynamically by the Protocol Master:

// Retrieve fee rate from Protocol Master and compute net reward

uint256 feeRate = IProtocolMaster(protocolMaster).getProtocolFeeRate();
uint256 fee = (pending * feeRate) / 100;
uint256 netReward = pending - fee;

For principal redemption whether at maturity or via early withdrawal, LPs must burn their claim tokens, ensuring that these tokens consistently represent a claim on the deposited asset:

// Burn claim tokens to redeem principal

claimToken.burnFrom(msg.sender, amount);

// Some code

Early Withdrawal and Cooldown Period:

When a liquidity provider withdraws before the maturity period, the protocol implements several mechanisms to maintain stability and protect long-term participants:

1. Slash Fees: For Non-Root Farms: The Farm calculates a dynamic slash fee on the principal, which is added to the farm's principal reserve. This fee is proportional to the remaining time until maturity, discouraging short-term speculation. For RootFarm: If a user withdraws $DXP before maturity, a minimal slash fee is applied directly to farmRevenue which is converted to $DXP and is later distributed to remaining participants.

2. Deposit Bonus Reversal: For non-root farms, the pinned deposit bonus that was awarded at the time of deposit is reversed, requiring the user to return the pinned $DXP tokens to the protocol. The user's claim tokens are burned, and their net principal is returned minus any slash fee.

3. Cooldown Queue: The returned bonus tokens are not immediately recycled back into the protocol's unissued supply. Instead, they are placed in a cooldown queue with a release time set to current time + a specific cooldown period. This cooldown mechanism prevents potential abuse from rapid deposit-withdraw cycles and ensures stability in the token economy.

// Add tokens to cooldown queue when a deposit bonus is reversed

cooldownQueue.push(CooldownEntry({
    amount: bonusAmount,
    releaseTime: block.timestamp + COOLDOWN_PERIOD
}));

1. Token Recycling: Periodically, the protocol calls `recycleCooldownTokens()`, which pushes tokens that have completed their cooldown period back into the protocol's unissued supply via `dxpToken.recycleTokens(totalRecycled)`.

2. RootFarm Withdrawal Process: In the RootFarm, when a user withdraws early, their $vDXP is burned, the locked $DXP in RootFarm is decremented, and the net $DXP (minus the slash fee) is returned to the user. This process ensures that the protocol maintains its economic equilibrium even when users exit early.

This comprehensive approach to early withdrawals ensures that the protocol maintains liquidity stability while still allowing flexibility for participants who need to exit before maturity.

This design ensures that each Farm operates as a self-contained yield engine while being connected to the broader protocol ecosystem. Liquidity providers enjoy clear ownership over their principal through claim tokens, receive market-driven bonus rewards, and are protected by rigorous performance and fee mechanisms. Together, these features form a robust, transparent system that aligns incentives across all participants while delivering predictable, high-performance returns.