[REDACTED] Cartel V2: The Marketplace of Influence

At the time, Redacted Cartel didn’t only accumulate CRV, they also accumulated large amounts of CVX – the largest holder of veCRV. Recognizing the market demand for influential governance tokens, Redacted Cartel spread their wings and began accumulating others like TOKE and FXS. Now, with the release of Redacted V2, owning sizeable portions of influential governance tokens will allow the Cartel to reach its goal of becoming the kingmakers of DeFi governance.

Redacted Cartel started off as a fork of Olympus, the DAO who pioneered the concept of Protocol Owned Liquidity (POL). Using Olympus's bonding system, users could deposit their LP tokens on Olympus's platform in return for a discounted price of the native token OHM. Redacted Cartel leveraged the same mechanics to not only gather their own liquidity, but to also accumulate other governance tokens in return for a discounted price on their native token BTRFLY. This proved to be a very successful strategy for Redacted Cartel and it reached a market cap of $600 million at its peak with a treasury worth$153 million.

Despite the Olympus strategy being a reason for the early success of Redacted Cartel, it has become a part of their current problem. After OHM collapsed, bringing all its forks down with it, BTRFLY faced a perception problem. Many people looked at it as just another OHM fork, and the revolutionary products they are building often go overlooked. This article will guide you through V2 of Redacted Cartel and the products and services that will make Redacted Cartel the marketplace of influence in DeFi.

Simply put, Hidden Hand is a marketplace for bribes. In DeFi, the holders of governance tokens have governance power over their respective protocols, and other protocols can pay them to use it. For example, protocols can bribe veCRV holders to direct liquidity rewards towards their protocol rather than another protocol. There was no simple way to do this previously, even though it’s a highly demanded service. Hence, Redacted Cartel created a marketplace for these bribes.

On this platform, protocols can create a market for their own vote-locked or vote-escrowed tokens. After creating this marketplace, other protocols can decide which governance tokens’ influence they require and go to that pool to bribe the holders.

For example, if Tokemak creates a market on Hidden Hand, new or existing protocols can use this market to bribe TOKE holders to vote for a new reactor. If Dopex creates a market, then protocols can approach and bribe DPX holders to vote for a new SSOV. Through this, many existing protocols can create a market for their governance tokens, new protocols can direct liquidity to their pools much faster, and BTRFLY holders can benefit from all of it through the redistribution of Hidden Hand’s fees. Redacted Cartel will take a 4% fee on every bribe transaction and distribute it back to BTRFLY holders.

Hidden Hand currently supports 3 protocols after their soft launch – FRAX’s veFXS, Ribbon’s veRBN, and veBAL from Balancer. They have announced that three more are coming very soon.

To improve the overall capital efficiency of the protocol with the new products being launched, Redacted Cartel is also altering their tokenomics. Specifically, they are updating the vote-locking mechanism for BTRFLY. Previously, when users locked BTRFLY they would be entitled to governance power as well as revenue redistribution. Now, users have a choice between two types of vote-locked tokens: glBTRFLY and rlBTRFLY.

glBTRFLY is governance-locked BTRFLY. Users who governance-lock their tokens will get access to governance power in the same way ve tokens give holders governance power. The longer they commit to keeping it locked, the more governance power they get. However, getting governance rights in Redacted is not only useful for proposals, it is also useful for getting indirect governance power over the assets in the Redacted treasury. These assets include CVX, CRV, TOKE, FXS, FRAX, and TRIBE just to name a few.

rlBTRFLY is revenue-locked BTRFLY. The locking mechanism is the same, the longer a user commits to lock BTRFLY, the more rlBTRFLY they will receive. The difference is that rlBTRFLY entitles holders to the revenue generated by the protocol proportionate to their holdings. This can be revenue from bonds, yield, and bribe fees from Hidden Hand.

By dividing the two mechanisms into two separate tokens, there is less dilution for both parties. Let’s look at a hypothetical example. Suppose there are one hundred users. In the previous version they would all get revenue share and governance power. But if fifty are only interested in governance power and the other 50 are only interested in revenue share, they are all getting unnecessarily diluted. With the updated tokenomics, users have a choice over which one they want, so holders of rlBTRFLY get proportionally more revenue and holders of glBTRFLY get proportionally more governance power.

Users can also allocate to both depending on their preference. A user could allocate 80% to glBTRFLY and 20% to rlBTRFLY if they feel that is most optimal for the goals they wish to achieve. Importantly, it is likely the glBTRFLY will be more of a DAO/protocol facing product while rlBTRFLY will be more of a retail facing product.

Pirex was created in collaboration with Tribe DAO to provide exotic liquidity for vlCVX. Ordinarily, through the use of Convex’s Votium, vlCVX holders receive bribes for the use of their locked CVX. With Pirex, CVX holders can deposit their CVX and the protocol will vote-lock the CVX on Convex, then give the user pxCVX in exchange.

pxCVX is a liquid wrapped version of vlCVX, so holders will continue to accumulate bribe rewards just as they would with vlCVX. In this case, however, there is a twist. Stakers on Pirex will be airdropped a Bribe Futures Note (BFN) at a rate of one BFN for each CVX staked.

Suppose a holder of one BFN believes the next round of bribes will yield $0.50/vlCVX, their aim is to sell the BFN for higher than$0.50/vlCVX. If there is a counterparty who believes the next round will yield $0.60/vlCVX they will be willing to buy the BFN at any price below$0.60/vlCVX. At the end of the round, holders of the BFN can redeem their future notes for the underlying bribes. Essentially, BFN allows for the creation of a liquid futures market for bribes.

However, this is not the only use for pxCVX. Holders will also be able to deposit their pxCVX into fuse pools, specifically the Fei fuse pools. Using pxCVX as collateral, users can borrow assets from the fuse pools while still being exposed to the underlying bribes being accumulated.

The mechanism combines the powers of ERC-4626 and Fei’s flywheel core to enable different leveraged strategies using pxCVX. ERC-4626 is the tokenized vault standard which allows yield bearing assets in a fuse pool to be used without forfeiting the rewards they generate. The Fei flywheel is a suite of token incentives and governance infrastructure which, when integrated with Pirex, allows for the easy distribution of rewards to those who have deposited in fuse pools. Combining the two not only allows but simplifies the creation of different leveraged strategies using pxCVX.

Described above are the marquee elements of Redacted Cartel V2. However, there are additional features built around this core to further solidify the protocol.

The first feature is a new type of bond being offered called thecosomata. Thecosomata in the real world is a sea butterfly, but in the context of Redacted Cartel it is a bilateral agreement between Redacted & Olympus to increase liquidity of the OHM/BTRFLY liquidity pair on Sushiswap. Redacted will use their sOHM as collateral to get an interest free loan of OHM from Olympus DAO to bootstrap this liquidity pool. The aim is to increase the amount of POL to 15%-20% of Market cap.

The second feature is Mariposa. Mariposa is a switch from the OHM style emissions model to a linear emission model using department level emissions. Departments are multiple contracts which fulfil similar purposes (ex: bonds will have their own department, staking will have its own department). Each department will have a budget which is determined by the development team. The budgets will incrementally increase with each 8-hour epoch and are designed to match the emission levels of BTRFLY set by the protocol. This allows the distribution of emissions to be more organized and efficient by dividing the protocol into departments.

The final feature is the implementation of the Harberger Taxation model (there is a possibility this may be implemented in V3 instead of V2). This is a model for conviction staking. Rather than outright buying an asset and owning it, users can pay a monthly or weekly tax to have possession of that asset. If another user comes along and is willing to pay a higher tax for that asset, then they instantly get ownership of that asset.

For example, imagine a city with many buildings in it. People can pay a monthly tax to have ownership of these buildings and in return they can earn all the rent money from people living in that building. If another person comes along and sees how much money a person is making from the rent rewards, they will pay a slightly higher tax and take ownership to earn those rewards.

In the context of Redacted, the city is Convex City and the buildings are the staking slots. Each staking slot has a pre-determined amount of BTRFLY that will be emitted from it. Users can approach a staking slot and stake their CVX tokens to earn the BTRFLY rewards. Another user can then come a pay a higher tax in the form of CVX to take that staking slot from the previous owner and earn the rewards themselves. Through this mechanism, Redacted is trying to create user-determined bond discounts where the market determines how much CVX is worth giving up for BTRFLY rewards. A bonus is that all the CVX staked in these staking slots can then be used to get vlCVX and earn rewards.

These changes represent significant new offerings from the Redacted Cartel, and the aim is to make it the highest revenue-generating DeFi protocol. It currently generates $1.6M in monthly revenue with aims to steadily increase this as they gradually roll out their products.

Because liquidity is the backbone of DeFi, influence over its flow is one of the most important sources from which protocols can capture value. By becoming a marketplace of influence that captures these backdoor value flows, Redacted Cartel could transform into becoming a central part of the DeFi ecosystem.