Redacted Protocol was arguably one of the more complex DeFi protocols in the market, having developed Dinero, a yield protocol, and other metagovernance solutions such as Pirex, which creates governance wrapper products, and Hidden Hand, a marketplace for governance incentives and voting power.

However, Redacted has since shifted its focus from developing infrastructure for governance tokens, to applying this infrastructure at the protocol level. In a bid to simplify its branding and emphasize its pivot from metagovernance to protocol infrastructure products, Redacted ultimately went all-in on Dinero by consolidating the project under the Dinero brand – rebranding Redacted to Dinero, and migrating their governance token from BTRFLY to DINERO.

With Dinero Protocol now touting DeFi’s highest-yielding Ethereum liquid staking solution, could the new DINERO token be worth bidding?

Dinero, the yield baseplate of Ethereum

First, it would be instructive to deconstruct Dinero’s product suite:

• pxETH: Ethereum liquid staking solution that uses a two-token system: pxETH and apxETH. This seeks to provide users with a choice between liquidity and DeFi yields (pxETH) or boosted ETH staking yield (apxETH).
• pxUSD (Coming Soon): A decentralized medium of exchange.
• Relayer (Coming Soon): A public and permissionless transaction relayer to protect users from MEV.

pxETH can be minted by depositing ETH into Dinero, subsequently, this ETH will be staked with Dinero’s validators. pxETH will not earn the underlying staking yield, it can be used to earn yields through LPing on other protocols such as Curve, PancakeSwap, Balancer, Velodrome, and more, for an APR that averages 7-12%.

Alternatively, users who would like to earn the underlying staking yield can stake ETH or pxETH into Dinero’s auto-compounding rewards vault to get apxETH, which is currently yielding an APR of 7.19%. As some users may hold pxETH instead of apxETH, apxETH stakers can earn higher yields than the market standard. This can be further compounded with other DeFi integrations such as Morpho, where apxETH can be borrowed against to earn leveraged staking yield.

In the future, pxETH also aims to allow L1s and L2s to build their own LST using Dinero’s infrastructure (much like Sanctum).

Token distribution and utility

Following the recent 1:2000 token migration from BTRFLY to DINERO, DINERO has a max supply of 1.3 billion tokens, of which nearly 300 million are in circulation.

According to the emissions schedule as shown above, most of the tokens will be unlocked after 4 years, and the allocation is as follows:

• V1 Supply: 22.4%.
• Incentives (renamed from Pulse): 47.6%.
• DAO Reserves: 15%.
• Founding Team: 9%.
• Seed: 6%.

Dinero justifies the large allocation to Incentives by explaining that DINERO will be earmarked for initiatives that aim to grow the protocol from a treasury, product, and user adoption perspective.

As for DINERO’s utility, as a governance token, DINERO can be used to vote in Dinero’s governance process. DINERO can also be staked for a relatively decent APY of 14.08%, with each staked DINERO worth three votes in governance, compared to one vote for an unstaked token. Stakers also enjoy revenue share from Dinero’s suite of products.

Evaluating Dinero’s LST product

Intuitively, Dinero faces tough competition in the Ethereum LST market from the likes of Lido’s stETH (~3%), Renzo’s ezETH (~3.3%), EtherFi’s eETH (~2.8%), RocketPool’s rETH (~2.54%). While these tokens are yielding significantly less than Dinero’s pxETH and apxETH, these protocols are more established, and investors looking for a safe place to ‘park’ their ETH may favor them over Dinero. It should also be noted that mercenary airdrop/points farmers may opt to forgo higher yield to chase other LST or liquid restaking opportunities that may reward them with points for future airdrops, resulting in potential headwinds in the form of subdued demand for Dinero’s pxETH and apxETH.

The confluence of the factors listed above, has culminated in only ~$40 million of ETH being locked on Dinero, as compared to Lido (~$30 billion), Renzo (~$1.5 billion), EtherFi (~$1 billion), and RocketPool (~$1.6 billion).

Nonetheless, a potential bull thesis for Dinero revolves around the visibility it can gain through institutional adoption, with its recent introduction of ipxETH (Institutional pxETH) in collaboration with Laser Digital, the digital asset subsidiary of Nomura, which is Japan’s largest investment bank. By launching an ipxETH product, accredited participants can gain easy access to a yield-bearing ETH product, as opposed to simply buying the spot ETH ETF which does not have a staking component.

Should this endeavor be successful, the ETH staking narrative could potentially gain traction among institutional investors, with capital flowing from their investment into spot ETH ETFs, to Laser Digital’s ipxETH fund for staking exposure.

Applying some moon math here, as of Aug. 2, 2024, AUM of spot ETH ETFs stood at $8.39 billion. And at present, ~28% of ETH is currently staked. Assuming a proportionate amount of institutional capital flowing from spot ETH ETFs to the yield-bearing ipxETH fund, this translates to an inflow of ~$2.35 billion, which is nearly 60x the current market cap of pxETH’s!

While this will most certainly dilute the staking rewards for apxETH, Dinero’s mindshare is expected to proliferate. Eventually, Dinero may also be deemed as an established and safe protocol among retail investors and steal liquidity from its aforementioned competitors.

Evaluating DINERO

Despite the merits of Dinero’s yield staking solution, we cannot ignore the elephant in the room, which is DINERO’s emissions schedule. In 1 year’s time, ~600 million DINERO will be in circulation and after 4 years, over 1.2 billion DINERO will be in circulation. At its current circulating supply of ~300 million tokens, this represents a 100% increase in circulating supply in 1 year, and a 300% increase in circulating supply in 4 years! As a result, such a significant dilution may turn investors off.

Action plan

In light of the above, DINERO is not a token I foresee myself stacking anytime soon. That being said, I view Nomura’s collaboration with Dinero as a vote of confidence in Dinero’s LST product, though with similar programs being launched by the likes of Lido, Dinero may not be the only game in town for institutional access to staked ETH.

As such, staking ETH in Dinero’s auto-compounding vault to obtain apxETH, and putting apxETH up as collateral on Morpho to execute leveraged staking strategies, seems like a pretty safe and decent yield farming opportunity that I will certainly employ with any spare ETH I may have.