Key Design Principles
The Treehouse Protocol is built on several design principles aimed at addressing the shortcomings of traditional finance reference rates and ensuring the effectiveness and reliability of its consensus mechanism. These principles include:
Accuracy
Accuracy is paramount in the design of the Treehouse Protocol. To achieve this, the protocol employs Game Theory principles. In the rate consensus process, participants, known as "Panelists," are required to stake some of their capital as collateral. This collateral acts as a deterrent against malicious actions, as any attempt to undermine the system results in penalties. Conversely, participants who contribute to the rate consensus with integrity are duly rewarded. Token emissions and referencing fees serve as incentives for good behavior, tying potential earnings directly to the accuracy of predictions. This multi-tiered reward system encourages participants to build a strong reputation over time and to provide their best predictions.
Decentralization
The Treehouse Protocol aims to promote decentralization in the rate-fixing process. This decentralization is facilitated by allowing anyone with subject matter expertise to build their own DOR ecosystem or to predict the relevant rate defined by the Operator, provided they adhere to the outlined incentive and penalty framework. Open access to DOR also ensures that knowledge and insight are valued over centralized authority, fostering a diverse range of perspectives in the consensus process. Additionally, the computation of the rate consensus is publicly accessible on the blockchain, offering transparency for all stakeholders to validate the protocol's calculations. Participants, known as “Delegators” can further decentralize the ecosystem by entrusting their stake to knowledgeable Panelists, who are incentivized to act in their best interest.
Agnosticism
The Treehouse Protocol introduces a generalized framework to the rate consensus process, making it applicable to all objective reference rates. This versatility extends the use of DOR beyond conventional rates within the cryptocurrency ecosystem, such as Ethereum staking rates, to include a wide array of other financial products. These may include liquidity provider (LP) yield for specific pools or real-world asset (RWA) related rates like a mortgage rate index. This broad scope of application opens up numerous possibilities for leveraging the Treehouse Protocol in diverse scenarios, enhancing its utility across various sectors.
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