Critical Mechanisms

...& Economic Models

This section details the core economic loops and stabilisation mechanisms that emerge from the interaction of the three protocols.

4.1. The Stability Engine: Dual-Engine Convertibility

GUILD's stability is ensured by a dual-engine mechanism designed for a trusted bootstrap phase and a sovereign end-state.

• Engine 1: The Settlement Pledge (Bootstrap & Trust Floor):

  • Mechanism: A hard-coded guarantee that 1 GUILD can be permanently staked in the Settlement Contract for 1 crvUSD. This creates a non-depreciating trust floor.

  • Funding: The pledge is funded by a portion of protocol revenue, automatically allocated via the Redirect Variable (RV) as defined in Section 2.1.2.

  • Phase-Out: This engine's relative importance diminishes as Engine 2 grows, in accordance with the phased blueprint.

• Engine 2: The Protocol-Controlled Reserve (The Vault) (Sovereign Backing):

  • Mechanism: The Vault accumulates ETH as the protocol's intrinsic, unencumbered asset reserve. The market value of this reserve, relative to the GUILD supply, provides organic backing and long-term stability.

  • Growth: The Vault is grown through direct allocations from the Distribution Engine in Fortify Mode and via the Reserve Booster POD.

The system's transition from reliance on Engine 1 to being backed primarily by Engine 2 is the core of its path to sovereignty.

4.2. Value Acquisition: GuildSwap FARM & ARBITRAGE

These are the protocol's primary functions for growing its treasury (PHA) and enforcing price parity for target assets.

• GuildSwap FARM (Primary Minting & Treasury Growth):

  • Process: As defined in Section 3.1.2, users sell discounted yield-bearing derivatives to the protocol for GUILD and 3Fi.

  • Economic Effect: The protocol's PHA increases with discounted, productive assets. The newly minted GUILD is backed by the future yield of these acquired assets.

• GuildSwap ARBITRAGE (Peg Enforcement & Cashflow Defence):

  • Process: Users can sell a discounted derivative asset directly for crvUSD from a dedicated Arbitrage Engine.

  • Funding: Engines are funded by the Arb. Master Node, which is capitalised from Adolescent 3Bond sales. This crvUSD pool is separate from the protocol's treasury (PHA).

  • Arbitrage Fee Model: A protective fee, payable in GUILD, is levied on each trade. The fee is calculated using a formula that scales based on the discount captured and the current Reserve Requirement Curve (RRC) weight (W), discouraging extractive arbitrage that would excessively drain the Arb. Master Node's cashflow.¹ Projects can subsidise this fee by donating GUILD to their asset's specific engine.

  ¹ The precise fee formula is: Arb.Fee = (W * Ya) + ((1 - W) * Yb), where Ya and Yb are derived from the discount and a base constant. Full specification is maintained in the protocol documentation.

4.3. The Self-Regulating Economy: Revenue Flow & Distribution

The closed-loop flow of value is the protocol's flywheel. The following sequence occurs whenever revenue is harvested from protocol-owned 3.NFTs:

1. Revenue Intake: Harvested yield is converted to crvUSD and deposited into The Grove's Holding Contract.

2. Settlement Allocation: Any actor can call pushCrvUSD() to forward crvUSD to the Settlement Contract. The Redirect Variable (RV) determines the portion allocated to satisfy the pledge: RV = looseGUILD / (totalGUILDIssued - totalGUILDBurned) The remaining crvUSD is sent to The Reserve's Distribution Engine.

3. Distribution Fork: The Distribution Engine swaps all incoming crvUSD for ETH, deducts the Legends' fee, and executes the Fortify/Thrive logic based on the Reserve Requirement (RR) as defined in Section 3.3.2.

4. Value Distribution & Reinvestment: ETH is distributed to PODs based on VW3 weight. The Reserve Booster POD and Fortify Mode allocations directly feed ETH back into The Vault, completing the reinforcement loop.

This cycle ensures that protocol success (revenue) directly fuels either increased stability (Vault growth) or stakeholder incentives (POD payouts), which in turn drive further adoption and revenue.

4.4. Governance & Security: The User-Sentiment Driven Model

Security and upgradeability are managed through layered permissions across the three protocols, preventing unilateral control.

• The Grove: 3Receipt holders govern pool-level parameters. VW3 holders can pause deposits; Legends can resume them.

• The Guild: Creditors (3Bond holders) govern spending proposals. VW3 holders can pause proposals; Legends can resume.

• The Reserve: 3Fi stakers (via VW3) govern major treasury actions (e.g., adding new asset types to the treasury). Legends hold a veto power.

This model ensures that no single actor or token group has absolute control, aligning governance with proven user sentiment and vested, long-term interest.