Plether Protocol

Plether is a DeFi protocol for synthetic dollar-denominated tokens with inverse and direct exposure to the US Dollar Index (USDX). Users deposit USDC to mint paired tokens that track USD strength, enabling speculation and hedging on dollar movements.

How It Works

The protocol creates two synthetic tokens from USDC collateral:

• plDXY-BEAR - Appreciates when USD weakens (USDX falls)
• plDXY-BULL - Appreciates when USD strengthens (USDX rises)

These tokens are always minted and burned in pairs, maintaining a zero-sum relationship. When you deposit 100 USDC, you receive equal amounts of both tokens. The combined value of a BEAR + BULL pair always equals the original USDC deposit.

User deposits USDC
        │
        ▼
┌───────────────────┐
│ SyntheticSplitter │
└───────────────────┘
        │
        ├──► plDXY-BEAR (gains when USD weakens)
        │
        └──► plDXY-BULL (gains when USD strengthens)

Architecture

Core Contracts

Oracle Layer

BasketOracle Design

The BasketOracle computes a USDX-like index using normalized arithmetic weighting rather than the geometric weighting of the official ICE USDX index:

Price = Σ(Weight_i × Price_i / BasePrice_i)

Each currency’s contribution is normalized by its base price, ensuring the intended USDX weights are preserved regardless of absolute FX rate scales. Without normalization, low-priced currencies like JPY ($0.007) would be nearly ignored compared to EUR ($1.08), causing severe weight distortion.

This design enables gas-efficient on-chain computation and eliminates rebalancing requirements, which guarantees protocol solvency.

Inverse Relationship: Because the oracle measures the USD value of a foreign currency basket, it moves inversely to the real USDX index. When the dollar strengthens, USDX rises but our basket value falls (foreign currencies are worth less in USD terms). This is why plDXY-BEAR appreciates when the basket value rises (dollar weakens).

Fixed Base Prices and Weights (immutable, set at deployment based on January 1, 2026 prices):

Both weights and base prices are permanently fixed and cannot be changed after deployment.

Routing Layer

Yield Adapters (ERC-4626)

Staking & Rewards

Ecosystem Integrations

                    ┌─────────────┐
                    │  Chainlink  │
                    │   Oracles   │
                    └──────┬──────┘
                           │ Price Feeds
                           ▼
┌─────────┐    USDC    ┌───────────────────┐
│  Users  │◄─────────►│      Plether      │
└─────────┘            │   (Splitter +     │
     │                 │    Routers)       │
     │                 └─────────┬─────────┘             ┌───────────┐
     │                           │         Yield + ────►│  Morpho   │
     │                           │         Lending      │   Blue    │
     │                           ▼                       └───────────┘
     │                 ┌─────────────────┐
     └────────────────►│   Curve AMM     │
        Swap Tokens    │  (USDC/BEAR)    │
                       └─────────────────┘

• Chainlink - Price feeds for EUR/USD, JPY/USD, GBP/USD, CAD/USD, SEK/USD, CHF/USD
• Curve Finance - AMM pools for USDC/plDXY-BEAR swaps
• Morpho Blue - Lending markets for leveraged positions, yield generation on idle USDC reserves, and fee-free flash loans

Protocol Mechanics

Liquidity Management

The SyntheticSplitter maintains a 10% local buffer of USDC for redemptions, with 90% deployed to yield adapters. This generates yield while ensuring liquidity for normal operations.

If adapter liquidity is constrained (e.g., high Morpho utilization), the owner can pause the protocol and use withdrawFromAdapter() for gradual extraction as liquidity becomes available.

Leverage

Users can open leveraged positions through the routers:

1. LeverageRouter (Bear): Morpho flash loan USDC → Swap to plDXY-BEAR → Stake → Deposit to Morpho as collateral → Borrow USDC to repay flash loan
2. BullLeverageRouter (Bull): Morpho flash loan USDC → Mint pairs → Sell plDXY-BEAR → Stake plDXY-BULL → Deposit to Morpho → Borrow to repay

Morpho Blue provides fee-free flash loans, making leveraged positions more capital-efficient.

Both routers include MEV protection via user-defined slippage caps (max 1%).

Reward Distribution

The RewardDistributor receives yield from SyntheticSplitter and allocates it to StakedToken vaults based on the price discrepancy between the oracle and Curve EMA:

• ≥2% discrepancy: 100% to underperforming token stakers
• <2% discrepancy: Quadratic interpolation from 50/50 toward 100/0
• 0% discrepancy: 50/50 split

This mechanism incentivizes arbitrageurs to correct price deviations by rewarding stakers of the underpriced token. A 0.1% caller reward incentivizes permissionless distribution.

Lifecycle States

The protocol operates in three states:

1. ACTIVE - Normal operations (mint, burn, redeem)
2. PAUSED - Emergency pause (minting blocked, burning allowed so users can exit, gradual adapter withdrawal enabled)
3. SETTLED - End-of-life when plDXY hits CAP price (only redemptions allowed)

Development

Prerequisites

• Foundry

Build

forge build

Test

forge test              # Run all tests
forge test -vvv         # Verbose output
forge coverage          # Generate coverage report

Fork Tests

Fork tests run against mainnet state using real Chainlink oracles, Curve pools, and Morpho Blue. They require an RPC URL:

# Set RPC URL (or add to .env file)
export MAINNET_RPC_URL=https://eth-mainnet.g.alchemy.com/v2/YOUR_KEY

# Run all fork tests
forge test --match-path "test/fork/*.sol" --fork-url $MAINNET_RPC_URL -vvv

# Or source from .env
source .env && forge test --match-path "test/fork/*.sol" --fork-url $MAINNET_RPC_URL -vvv

Fork test files:

Run a specific fork test file:

source .env && forge test --match-path test/fork/LeverageRouterFork.t.sol --fork-url $MAINNET_RPC_URL -vvv

Local Development (Anvil)

For frontend development and testing without spending real ETH:

# 1. Start local Anvil node forking Ethereum mainnet
anvil --fork-url $MAINNET_RPC_URL --chain-id 31337

# 2. Deploy all contracts (mints 100k USDC to deployer)
SEPOLIA_PRIVATE_KEY=0x59c6995e998f97a5a0044966f0945389dc9e86dae88c7a8412f4603b6b78690d \
forge script script/DeployToSepolia.s.sol --tc DeployToSepolia \
  --rpc-url http://127.0.0.1:8545 \
  --broadcast

# 3. (Optional) Seed Morpho markets with 1M USDC each for leverage testing
#    Use addresses from step 2 output
USDC=<MockUSDC address> \
STAKED_BEAR=<StakedToken BEAR address> \
STAKED_BULL=<StakedToken BULL address> \
STAKED_ORACLE_BEAR=<StakedOracle BEAR address> \
STAKED_ORACLE_BULL=<StakedOracle BULL address> \
forge script script/SeedMorphoMarkets.s.sol \
  --rpc-url http://127.0.0.1:8545 \
  --broadcast

Anvil Test Accounts (pre-funded with 10,000 ETH each):

MetaMask Setup:

1. Import a test private key (Settings → Import Account)
2. Add network: RPC http://127.0.0.1:8545, Chain ID 31337

Format

forge fmt               # Format code
forge fmt --check       # Check formatting

Documentation

View Reference Documentation

Generate HTML documentation locally from NatSpec comments:

forge doc               # Generate docs to ./docs
forge doc --serve       # Serve docs locally at http://localhost:3000
forge doc --build       # Build static site to ./docs/book

Security

• All contracts use OpenZeppelin’s battle-tested implementations
• Reentrancy protection on state-changing functions
• 7-day timelock for critical governance changes
• Oracle staleness checks (8-hour timeout)
• Oracle bound validation against Curve EMA to prevent price manipulation
• Flash loan callback validation (initiator + lender checks)
• Yield adapter uses Morpho’s internal accounting (immune to donation attacks)

For detailed security assumptions, trust model, and emergency procedures, see SECURITY.md.

License

AGPL-3.0

Disclaimer

This software is provided “as is” without warranty of any kind. Use at your own risk. This protocol has not been audited. Do not use in production without a professional security audit.