Core Product Mechanism
Cicada Protocol (LT-RT Rebalance Mechanism)
The Cicada Protocol is an advanced system designed to dynamically optimize the balance between Liquidity Tokens (LT) and Rebase Tokens (RT). By channeling real yield assets into the cryptocurrency market, it fosters a sustainable ecosystem underpinned by verifiable revenue streams.
RT (Rebase Token): A token designed to provide holders with agreed-upon dividend distributions based on liquidity income.
LT (Liquidity Token): A tradable token representing ownership of underlying Real-World Assets (RWAs).
Key Algorithms and Formulas
1. The exchange mechanism between RT and LT
RT and LT are exchanged at a 1:1 ratio of equal value. Users can freely switch between the two tokens without locking their positions.
The user converts "LT to RT" → LT is locked in the contract, and an equal amount of RT is minted;
The user converts "RT back to LT" → RT is burnt, releasing an equal amount of LT;
The total amount of tokens remains unchanged to ensure the stability of the ecosystem.
RT: Interest-bearing certificate, earnings will be distributed on a regular interval through Rebase
LT: Liquidity token, freely tradable on DEX
RT = LT: At any time, RT and LT can be freely exchanged at a ratio of 1:1 (Delete).
This mechanism builds a constant supply and demand structure for Cicada:
LT: LT in circulation
RT: All current RTs
T: The total amount of LT tokens issued by the platform
2.Daily earnings repurchase
The platform will repurchase an equivalent amount of LT in the LT liquidity pool based on the daily real asset returns Rt：
Repurchase formula
3.Rebase
Lock the LT obtained from repurchase into the contract and mint the corresponding amount of new RT for distribution.
The Rebase revenue distribution formula for a single user：
The operational significance of the LT-RT dynamic rebalancing mechanism
The "LT-RT rebalancing mechanism" of CICADA Protocol is a bidirectional regulatory architecture that combines market signal response and dynamic matching within the protocol. It reflects the important feature of "adaptive liquidity allocation" in Web3-DeFi construction. It not only drives the changes in the token ratio within the system through the real source of returns (R), but also naturally forms a programmable financial Reflexivity Loop, creating a feedback interaction among user behavior, market price and asset returns. It has truly achieved the "Token Economic equilibrium Engine" that does not require centralized regulation.
RT revenue incentives
(1) When the LT price is low → the quantity of LT purchased is large → the quantity of RT issued is large → the RT return is high
(2) Result: Arbitrageurs exchange LT for RT because RT is more valuable
(3) LT supply declines, demand rises → LT price rebounds
LT Price Increase
The same income R can only purchase less LT, resulting in:
(1) RT returns decrease → Users exchange RT for LT for liquidity or arbitrage
(2) RT supply decreases, LT increases → LT price drops
Supplementary formulas for mathematical mechanisms
Rebalance driving factors：
As can be seen from the formula:
(1) The cheaper LT is, the higher the RT yield rate will be.
(2) The higher the RT yield is, the more users prefer RT → The natural market exchange leads to the rise of LT and the fall of RT.
Total expression
The agreement uses the daily real asset income to repurchase LT in the liquidity pool, then converts it into RT at a 1:1 ratio, and distributes the new income to RT holders in the form of Rebase according to the holding ratio.
This process forms the following three closed-loop logics:
（1）Price feedback path
When the market price of LT is low → more LT can be repurchased with the same profit → more RT can be minted → the unit profit of RT increases.
Users exchange LT for RT, and arbitrage drives the adjustment of the liquidity structure → LT decreases, RT increases → LT price rebounds.
（2）Revenue return path
When the market price of LT is high → the quantity of repurchased LT decreases → the quantity of minted RT decreases → the profit of RT drops.
Users exchange RT for LT, enhancing transaction liquidity → lowering LT prices → re-entering the range of increased returns.
（3）Market equilibrium driven
The total supply of the entire system, T=LT+RT, remains constant. The ratio of the two tokens is closely related to market behavior and asset returns.
Ultimately, a "Protocol-level liquidity-yield Reflex" that can self-drive regulation and automatically match returns and Liquidity is formed.
When the LT price fluctuates, the quantity that can be purchased by exchanging protocol income for LT changes, thereby altering the quantity of newly added RT. Since LT and RT can be interchanged at a 1:1 ratio and the total supply remains constant. The market will drive changes in the token circulation structure through arbitrage behavior, thereby automatically rebalancing prices and yields to achieve dynamic stability of the system.
Summarize the automatic rebalancing closed loop
CICADA utilizes a dual-token architecture consisting of LT (Liquidity Token) and RT (Rebase Token). Their dynamic interplay forms the basis of the LT-RT Rebalance Mechanism, which balances yield and liquidity in a market-adaptive manner. Below is a scenario-based logic flow that illustrates the mechanism's operation:
1. Price Drop in LT
Impact: RT yield increases (same capital buys more LT).
User Behavior: Users convert LT → RT to capture higher rebase yield.
Rebalance Effect: LT supply decreases, RT supply increases → LT price gradually recovers.
2. Price Rise in LT
Impact: RT yield decreases.
User Behavior: Users convert RT → LT to benefit from liquidity or capital gains.
Rebalance Effect: RT supply decreases, LT supply increases → LT price corrects downward.
3. RT Yield Increases
Impact: Higher yield attracts more RT holders.
User Behavior: Users convert more LT → RT, reinforcing demand for RT.
System Feedback: Dynamic rebalancing adjusts LT/RT supply to reflect market sentiment and yield appetite.
4. Total Token Supply is Fixed
Formula:
LT + RT = T (Total token supply remains constant).
Insight: Supply adjustment occurs via 1:1 LT-RT conversion without minting or burning, ensuring sustainability and equilibrium.
5. Mirror Dynamics
The LT and RT tokens exhibit inverse dynamics: when one increases, the other naturally decreases in response, ensuring a self-regulating ecosystem.
This structure allows the market to autonomously adjust yield distribution and liquidity flow based on user behavior and token performance.
The LT-RT rebalancing mechanism is the core innovation of the CICADA Protocol. It engraves real returns (R) into the token economic system and jointly builds a decentralized "yield-oriented structured market" without incentive mining through price guidance, user behavior feedback, and dynamic adjustment of returns.
This represents a significant upgrade to the liquidity management mechanism in the DeFi field. It not only enhances the value support of tokens but also opens up a new paradigm for the integration of real assets and on-chain finance.
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