CoFiX 2.0 Protocol Upgrade: Innovative Breakthroughs and Systematic Improvements

CoFiX is a decentralized financial product based on the NEST Protocol, which has achieved significant results since its launch in October 2020. The initial liquidity provider (LP) reached a scale of over 100 million USD, and the protocol's cumulative earnings exceeded 6000 ETH, of which 20% was allocated to CoFi Token holders. Currently, there are still more than 5000 ETH stored in the earnings pool.

CoFiX 1.0 is defined as computable finance, utilizing on-chain price information streams provided by the NEST Protocol for risk management calculations, achieving effective hedging in the decentralized exchange (DEX). However, some challenges were discovered during the practical process, particularly regarding the requirements for perfect hedging.

In order to address these challenges and further optimize the protocol, CoFiX 2.0 has undergone a systematic upgrade, mainly including the following aspects:

1. Arbitrage Hedging: To replace the perfect hedge requirement, the new mechanism requires the trading pair's asset ratio to remain constant. When a trade disrupts the initial ratio, incentives are provided to the counter traders, which enhance over time until they cover the hedging costs.

2. Market Making Mining Mechanism:

   • NEST/ETH pool produces 3 CoFi per block
   • The ETH/USDT pool produces 1 CoFi per block.
   • The ETH/HBTC pool produces 1 CoFi per block. 10% of the output goes to the node, and the rest is distributed to market makers.

3. DAO governance optimization:

   • Code correction and upgrade: Gradually shift from multi-signature to voting mechanism
   • Determination and allocation of mineable assets: clarify standards, optimize commission distribution
   • DAO Account Management: Introduce buyback mechanism, cancel dividends

4. Buyback Mechanism Details:

   • Any CoFi holder can sell CoFi to the DAO at the NEST oracle price.
   • Each block releases a buyback quota of 50 CoFi, with a maximum accumulation of 300 blocks.
   • Pause buyback when the current CoFi price deviates from the average price by more than 5%.
   • The repurchased CoFi is temporarily stored for future destruction

5. Upgrade Principles:

   • Keep the asset pool unchanged
   • Deploy first, trigger later
   • Establish and verify community upgrade process

The upgrade of CoFiX 2.0 is not only an innovation in the DEX field but also a practical proof of the value of the NEST Protocol non-cooperative game system. This upgrade demonstrates how decentralized protocols can respond to development challenges and continuously optimize while maintaining the essence of blockchain. With the launch of CoFiX 2.0, we look forward to seeing more innovative applications and the thriving development of the ecosystem.