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Three swords of combined lending, stablecoin and synthetic asset agreement

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DFROCE is expected to upgrade and support a wider range of synthetic assets (including over-collateralised multi-currency assets) in mid-May

A Tale of Three Protocols: Unifying Lending,Stablecoin & Synthetic Protocols

原文翻译： dForce

In"Uncover dForce's multi-currency assets and loan agreements", we mentioned our plans to build an overcollated multi-currency protocol on top of the dForce lending protocol, and we are pleased to announce that the upcoming version (expected to be released in mid-May) will upgrade and support a wider variety of synthetic assets, including overcollated multi-currency assets.

Defi's new species is a perfect blend of lending, stablecoin, and synthetic asset protocols. It not only retains the flexibility of the lending protocol and the scalability of the asset, but also multiplies the funding source of the synthetic asset, further improving capital efficiency. Our new protocol is like a wormhole that opens up parallel universes between mainstream digital and synthetic assets.

As we all know, there are two main types of Lending Agreements. One is pool-based Lending Agreements, which support multilateral transactions (deposit one asset as collateral, and lend another asset). The most common and mainstream Lending Agreements in the market currently belong to this category, including DFORCE Lending Agreements, AVE and Compound. The other model is MakerDao's model, which supports unilateral transaction, non-pool mode of lending agreement, only accept specific assets as collateral to cast (i.e., lend out) DAI, DAI is the only debt in the system, the user's debt and assets are isolated (also known as CDP, debt warehouse model).

DAI is a non-pool-based synthetic stablecoin that supports multiple mortgage assets. This stablecoin protocol has long been criticized:

Deposits (collateral assets) are capital inefficient. The mortgage assets backing DAI are locked in separate CDP, unable to participate in the borrowing to obtain interest income, with huge opportunity cost loss.

From the perspective of synthetic assets, the Maker agreement only supports the synthetic stablecoin DAI that anchors the US dollar. It does not consider other types of synthetic assets in the design, such as stablecoin that anchors different fiat currencies (euro, yen, etc.), commodities, stocks, etc.

Synthetic asset classes severely limit the currency base and size of DAI, and initial liquidity is largely supported by external agreements.

As a loan protocol, the capital efficiency and scalability of MakerDAO are obviously lower than that of the general loan protocol. As a synthetic asset protocol, the amount of synthetic assets is limited by the design of a single stable currency (DAI). As the earliest DEFI protocol, Maker's updated iterations have been accompanied by various tradeoffs and tradeoffs, resulting in heavy technical and design baggage.

Synthetix is a leader in synthetic asset protocols, and its platform currency SNX is the primary raw material for synthetic assets. Although there are no restrictions on the types of synthetic assets (only predictive feeding), high collateral rates and limited collateral (currently mainly SNX) severely limit the size of synthetic assets. Synthetix has long been criticised for relying too much on SNX as collateral for synthetic assets (because of its reflexive mechanism, it is prone to a death spiral when prices fall sharply).

Synthetix used to only accept SNX as collateral to generate synthetic assets. Even with the addition of ETH and RenbTC, non-SNX collateral only accounts for less than 1.5% of the total mortgage assets, which exposes a lot of problems:

Capital efficiency is extremely low -- the mortgage rate of the whole network is as high as 700%, which greatly reduces the capital efficiency of collateral;

The raw material end is limited -- in addition to high collateral rates, Synthetix's bottleneck is that over 98% of its collateral is the system's own SNX tokens. Although there is no limit to the category of synthetic assets, the total amount of synthetic assets is subject to the market value of SNX.

The problem of scalability of system debt -- similar to the self-financing balance sheet, system debt is a closed system whose stability and growth are highly dependent on market reflexivity, and thus greatly limits the expansion of money and balance sheet, especially during bear markets.

So what is our agreement supposed to solve?

In broad terms, we are designing a new protocol that combines the "three arrows" of generic lending, native stablecoins, and synthetic assets to capture the best of all three at once:

1. The raw material end (collateral) is not restricted. In theory, all collateral supported by the DForce Lending Agreement (including some synthetic assets) can be cast into synthetic assets, so there is no limit to the supply of collateral on scale. More importantly, it provides access to synthetic assets (USX, XBTC, etc.) and other homogeneous mainstream digital assets (USDT, USDC, WBTC, etc.). Allowing its balance sheet to expand indefinitely.

2. The output side (synthetic assets) is not limitedsystem. Synthesizable assets include native stablecoin anchored in foreign exchange (US dollar, euro, yen, etc.), commodities such as gold and silver, stocks such as Tesla and Apple, and indexes such as SPX and IXIC. The size of synthetic assets is not limited to the market value of DF tokens, as other mainstream digital assets can also be used as collateral for synthetic assets.

3. Greater capital efficiency. The collateral supporting the lending can continue to carry interest, so the interest income from the collateral can effectively reduce the cost of capital of the synthetic asset. In other words, all the collateral on the synthetic asset is earning interest at the same time.

4. More flexible risk, currency and cost policies. Different assets have different risk, currency and cost policies. For example, the interest rate curve of stablecoin is different from that of other synthetic assets, and different mortgage rates are set for different assets and capital pools, so as to better meet various application scenarios.

5. Built-in multilateral lending. The original synthetic assets are also integrated into the lending market, allowing users to deposit, borrow and earn interest.

6. The creation of a native foreign currency money market and the prospect of a truly global multi-currency interest rate market.

Below we will briefly introduce the design features of this product. Synthetic asset agreements have multiple pools of capital:

The first pool, known as the DForce Lending Pool, will tap into the DForce Lending Pool and allow users to use collateral deposited in the Lending Pool to create core assets (over-collateralized stablecoins anchored to different fiat currencies) and other synthetic assets that are whitelisted.

We will decide the asset classes (tentatively USX, EUX, XBTC, XETH) that will be allowed to be cast by the creation pool through community governance. These assets will also be consolidated by the loan agreement and support the mortgage (subject to the governance results) :

The second pool, the Synthetic Asset Pool, is separate from the Creation Pool (the DForce Lending Pool). The collateral accepted by this pool includes DF tokens, all core assets (USX, EUX) and whitelist synthetic assets (XBTC, XETH), and may include other synthetic assets (XXAU, XSILVER, XTSLA, XAAPL, etc.). In addition, in order to enhance the liquidity of synthetic assets, the system is also expected to accept LP equity tokens (liquidity provision certificates) of synthetic assets as collateral (such as USX/USDT, USX/EUX, USX/ XBTC, USX/ETH, USX/ XTSLA, USX/ XAAPL, etc.).

Early in the release of the agreement, we will disable cross lending for synthetic assets in the pool. After liquidity stabilizes, we will open up cross lending and allow users to make free combinations (such as depositing XaAPL as collateral and lending XTSLA), which is equivalent to opening up margin lending and trading of synthetic assets.

In addition to the above two pools, different pools will be added in the future according to more usage scenarios, such as:

· 数字资产的低滑点大宗交易，例如：

· 可以利用流动性币对，并通过系统增加杠杆，用价值一千万美元的 USDT 购买 ETH 或 BTC。

· 利用 USX/USDT-> USX/xETH-> xETH/ETH 进行兑换，USDT 到 ETH 的交易滑点可以媲美低滑点稳定资产交易。

· 合成稳定币的固定利率和固定期限贷款，如年化利率为 3% 的 USX 或 EUX 的三个月贷款。

· 链下融资（结构性贷款、房地产融资等）。

· 无担保贷款。

One of the highlights of this portfolio is that the Synthetic-Asset Protocol (Synthetic-Asset Protocol) natively integrates multi-currency stablecoins, which greatly expands the usage scenarios. For example:

· Natural Hedge & NBSP;. Borrower does not bear foreign exchange risk. For Bitcoin miners in Europe, whose costs and fixed asset investments are denominated in euros, the stablecoin is a pain in the arse. Miners in Europe can now hedge their foreign exchange risk by pledging bitcoin or ethereum and lending out EUX. The same applies to traders who book their profits in euros.

, & have spentShort/Long Position & NBSP;. Multi-currency stablecoins make it easier for traders to invest in the foreign exchange market. When a trader is bearish on the dollar and bullish on the euro, for example, he can lend dollars and convert them back into euros.

Low-friction Global Carry Trade; . For depositors in the negative interest zone, the frictionary costs of carrying out the carry trade remain high, despite the attractive liquidity-mining benefits of the dollar stablecoin. Trading parties need to first convert euros into USDC or USDT, which brings additional transaction costs and foreign exchange risk. The EUX pair will effectively reduce the cost of friction and provide easy access for euro holders to participate in liquidity mining and other DEFI protocols.

, & have spentGlobal Interest Rate Markets. .Since market supply and demand is a process of dynamic adjustment, the interest rates of USX and EUX will also change accordingly, thus creating an active global interest rate market.

, & have spentThe global foreign exchange market. .As the demand for multi-currency stablecoins increases, liquid coin pairs (size, trading pair) will also gradually strengthen, eventually forming a multi-currency global foreign exchange market.

Trading places

We are committed to providing the best trading experience for stablecoin and synthetic assets, starting with our DForce Trade aggregator, and hopefully in the future our AMM (automated market maker) will also support the addition of liquidity for synthetic assets. At the same time, users can also use other AMMs and decentralized exchanges to add liquidity to DForce's stablecoin and synthetic assets, and we will provide targeted incentives for some of the more capital efficient AMMs such as Uniswap V3 or Kyber DMM. It is well known that Ethereum Layer 1 has high gas costs, so we are actively exploring more scaling options, including deploying upgraded protocols on Layer 2 and other blockchains like Binance Smart Chain, which have lower gas costs. More details on the incentive for liquidity mining will be disclosed at the same time as the formal release of the agreement.

Interest rate policy for stablecoin and synthetic assets

The combination of lending and synthetic assets will further accelerate innovation. In the case of stablecoin, we solved Maker's low capital efficiency on the funding supply side and extended the minted synthetic assets to stablecoins that anchor other fiat currencies. In this way, we have opened up the fund channel between the multi-currency stablecoin and the loan agreement.

Similar to DAI and DSR, the excess stabilies USX and EUX will have both systematically original borrowing and deposit interest, and will be governed by the DF currency holder. However, while the same assets in all pools will be combined to calculate interest, the interest rate policies of the creation and synthetic pools will remain independent of each other.

To encourage coinage, we propose to waive the minting interest charge on non-stable currency assets (in agreement with other synthetic assets). We will also waive the stablecoin minting interest fee at the beginning of the release of the agreement.

In addition to the system's original interest rate policy, the DForce Lending Agreement will also support both USX and EUX as collateral and lending assets, which users can deposit into the DForce Lending Agreement to earn interest. As with other stablecoins, the interest rate curve will depend on the utilization of the asset.

As a result, there is likely to be a large discrepancy between the systemic interest rate and the interest rate of the lending agreement (refer to DAI's stability fee/deposit rate and DAI's deposit/borrowing rate on AVE).

security

Protocol security is a constant concern. We engaged four of the world's top audit firms to conduct code audits of our lending and synthetic asset agreements, including Trail of Bits, CondenSysDiligence, Certik, and Certora (formal verification). At the same time, we worked with White Hat to actively search for vulnerabilities. To date, all potential major issues identified have been fixed. In addition, we set strict risk control parameters for different assets and enabled 24/7 off-chain monitoring systems. However, DEFI is still in deep water/no man's land and no amount of auditing can ensure zero vulnerabilities.

Governance and value capture

Currently, all decisions on the DForce core protocol are voted on by the DF currency holders through the Snapshot system. We want to make the DForce protocol as easy to govern as possible. The global parameters of the Lending and Synthetized Asset Agreement will determine most of the parameters of the agreement (increasing collateral assets, loan to value ratios, etc.). The final decision is in the hands of the DF currency holders.

The integration of lending, native stablecoin and synthetic asset protocols will greatly enhance the value capture capability of DF tokens. Users can pledge DF tokens and mint synthetic assets. We will announce version 2.0 of the DF Token Economy in the near future.