Proposal: Synthetic Assets

Summary

Synthetic assets are minted according to an Oracle price feed by staking DAI in a Collateralized Debt Position (CDP). Staking mints a synthetic token which could be thought as a “contractual IOU” for the asset’s value. The staker would then put it up for sale (e.g. at an AMM). A staker hopes to later buy back that IOU at a lower price from someone else and burn the IOU in exchange for their original funds, making profit on the difference.

synth-staking

Examples

E.g. sTSLA goes down in price:

Step Alice
Alice starts off with $100,000 in DAI $100,000
Alice stakes DAI, minting 200 sTSLA, and sells to AMM for $500/unit $100,000 --> 200 sTSLA --> $100,000
Some time later… sTSLA goes down 50% ($250/unit) 200 sTSLA ($50,000)
Alice buys back 200 sTSLA from AMM for $250/unit, keeping $50,000 profits $50,000 --> 200 sTSLA --> $100,000

E.g. sTSLA goes up in price:

Step Alice
Alice starts off with $100,000 in DAI $100,000
Alice stakes DAI, minting 200 sTSLA, and sells to AMM for $500/unit $100,000 --> 200 sTSLA --> $100,000
Some time later… sTSLA goes up 100% ($1000/unit) 200 sTSLA ($200,000)
Alice buys back 200 sTSLA from AMM for $1000/unit, losing $100,000 $200,000 --> 200 sTSLA --> $100,000

Roles

Liquidation

If the price of DAI causes the staker to exceed their c-ratio of 150% or (more likely) if the asset goes up in value to exceed the c-ratio then a keeper will trigger a liquidation, which has the contract put the account’s staked DAI up for sale to the AMM (finding a seller of sXXX to buy the DAI). The sold sXXX is then burned.

Incentives

Rewards can be paid from users, buffer (where platform deposists fees), or DAO token.

Extension: Leveraged Trades

Trading DAI for sXXX on an AMM is how one would “go long”. If leverage is desired, this can be obtained by going through a “Leverage Smart Contract (SC)” where margin is obtained through a p2p Lender. The combined funds (principle, p and margin, m) are then used to perform the trade through an AMM. The Leverage SC holds on to the funds instead of giving it to the trade or lender. This way, a keeper can trigger liquidation where the lender gets their margin back and the trader loses their principle.

synth-exchange