Twindex 2.0: Introducing Fractional-Algorithmic Synthetic Assets — Secured by Chainlink

TL;DR
We’re excited to announce the launch of fractional-algorithmic synthetic assets on Twindex 2.0! A combination of the KUSD stablecoin and the platform token TWX will be used to mint synthetic assets, which involves referencing Chainlink Price Feeds for current asset valuations of the assets being minted. Innovative mechanisms will keep the prices pegged, enabling trading of synthetic assets at real-world prices, 24/7, on the Binance Smart Chain.

While the world converges to better understand the next wave of crypto trends, we are now ready to announce our contributions to these efforts — DeFi synthetic assets. To reflect a version of what the future of synthetic assets could be, we’re excited to showcase the release of Twindex 2.0.

Twindex 2.0 Preview

Although synthetic assets are still fairly new, fractionalized algorithms are an even newer and more advanced mechanism that helps assets track real-time market values. Problems that initially frustrated many synthetic asset communities can now be resolved by pegging them to collateral, eliminating premium and/or discount price issues.

Minting new types of synthetic tokens will no longer put users into a collateralized debt position (or in a short position). You can actually mint and trade new assets, just like real-world assets, without liquidation.

Our new synthetic assets on Twindex will be the first to apply a fractional-algorithmic algorithm (FAA) approach. This means tokens are partially backed by the KUSD stablecoin and partially backed by the utility token TWX. The combined ratio will be classified as the “Collateral Ratio” of the stablecoin, resulting in a dynamic token.

Because the KUSD stablecoin is still the trusted medium and its value is backed by collateral, it maximizes the stablecoin’s capital efficiency by reducing the required collateral as much as possible. This is where algorithmic synthetic assets are good at — creating value without needing to have fully backed assets.

Twindex synthetic assets (tAssets) can also be used in farming pools to earn dividend-like profits in addition to the capital gains normally earned by buying and selling assets. To keep the tAssets price pegged to the real-world price, we present several mechanisms.

Every token holder can profit when the price is off the peg by minting and redeeming. As the Collateral Ratio changes, everyone is also incentivized to keep the backed assets correlated to the Collateral Ratio with buybacks and re-collateralization mechanisms.

The Collateral Ratio itself is adjusted dynamically with several influences, including the Growth Rate of the utility token. All of these measures are put into place to prevent damages from panic selling which can result in a bank run, similar to the Iron Finance incident.

Collateral Ratio

The Collateral Ratio is the ratio in which the stablecoins and utility tokens are required to create the Fractional-Algorithmic synthetic assets. For Twindex synthetic assets, it is the ratio between KUSD and TWX. A collateral ratio of 100% means that the user needs 100% worth of KUSD and 0% worth of TWX to mint tAssets, while a collateral ratio of 80% means that the user needs 80% worth of KUSD and 20% of TWX to create tAssets. Each synthetic asset has its own Collateral Ratio.

Example of synthetic asset tokens with Collateral Ratio of 80%

The Collateral Ratio will gradually decrease if the price of tAssets has shown that it could be kept on the peg for a certain period of time. Thus, utilizing TWX tokens more and being less dependent on the KUSD value.

On the other hand, the Collateral Ratio will increase when the tAssets are too volatile, especially when the price is below the real-world price, to keep the tAssets price on the peg. To make sure that the Collateral Ratio better reflects the tAssets, the “Growth Rate” is also used to adjust the Collateral Ratio dynamically.

Growth Rate = the total value of TWX across all liquidity pools with TWX / the total value of circulating tAssets in the ecosystem.

A higher growth rate implies that TWX is less volatile, which means less price impact while selling TWX and more redemption could be made without having a high impact on the tAssets itself.

Minting and Redemption

Minting is the process of creating new tAssets tokens by supplying KUSD and TWX according to the Collateral Ratio. The value of assets needed to be minted will be worth the market price at the time of minting. The collateralized KUSD will be used to provide value, while TWX provided will be burned from the system.

The real-world market price of the synthetic asset to be minted is retrieved from Chainlink Price Feeds, the industry standard decentralized oracle network. Chainlink Price Feeds use a decentralized network of highly reliable nodes to aggregate asset prices from numerous premium data sources to calculate an aggregate market price with full market coverage. The decentralized nature of Chainlink Price Feeds also creates high uptime and strong tamper-resistance, helping ensure our protocol is consistently referencing prices in accordance with current market conditions.

We will also be working with the Chainlink Labs team to launch price feeds for the KUSD and TWX tokens to further boost protocol security by ensuring the collateral backing tAssets assets are properly valued.

Redemption is the process of retrieving KUSD and TWX by supplying the tAssets to burn. The ratio of KUSD and TWX depends on the Collateral Ratio, but will be worth the market price as determined by Chainlink Price Feeds.

Minting and redemption help keep the price of the tAssets on the peg by opening opportunities for arbitrageurs to profit from the peg’s market price difference. When the tAssets price increases above the asset’s real-world price, anyone can profit by minting the tAssets equivalent to the asset’s market price and immediately selling it to make a profit from the price difference.

When the tAssets price decreases below the asset’s real-world price, anyone can make a profit by buying and immediately redeeming the tAssets at its market price to make a profit from the price difference.

Minting, redeeming, and arbitrage opportunities to keep the price of synthetic assets on peg.

Buyback and Re-collateralization

As the Collateral Ratio changes, it influences the ratio of KUSD and TWX used to back the value of the tAssets called (“Effective Collateral Ratio”), which creates a difference from the updated Collateral Ratio (“Target Collateral Ratio”).

When the Effective Collateral Ratio drops below Target Collateral Ratio, the system will incentivize everyone to provide KUSD to get the same value of TWX including a bonus in order to meet the Target Collateral Ratio. On the other hand, the system allows users to retrieve the surplus KUSD when the Effective Collateral Ratio is above the Target Collateral Ratio. In this case, the platform allows for buyback by supplying TWX and getting the exact value of KUSD in return.

What the Future Could Look Like

The TWX token will now have the most innovative utility to mint synthetic assets in the market and we are committed to develop new innovative solutions to disrupt the industry.

Since the purpose of DeFi is to embrace the needs of the community, we welcome all feedback, ideas, and thoughts to further push the boundaries of what we can do together.

Explore our site and follow our channels to not miss future updates!

About Chainlink

Chainlink is the industry standard for building, accessing, and selling oracle services needed to power hybrid smart contracts on any blockchain. Chainlink oracle networks provide smart contracts with a way to reliably connect to any external API and leverage secure off-chain computations for enabling feature-rich applications. Chainlink currently secures tens of billions of dollars across DeFi, insurance, gaming, and other major industries, and offers global enterprises and leading data providers a universal gateway to all blockchains.

Learn more about Chainlink by visiting chain.link or read the documentation at docs.chain.link. To discuss an integration, reach out to an expert.

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