Twindex 2.0: The World’s First Fractional-Algorithmic Synthetic Assets – Powered by ChainLink
The world’s first fractional-algorithmic synthetic assets will launch on the upcoming Twindex 2.0 upgrade! A combination of the $KUSD stablecoin and the platform token $TWX will be used to mint synthetic assets, powered by ChainLink’s data oracle, which will provide real-world prices on the blockchain. Innovative mechanisms will keep the prices on the peg, to enable trading synthetic assets at real-world prices, 24/7, without KYC, 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 upcoming release of Twindex 2.0.
Although synthetic assets are still fairly new, fractionalized algorithms are even more advanced with mechanisms that correlate to real-time market values. Problems and issues that frustrate many synthetic asset communities are now resolved by pegging them to collaterals eliminating premium and/or discount price issues.
Yes, and there’s more! Minting new synthetic tokens now will not put users into a collateralized debt position (or in a short position) anymore. You can actually mint and trade new assets, just like real-world assets.
Our new synthetic assets on Twindex will be the first of its kind that applies a fractional-algorithmic algorithm (FAA) approach. This means tokens are partially backed by the $KUSD stablecoin and partially backed by a utility token ($TWX). The combined ratio will be classified as (“Collateral Ratio”) of the stablecoin resulting in a dynamic token.
The key benefits of a fractional-algorithmic token combine both advantages of asset-backed and algorithmic synthetic assets. Because stablecoin is still the trusted medium with the value backed by its collateral, it maximizes the stablecoin 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 backed assets.
Twindex synthetic assets (TSA) can also be used in farming pools to earn dividend-like profits in addition to capital gains normally earned by buying and selling assets. To keep the TSA price to real-world price, we present several mechanisms to help keep the price on the peg.
Every token holder can now 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 causing a bank run, similar to the Iron Finance incident.
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 TSA, while a collateral ratio of 69% means that the user needs 69% worth of $KUSD and 31% of $TWX to create TSA. Each synthetic asset has its own Collateral Ratio.
The Collateral Ratio will gradually decrease if the price of TSA has shown that it could be kept on the peg for a certain period of time to utilize $TWX tokens more and be less dependent on the $KUSD value.
On the other hand, the Collateral Ratio will increase when the TSA is too volatile, especially when the price is below the real-world price, to keep the TSA price on the peg.
To make sure that the Collateral Ratio reflects the situation of the TSA better, the “Growth Rate” is also considered to adjust the Collateral Ratio dynamically. The Growth Rate is calculated by the ratio of the total value of TWIN across all liquidity pools with TWIN to the total value of circulating the TSA in the ecosystem.
A higher growth rate implies that TWIN is less volatile, which means less price impact while selling $TWX and indicating that more redemption could be made without having a high impact on the TSA itself.
Minting and Redemption
Minting is the process of creating new TSA 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 will be burned from the system.
The real-world market price of each asset is retrieved from ChainLink which is the most trusted price oracle that aggregates the asset prices from multiple nodes and implements a decentralized way to calculate the price to feed on the Blockchain.
Redemption is the process of retrieving $KUSD and $TWX by supplying the TSA to burn. The ratio of $KUSD and $TWX depends on the Collateral Ratio but will be worth the market price.
Therefore, it is possible to say that you need asset market price to mint the TSA and will get the assets real-world price from redeeming the TSA. In the process, $TWX will be newly minted from the system.
Minting and redemption are some of the algorithms that help keep the price of the TSA on the peg by opening opportunities for arbitrageurs to profit from the peg’s market price difference.
When the TSA price increases above the asset’s real-world price, anyone can profit by minting the TSA worth the asset’s market price and immediately selling it to make a profit from the price difference.
When the TSA price decreases below the asset’s real-world price, anyone can make a profit by buying and immediately redeeming the TSA worth the asset market price to make a profit from the price difference.
Buyback and Re-collateralization
As the Collateral Ratio changes, it influences the ratio of $KUSD and $TWX used to back the value of the TSA called (“Effective Collateral Ratio”) different 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 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.
When the Collateral Ratio increases, there will be a deficit of $KUSD in the system. In this case, the platform allows for re-collateralization by supplying $KUSD and getting the same value of $TWX worth the same as the supplied $KUSD in return with a bonus to incentivize arbitrageurs to quickly provide the required collateral.
When the Collateral Ratio decreases, there will be a surplus of $KUSD in the system. 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…
$TWX token will now have the most innovative utility to mint synthetic assets in the market and we are working hard to develop new innovative solutions.
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.
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