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Synthetix and Mirror only accept assets in the system as collateral, while Duet’s hybrid casting mechanism supports the parallel mapping of off-chain assets without relying on centralized custody.
Original title: “Everything can be cast, the next evolutionary direction of DeFi: Starting from the characteristics of the new synthetic asset protocol Duet”
Written by: Duet Protocol
Decentralized finance (DeFi) injected new value into the digital world through the over-collateralization of assets, catalyzing this round of bull market. On the basis of the existing DeFi mortgage paradigm, Duet further provides more levels and richer choices, bridging the gap between the traditional world and the digital world, so that global users can better easily reach traditional fields such as commodities in the digital world. , Precious metals and U.S. stocks and other assets that have certain thresholds.
DeFi in 2020 is vigorous and in full swing. Many people cheered and excited for the coming digital currency bull market. But from the perspective of the rearview mirror, Oracle or Dex, these clusters of DeFi machines that use liquidity pools, fully market-oriented and fully automated transactions, may have just built the bottom layer of the Internet of Value (Web 3.0). infrastructure.
Many players are eager to treat these infrastructure facilities as just a Lego playground where you can play drums and spread flowers. However, they obviously underestimated the grand scene displayed by DeFi. In the face of the traditional financial market with a scale of hundreds of billions on the other side, synthetic assets have become a pioneer in opening up the border between the two sides. .
Among them, Synthetix and Mirror have evolved their own unique evolutionary paths. The two operating principles are different, but they have a common feature that they only accept a small number of encrypted assets, which are mainly assets in their own system, as collateral, which greatly increases users. Thresholds, such as Bitcoin, USDT, and other assets with huge market value and many users, there is no evidence that only using system endogenous assets can ensure the robustness of the system, but it will increase the risk of substantial fluctuations in system assets. Threaten the security of the system.
Now, the Duet protocol is aiming at this pain point to innovate, and it has come to the center of this stage.
What is Duet?
Duet Protocol is a synthetic asset protocol. The so-called synthetic asset is to copy real-world assets in the digital world, map the price fluctuations and investment returns of physical assets in real time, and realize the transfer, segmentation and storage of value on the digital Internet. It is worth mentioning that Duet is the world’s first on-chain synthetic asset protocol with a hybrid casting mechanism (excess mortgage + algorithm burning), which supports parallel mapping of trillion-level off-chain assets without relying on centralized custody.
Duo in music refers to the same piece of music, where two people play different parts or melody. Duet Protocol believes that the returns and fluctuations of real-world tradable assets can also be replicated, coordinated, and blended in a distributed financial system.
Therefore, the “core assets” of the digital age will be redefined. They need to have growth, advancement, scarcity, availability and programmability. Duet calls “Sharp Assets”-digital Synthetic assets; and those traditional assets with a more mature pricing system (such as cash, bonds, stocks, and real estate), Duet calls “flat assets” (Flat Assets)-physical financial assets, and some down-regulated assets Has been digitized, such as a security token (SecurityToken).
The next stage of decentralized finance (DeFi) is to link “downward adjustment assets” and “upward adjustment assets”. Duet pioneered the “over-collateralization + algorithm stability” dual asset casting model: one is to cast a standardized investment tool-“standard assets” Neutral Asset “stable coins” (DuetUSD, DuetEUR, etc.) by over-collateralizing existing digital assets, or Directly synthesize “rising assets” such as dTSLA and dGLD. Second, it is the first time to use algorithmic stabilization technology to cast digital synthetic assets, relying on market arbitrage mechanisms to support asset price anchoring. There is no human manipulation and no extra mortgages. Financial assets made with algorithmic stability will inevitably broaden the boundaries of digital assets relying on the advantages of their mechanisms.
Duet believes that “everything can be cast” is the inevitable direction of DeFi evolution. This is the biggest difference from the existing synthetic asset agreement and the biggest feature of Duet. Compared with Mirror, which only accepts UST/MIR, Synthetix only accepts SNX/renBTC/ETH as pledges, and the scale of underlying assets is limited to hundreds of millions of dollars. Duet Protocol accepts more than ten kinds of wBTC, ETH, USDT, DAI, LTC, etc. High-quality assets are used as castings, and the underlying assets reached more than 1.3 trillion U.S. dollars. Duet Protocol also accepts unique assets in the DeFi world as castings, including LP tokens in large-scale Swap agreements, and deposit certification tokens in large-scale lending agreements, to effectively improve user capital efficiency and improve the combinability of the agreement.
Duet Protocol will reproduce traditional assets in the blockchain world and combine all the Lego blocks of DeFi. The ultimate vision is to become an important bridge in the era of value migration to the Internet.
Over-collateralization creates a mirrored world of physical assets
One of the biggest challenges currently facing DeFi is how to put real-world assets on the chain in a trustless way. One of DeFi’s revolutionary innovations is the introduction of “over-collateralization” to support “fixed value.”
In the traditional economic model, overcollateralization is a kind of risk protection for cash assets, but from the perspective of value precipitation, it is actually a manifestation of “fixed value”. Suppose Alice spends 100 yuan to buy a string of “code” from Bob. The price of the “code” is 100 yuan. What is the value of the “code”? It is difficult to give answers in volatile markets. Considering that Alice is an exchange item worth 100 yuan for real money, then a 30% discount is made on the original price. With the protection of the discount space, the market’s willingness to accept the exchange will be significantly improved. It can also be said that it is 30 yuan. In terms of price, a new consensus value that is much more stable than the original asset price has been formed.
When the carrier of this “fixed value” is “code”, the “code” has value, and people can directly use the existing digital assets in the blockchain world to synthesize assets in an over-collateralized way to convert physical financial assets Move to the blockchain world.
In the Duet protocol, a container carrying a fixed value, that is, a synthetic asset is called dAsset, which is used to anchor the corresponding financial assets in the physical world, reflect the price fluctuations of financial assets in real time, and become a digital mirror image of physical assets. At the same time, it has the common characteristics of digital assets: infinitely divisible atomicity, availability at any time, and security and confidentiality protected by algorithms.
The scope of dAsset synthetic assets (that is, the subject of investment) has been expanded to all open markets with traceable fair prices:
1. Duet uses mirrored stablecoins DuetUSD, DuetEUR, DuetJPY, etc. as standardized investment tools;
2. Including BTC, stocks, ETFs, bonds, futures, foreign exchange, interest rates, indices, and commodities.
For example, if you want to mint Tesla’s stock:
All of the above actions do not need to open an account with a brokerage firm, and do not need to exchange US dollars, you can get any specific small share of stocks.
Debt pool and adjustable liquidation
The process of creating dAsset by users is actually a process of debt to CDP. Duet uses the design of dynamic debt. After the user mortgages high-end assets to cast dAsset, dAsset is considered to be an asset of the system, and the user’s currency-denominated debt will increase or decrease as the price of dAsset rises and falls. These dAssets are composed of indexes, precious metals, stocks, encrypted assets, etc. This basket of assets has varying degrees of positive and negative correlation, and the prices of different types of assets can be hedged against each other. The richer the types of assets, the more volatility of the entire debt pool can be shared and the risk factor reduced.
Like all CDPs, in order to reduce the impact of the high volatility of encrypted assets, Duet also has a minimum debt liquidation line, corresponding to the pledge rate c-ratio. Once the asset price falls below the liquidation line, the system will initiate a mandatory asset liquidation and auction process.
However, unlike other static liquidation, Duet introduces an adjustable liquidation model into the economic model, which provides users with an open option to independently increase the utilization rate of funds, and maximizes the security of synthetic assets.
For example, in Duet, users can pledge a certain amount of Duet to reduce the minimum pledge rate required by the system. The adjustment of c-ratio by pledge Duet is determined by the ratio of Duet to the amount of collateral in the position itself. As shown in the figure, the more users pledge Duet, the liquidation line of the position will continue to decrease and release more liquidity for casting assets.
Algorithmic stablecoin assets redefine the “invisible hand”
Duet will use an unprecedented way to “redefine” the price of financial assets. In the Duet system, the DUET token also plays the role of the “national debt” of platform assets. All minted assets will be endorsed by the system token DUET. Price fluctuations of minted assets can be passed to DUET, and DUET will be destroyed and cast back to help minted assets. Stability of prices. In the process of destruction or recasting, the real-time asset price is fed by the oracle machine, without the intervention of the counterparty, so that there will be no slippage due to the depth of the liquidity pool.
The Duet system encourages users to adjust the price of minted assets through the arbitrage mechanism to keep the price of minted assets stable. Examples are as follows:
When the price of 1 share of dTSLA> 1TSLA, the user will burn 1 share of dTSLA equivalent DUET tokens to the system to mint 1 share of dTSLA. The user can sell 1 dTSLA at the market price, obtain a premium, and push the dTSLA price closer to the TSLA price, and the system will supply DUET. The quantity decreases and the price of DUET increases;
When the price of 1 share of dTSLA is less than 1TSLA, users can use 1 share of dTSLA to inject the system to recast DUET equivalent to 1TSLA. Users rely on cash in the trading market to obtain the price difference, which increases the demand for dTSLA, and the price of dTSLA rises, gradually approaching, etc. The value is 1TSLA. At this time, the DUET supply of the system increases, and the token price may decrease.
Duet’s unique way of stabilizing asset prices does not need to rely on collateralizing additional assets, making full use of people’s profit-seeking characteristics, and relying solely on the “invisible hand”-market willingness and algorithms to regulate and make up for the funds caused by pure lock-up. The defect of low utilization rate, coupled with the characteristics of algorithm stability, decentralization and anti-censorship, has the opportunity to realize the real decentralization and stability of digital synthetic assets for the first time.
Synthetic assets are a new starting point for the Internet of Value
In 2020, the liquidity of fiat currency has become the source of the excess value of DeFi, creating an excellent experimental soil for value online.
The emergence of synthetic assets is the self-evolution of DeFi. DeFi has gradually improved its huge world foundation. The bottom layer has solidified value to form digital assets. Externally, it relies on Oracle to describe the price fluctuations of physical assets. Internally, DEX achieves no slippage and high Deep free convertibility. With the rapid development of these infrastructures, it is possible for traditional financial assets to migrate to the digital world.
In this process, Duet’s mission is to help the “price” of physical assets that can be listed on the chain. Under the Duet synthetic asset model, it is no longer necessary to pledge or custody the spot of the underlying assets, but to generate assets on the chain based on the oracle. s price. Therefore, the agreement can create financial derivatives with almost zero friction costs, reduce transaction costs under the traditional regional financial system, and “soft anchor” the price index of multiple assets through user arbitrage behavior.
From the perspective of collateral, for the existing DeFi industry, it is very important to include asset classes that are negatively related or unrelated to the bull-bear cycle of digital assets into the market. This can reduce the leverage of the crypto world’s financial system, while diversifying the risk of single market price fluctuations. The forward agreement plans to incorporate non-chain native assets as collateral, so as to truly link the blockchain and the real world.
From the perspective of investment products, from Bitcoin to S&P 500, from Tesla stock to gold, a variety of futures, insurance and other derivatives can be freely designed, 7X24 hours the world will never stop exchanging price information, anytime Private assets can be traded anywhere. For investors, the idea of deploying high-quality assets in different capital markets around the world with only one digital wallet is about to come true. It is conceivable that in the future, this will create a trillion-dollar market for reducing social costs and improving production efficiency.
Therefore, the duet overture played by Duet Protocol between the real world and the digital network has just begun.