Introducing Gnome — A blockchain protocol for tokenizing financial assets
Gnome Leveraged Tokens are simple ERC20-style tokens, which enable users to trade a wide range of assets, like crypto, commodities, fiat currencies, and stock indices 24/7. They make assets from traditional finance available on-chain with the help of ChainLink price feeds, and leverage trading simple like spot trading. It’s the first protocol ever to allow synthetic assets to be shorted and traded with leverage in a decentralized automated market maker. It’s the only current blockchain protocol that can mirror any real-world asset in a sufficiently secure and trustless way.
Official website: gnomelabs.dev
Available Leveraged Tokens
Long Gold Token [LXAU]
Gives long exposure to Gold. Read more
Long Bitcoin Token [LBTC]
Gives long exposure to Bitcoin. Read more
Short Bitcoin Token [SBTC]
Gives short exposure to Bitcoin. Read more
A zero-sum game between longs and shorts
Gnome Tokens can be seen as a zero-sum game between longs and shorts. For example, when the price of Bitcoin increases, holders of LBTC will earn more tokens while holders of SBTC will lose tokens. Conversely, if the price of Bitcoin decreases, holders of SBTC will earn tokens while LBTC holders will lose tokens.
How to use Gnome
Using the tokens is as simple as buying or selling any other token on Uniswap or PancakeSwap. There is no way to get liquidated, and there is no margin that needs to be managed, unlike with perpetual futures. If you never used BSC or a DEX before read this guide for beginners here. There are 3 ways to use Gnome at this moment.
1) SynthSwap — DEX for trading Synths (recommended)
Synthswap.xyz is an alternative PancakeSwap UI that enables routing between custom cryptocurrencies and Gnome Leverage Tokens, making it possible to swap from BNB, BTC, ETH, and Stablecoins directly into Gnome tokens.
2) PancakeSwap
You can also use the PancakeSwap UI here, but you would first need to swap your assets into GRT and then trade those for Gnome tokens, which will take some extra time and fees. This issue will likely be resolved in the future.
3) Mint
You can send GRT directly to the contract address of any leverage token you want to mint (create).
Wallet viewer
If you want to see the tokens in your wallet and view your Profit/Loss (calculated from the last transaction), you can use the wallet viewer here.
Or just type your address in the URL like this:
https://gnomelabs.dev/wallet-viewer?addr=0x9469E93a33142AF7DFaCc5771A82DF47c915324D
Gnome vs. Futures trading
Some important key differences between trading Gnome Leverage Tokens and regular futures in traditional finance:
The main drawback of Gnome is that it’s a less precise instrument. Cryptocurrencies in general are volatile, and these tokens could have some unwanted volatility, but with time as liquidity increases it should become less of an issue.
Gnome Reserve Token (GRT)
Gnome Reserve Token (GRT) is a stablecoin backed by crypto and dollars. New GRT can be minted at 1 cent, meaning 1 GRT will always trade below 1 cent. GRT doesn’t have any fixed peg, instead, GRT is traded and will have some volatility like any normal asset. But since it’s partly backed by other stablecoins, and the upside is capped, it will be more stable than other cryptos.
Minting and burning of Gnome Tokens
GRT can be bought at an exchange, or minted at a fixed rate (1 GRT = 1 cent) by sending BNB to the GRT contract. GRT can be used to mint other Gnome assets, for example new, LBTC can be minted by sending GRT to the LBTC contract address. And it works the other way around, leverage tokens can be sold/redeemed back when sent to the GRT contract address. The burn/mint rate is always 1:1 between GRT and Leverage tokens (excluding fees). No more than 1% of the current GRT supply can be minted in a day. There are also daily limits on how much the supply of any leveraged token can increase/decrease. This ensures that a lot of tokens can’t be minted out of nowhere, by malicious actors, bugs etc.
The ability to convert between GRT and Leverage Tokens using token transfers only makes Gnome always accessible, even without Web3 JavaScript front-ends, which might get shut down or censored
Introduction to synthetic assets
Synthetic assets are designed to mimic the price movements and characteristics of the underlying assets they represent. They provide a way to gain exposure to different asset classes, such as stocks, bonds, commodities, or currencies, without actually owning the physical assets.
Synthetic assets also provide benefits such as liquidity and accessibility. They can be listed and traded across multiple decentralized exchanges, allowing for greater market efficiency and 24/7 availability. Synthetic assets can be used for various purposes, including speculation, hedging, and portfolio diversification. Traders and investors can use them to gain exposure to different markets, hedge their positions, or create complex trading strategies. They also provide a means for decentralized platforms to offer a broader range of financial products and services.
The problem with the first-generation synthetic assets
The issue with the conventional approach to synthesizing assets lies in its practice of allowing tokens to be interchangeable on a 1:1 basis with the underlying asset. The concern arises from the possibility that the collateral’s value may decrease, while the value of the mirrored asset may increase, creating potential risks of bank runs.
For example, consider the scenario of issuing a token where each token represents 1 ounce of Gold. If this token is backed on-chain by crypto assets, and these assets experience a significant drop in value, you end up in a situation similar to the game of “Musical Chairs”, where only some token holders would be able to redeem their tokens, leaving others with potentially worthless shares, and exposing them to financial risks.
Becoming bank-run proof - How we avoid previous issues
In Gnome there are no ‘hard pegs,’ and thus no peg can ever break. The protocol will never make any promises about financial gains in dollar terms. In Gnome, all assets are denominated and valued in GRT.
When a user buys or mints LXAU — a leverage token to gain exposure to gold, and the price of gold rises, their position will always increase in LXAU terms. But there is no guarantee that the value will increase in dollar terms, it’s up to the market to decide if these tokens hold any value at all. This approach ensures that Gnome can consistently pay its debts.
Because of the 1:1 mint/burn mechanism, all Gnome tokens, including GRT, will have approximately the same price per token. What this price will be is to be determined by market forces. However, it’s designed in a way where the unit price should neither drastically increase nor decrease in value over time. If it goes too high, more GRT can be minted at the fixed 1-cent rate and sell down it down. If it would go too low, fees in the system could increase to cause more token burns. But the fact is that most traders lose in most markets, which suggests that users will cause token burns, and harden the price, rather than weaken it.
Introduction to Rebase Tokens
A rebase token, also referred to as an elastic token, is a type of cryptocurrency that algorithmically adjusts its price using some mint and burn mechanism. Rebase tokens employ an automated mechanism where new tokens are either burned or minted based on the requirement to increase or decrease the token’s price. An example of such a token is Ampleforth(AMPL).
Gnome Tokens are similar to Rebase tokens in that the amount of tokens every user has is automatically determined by an algorithm. However, price control is attained through the 1:1 burn/mint mechanism mentioned above. This mechanism is what adjusts the price of all Gnome Tokens. For example if the price of 1 LBTC > 1 GRT, new LBTC can be minted at the fixed 1:1 rate, and then sold on the market to adjust the price. This is similar to how AMPL, creates new supply to reduce the price, or burns supply to elevate the price.
Can I invest in this project?
No. GRT is a stablecoin, it doesn’t produce yield, and is not made to appreciate in value.
Contract addresses
Contract addresses on the Binance Smart Chain:
LXAU: 0x7702dF5199d8c3B4E78C0760bD0FC23c8c0b0C18
LBTC: 0xb03799FC96b01a05462be2000C94630AEa48c801
SBTC: 0xb2B6A277550e01a08931E2b7c35EFF54C65BA0b8
GRT: 0x4f34E19eA0582262165a265D64e5a9670757c8B3
