How Coinversation Meets Users’ Multi-dimentional Transaction Demand
In 2020, the DeFi boom brought by liquidy mining had accelerated the financial evolution of cryptocurrencies, and the emerged synthetic assets also crafted a new form of financial derivatives on the chain. More entrepreneurs in the crypto world are excited to say that synthetic assets will bring a wild future to Defi, creating new things that cannot be achieved in the traditional financial world.
Indeed, synthetic assets amplify the combinability of assets on the chain and build a bridge for the DeFi ecosystem to the traditional financial market with a scale of hundreds of billions, which greatly enriches the investment options of DeFi users. Therefore, more and more DeFi users become optimistic.
In the current crypto world, there are three main types of application scenarios for synthetic assets. The first category is the duplication or mirroring of fiat currency or stable coin. That means its own assets exist, but they are on-chain or copied on another chain, such as USDT and DAI; The second category is real-world synthetic assets, such as synthetic gold, synthetic crude oil, synthetic S&P 500 index, etc., which mainly solve cross-platform usability issues, such as the accessibility of stocks, the demand for cross-chain assets, etc.; the third category is directly create an asset that did not exist in the past, provide market demand but has not yet met the return/risk exposure, and directly tokenize this exposure, such as synthetic index and cash flow capitalization.
In the Ethereum ecosystem, Synthetix has successfully verified the business model of synthetic assets, introducing transactions such as bulk commodities and fiat currency exchange rates onto the chain. With more and more synthetic asset application scenarios being developed, new synthetic asset agreements such as Coinversation emerge one after another. Given the current shortcomings of synthetic assets, such as high transaction fees, low liquidity, and high risk of users being liquidated, Coinversation Protocol’s model of combining collateral pool and multi-liquidity pool may bring new ides to the evolution of synthetic assets.
Users can use the CTO, issued by the project, and DOT as collateral to synthesize any cryptocurrency or off-chain assets such as stocks, bonds, gold, etc., through Coinversation’s smart contracts and oracles.
Coinversation mainly has two characteristics: collateral pool and multi-liquidity pool.
First, Coinversation uses a collateral pool to mint synthetic assets, without any need of counterparties and no consideration of transaction depth. The principle is entirely different from AMM.
The mortgage pool means that after the user stakes Coinversation’s token CTO or Polkadot’s DOT, a certain amount of cUSD, the stable currency in the Coinversation Protocol will be generated. The price of cUSD is fixed at 1 U.S. dollar, and the synthetic assets of the entire system are priced in cUSD.
When a user who pledged a CTO or DOT wants to exit the system or reduce debt and unlock the pledged CTO or DOT, the debt must be repaid. For example, if a user mints $100 of cUSD through staking CTO, he needs to destroy $100 of cUSD to unfreeze the locked-up CTO.
It should be noted that the debt ratio of all users in the system is determined when the CTO or DOT is collateralized to mint cUSD and has nothing to do with the price of other synthetic assets after the conversion. The debt ratio will only change when the user mints or destroys cUSD. The sum of all user debts is the collateral pool because changes in asset prices will cause changes in debt. Through a constant debt ratio, each user’s profit can be calculated.
Second, Coinversation expands the traditional single liquidity pool into a multi-liquidity pool, which provides more business opportunities and unlimited combination possibilities. That will also attract more diverse and broader user groups.
For individual investors and general trading users, multiple liquidity pools are more difficult to be manipulated centrally than a single liquidity pool. The assets of multiple liquidity pools can also transform into each other. Therefore, when a large, centralized dealer adjusts the price of a single liquidity pool, the creators of other liquidity pools can use arbitrage to counter the centralized operation of large investors. In this way, individual investors will be easier to avoid the risk of getting whacked by the dealer.
For the project team or institution, users can create their liquidity pool to do IDO (using a liquidity pool with dynamically adjusted weights, similar to the Dutch auction method). The team controls all assets by itself, which can help the team to allocate and manage assets more effectively.
For KOLs in the market or professional secondary market traders, ETFs can be created through multiple liquidity pools for general users to invest, such as the NFT open-end fund on Polkadot, or the average fund of Polkadot’s official Grant fund. Individual investors can buy a token of an ETF fund in the form of an Index to indirectly invest in a series of specific token combinations.
The future development of Coinversation mainly aims at three aspects:
First, upgrading the types of synthetic assets currently determined by the project owner or community governance to different investors who can independently sign any kind of contract on the system.
Second, when there are standardized tokens similar to ERC-20 in the future, all synthetic assets of Coinversation can be circulated outside the system in the form of standardized tokens and even enter other exchanges.
Third, the realization of a decentralized digital asset issuance platform and contract trading platform cannot only replace the perpetual/futures contract functions of major centralized exchanges in the long term but can even achieve the issuance of any type of assets on the agreement. Coinversation will have a place in traditional finance market.
It can be seen that the goal of Coinversation is not only to benchmark the existing synthetic asset platform but also to become a comprehensive derivatives trading platform to meet the diversified trading needs of users.
Coinversation Protocol is the first synthetic asset issuance protocol and decentralised contract trading exchange based on the Polkadot contract chain. It uses the token CTO issued by Coinversation Protocol and Polkadot(DOT) as collateral, and synthesizes any cryptocurrencies or stocks, bonds, gold and any other off-chain assets through smart contracts and oracles. The assets minted by all the users correspond to the liabilities of the entire system, and the proportion of each user’s liabilities has been determined at the time of forging, so that their respective profits can be calculated. Because such a collateral pool model does not require a counterparty, it perfectly solves the problems of liquidity and transaction depth in decentralised exchange(DEX).