ForTube V3 — Risk Stratification, DAO, Security Reinforcement and Membership System
Author: Aaron Liu
In 2020, DeFi became the most popular field in the digital currency ecosystem. Total Value Locked (TVL) in DeFi has exceeded $60 billion, and the number of users has exceeded 1 million.
As an important branch of DeFi, the digital currency lending market is extremely competitive. Top projects in the industry like Aave and Compound have reached $5 billion TVL, and the new star projects like Cream and Venus are also catching up.
As an early participant, ForTube adheres to the principle of safety first, and continues to provide community users with stable products and services. In practice, we found the following problems in decentralized lending projects:
Single Fund Pool Problem: Incorporating assets with different risks into a single lending pool makes risk pricing difficult and prevents more funds from joining.
Token Economic Model and Platform Governance Problem: The value of the platform has not been transferred to the project token, and the willingness and participation of token holders in platform governance are quite low.
Security Problem: Smart contact security and oracle security problems cause huge losses. According to statistics from The Block Research, 15 DeFi platforms were hacked in 2020 with the total amount of $120 million stolen.
Community Construction Problem: The communities of most projects are not strong enough and lack an effective incentive mechanism to bind the interests of platform users, token holders, and developers together.
ForTube V3 is expected to improve these problems to some extent.
2. Financial Model
1) Model Optimization
Generally speaking, in the fund pool lending mode, the user’s borrowable amount is the sum of the value of each deposit asset and the product of the maximum Loan-to-Value ratio (LTV), minus the current total debt, that is:
∑(Vdi*Fi) — ∑Vbj
Vdi: USD value of deposit asset i
Fi: Maximum Loan-to-Value ratio of deposit asset i
Vbj: Debt value of borrowed asset j
However, when users stake stable assets to borrow high-volatility assets, as long as the price of the borrowed assets rises faster, the borrower’s motivation to repay the loan will decrease, thereby increasing the risk of bad debts in the system. In order to solve this problem, we also consider the maximum Loan-to-Value ratio of the user’s borrowed assets, that is:
(∑(Vdi*Fi) — ∑(Vbj/Fj))*Fk
Fk: Maximum Loan-to-Value ratio of borrowed asset k
When the value of user deposit assets drops or debt rises, liquidation may be triggered. The health index is a numerical value that identifies the health of the account debt. When the health index is 1, the liquidation is triggered. In ForTube V2.0, the formula for calculating the health index is:
∑(Vdi*Fi) / ∑Vbj
ForTube V3 distinguishes the maximum Loan-to-Value ratio and the liquidation threshold. The liquidation threshold is a value slightly larger than the maximum Loan-to-Value ratio. Therefore, our health index calculation formula is modified as:
∑(Vdi*Li) / ∑(Vbj/Lj)
Lj: Liquidation threshold of asset j
2) Asset Rating
DeFi “Currency Lego” properties (that is, composability) enables the ForTube protocol to connect with other protocols or platforms in the DeFi ecosystem. Therefore, the ForTube platform is inevitably exposed to the risk of financial contagion, and may be severely affected by the failure of the pledged asset system and market fluctuations.
In order to maintain a reasonable level of security, ForTube evaluates assets from three dimensions, and divides the risk level into five levels from low to high, that is E (very high risk), D (high risk), C (medium risk), B (low risk) and A (very low risk). An asset with a risk rating of E will not be connected to the protocol.
Smart Contract Risk: This measures the technical security of the underlying code of the asset. Whether it has passed the code audit of a professional security company is an important criterion for measuring risk. In addition, the safe running time and transaction volume of contracts are also important indexes for evaluating security.
Market Risk: This measures the ability of an asset to resist market fluctuations. Liquidity, volatility and market value are all important indicators. If the value of pledged assets declines, they may trigger liquidation, and the market needs to have sufficient liquidity to support timely liquidation.
Counterparty Risk: This measures the degree of decentralization of the asset itself, including the number of holder addresses, governance system, and the degree of trust in the currency itself.
3) Asset Pooling
At present, almost all DeFi lending protocols use a single fund pool model. With the increase in locked asset value and asset types, the risk is also increasing. Each new asset may bring financial contagion and systemic risks to the entire lending pool.
Therefore, we will use asset pooling instead of a single lending pool for the whole system to achieve risk stratification. At present, we plan to set up two zones based on asset rating, which are a stable zone and an innovation zone.
Stable Zone: Including high-quality collateral assets, e.g. $BTC, $ETH, stablecoins.
Innovation Zone: Including low-quality collateral assets and new asset types.
Risk stratification can improve capital efficiency, combined with ForTube’s new governance structure, allowing $FOR holders to obtain different profit opportunities according to their risk preferences.
3. ForTube V3 Governance Structure
1) Overall Structure
We have introduced a new governance structure to balance ForTube’s profit distribution, risk-taking, and governance decision-making issues. As mentioned above, we divide ForTube into a stable zone and an innovation zone. Each lending pool will be operated and managed by the corresponding fDAO, and these DAOs will be managed by some $FOR holders and take all risks.
Specifically, it includes the following main links:
a) $FOR holders can stake $FOR to a certain fDAO according to their own risk preferences and obtain the corresponding $fDAO tokens.
b) fDAO governs its lending pool and covers some of the risks.
c) The fee collector will collect and distribute platform profits.
2) Fee Description
The income of the lending pool mainly comes from the handling fee of lending (currently 20% of the borrowing interest), and the possible subsequent flash loan handling fee, etc. The distribution of income is mainly divided into four parts:
a) 60% of all lending pool income will be distributed to each $fDAO token holder to incentivize them to participate in governance and cover risks.
b) 20% of all lending pool income will be distributed to the system reserve, which is the ultimate measure for the platform to cover risks. In order to improve the platform’s safety mat, the ForTube Foundation donated 100 million $FOR as a risk deposit.
c) 10% of all lending pool income will be distributed to the Research & Development team for system gas fees, security audit fees and other expenses.
d) 10% of all lending pool income will be distributed to the marketing team to incentivize platform users to use and promote ForTube products.
ForTube will disclose the expense-related addresses to the community and also accept donations from the community
3) Bonding Curve
We will issue $fDAO tokens on the bonding curve, with $FOR as a reserve asset. The bonding curve contract is a special type of smart contract that issues $fDAO tokens through a buy and sell function. To purchase $fDAO tokens, the buyer sends FOR to the Buy function, which calculates the average price of $FOR for $fDAO tokens. The Sell function works in the opposite way. The contract will calculate the current average selling price.
The bonding curve to be adopted for this launch is as follows:
Y = A X + B
Y: $fDAO token price
X: $fDAO token supply
A: Curve slope
B: Curve intercept
The user normally buys and sells on the curve does not affect the slope of the curve, but the slope will change if the following two situations occur:
Slope Rise: 60% of platform income will be converted into $FOR directly as fDAO reserve assets, and no new $fDAO tokens will be generated. Assuming that the current number of $fDAO tokens is Xt and the number of deposited $FOR is M, the new slope Aup becomes:
Aup = 2M/Xt2 + A
Slope Decline: When bad debts or hacker attacks occur in the system, it is necessary to withdraw the reserve asset $FOR from fDAO without burning $fDAO token. Assuming that the current number of $fDAO tokens is Xt, and the number of $FOR withdrawn is N, the new slope Adown becomes
Adown = A — 2N/Xt2
4) Risk Management
The capital in the bonding curve acts as a safety pool to provide insurance for the fDAO token market from the impact of smart contracts and economic risks. In the situation of a loan default or a hack, the $FOR in the bonding curve is sold to complete the depositor, thereby reducing the price of $fDAO. Specifically, the amount of $FOR that can be sold in fDAO is limited to the triangular area shown in the figure.
The maximum amount for risk management of fDAO is:
When the slope Adown tends to 0, we no longer withdraw $FOR from fDAO, but start to use the system risk reserve, which contains 100 million $FOR and funds donated by the community.
Assume that A is 0.00005 and B is 50. We simulate and calculate the relationship between the issuance of $fDAO and the reserve asset $FOR, as well as the amount and proportion of the asset $FOR for risk management. As shown in the table below, the more system reserve assets, the higher the number and proportion of assets for risk management, and the safer the lending pool.
5) Governance Voting
ForTube hopes to establish a long-term DAO governance framework, relying on systemic incentives and multi-level governance to stimulate the long-term growth and optimization of the protocol.
Each $fDAO token holder has the corresponding key decision-making powers for each lending pool. By voting on FIPs (ForTube Improvement Proposals), they exercise governance powers, such as changes, improvements and decisions on core elements of the system, including risk control factor, underlying assets and interest rate models, etc.
Governance voting process:
a) The governance forum initiates discussions and gradually improves them to form formal FIPs.
b) Submit to Snapshot for voting approval.
c) The voting result is effective and executed.
1) Financial Risk Control
ForTube financial risk control will learn from the accumulated experience and models of the existing financial risk control industry for many years, and formulate risk control models and rules suitable for ForTube’s own business characteristics based on the characteristics of blockchain financial applications. The ForTube financial risk control system will strengthen the financial security of the platform from two major levels, which are the system level and the individual level.
The system-level system mainly refers to the financial risks and corresponding treatments that occur at the contract and backend levels. Regarding the global risks, such as the unauthorized use of contract management accounts and multi-signature systems, abnormal price sources and price feed nodes of the oracle, large amount of deposits and withdrawals, substantial decline in the health of positions, or trigger liquidation, the platform has formulated rigorous and rapid monitoring and disposal systems to effectively prevent these high-risk financial abnormalities.
The individual-level system mainly refers to the financial risks and corresponding treatments that occur at the user or token level. For example, abnormal user openings, a large number of deposits and withdrawals, frequent small transactions, high-frequency transactions, multiple account operation, abnormal user-health indexes, multiple liquidations, associated liquidations, low-credit addresses, etc., the risk control system will quickly locate users or tokens at risk, send warnings to managers by emails and text messages, at the same time, instruct the contract to prohibit specific users’ operations or close transactions in designated tokens.
ForTube V3 will gradually build a risk control rule engine and upgrade the risk control model, so that all ForTube business processes are in a complete risk control closed loop. ForTube will also carry out data collection and research, automatically identify and alert sources of risks such as abnormal transactions, and assist in the formulation and execution of long-term risk control strategies. ForTube will cooperate with more professionally qualified risk assessment agencies and project audit agencies to jointly complete the iterative upgrade of the risk control system.
2) Smart Contract Security
The smart contract security of the ForTube platform is mainly guaranteed by the following three aspects:
Experienced Contract Developers: All ForTube contract developers have rich experience in the industry. They are very familiar with various disclosed contract vulnerabilities. In the technical cooperation with other teams, they have found various different security vulnerabilities.
Multiple Audit Mechanism: The smart contract of the ForTube platform will be fully audited by at least one well-known security agency in the industry before it is officially launched, and internal cross-auditing will also be conducted on the different modules. Double test the security of the online code in various forms such as internal review meetings and simulated security attacks and defenses, and eliminate possible security risks and logical vulnerabilities.
Perfect Audit and Monitoring System: ForTube platform has GEL (global emergency lockout), CALM (collaborative automatic lockout mechanism), MAK (multi-signature administrator key), and other multi-faceted audit and monitoring systems. ForTube adopts financial-grade risk control standards, uses independent high-availability master-slave hot standby clusters, and operates 7x24 hours a day. The team regularly checks the status of the contract, and performs strict accounting and reconciliation of all financial assets in the contract. Once a possible risk of an asset is found, it will immediately automatically trigger a global emergency lockout, prohibit all input and output interfaces involving assets, and minimize asset losses.
3) Oracle Security
In order to provide users with a better experience, ForTube platform has more than 40 available currencies, which is more than other lending platforms. Therefore, the oracle system is also a big challenge.
ForTube V3 will once again upgrade and optimize the oracle system, using a combination of decentralized oracles and self-feeding. The mainstream currencies use decentralized oracles to provide quotations, including cooperation with well-known oracles projects such as ChainLink and Band. For other currencies that the decentralized oracle does not provide quotations, it uses a multi-node cluster to feed its own prices, and applies multiple algorithms to reduce the quotation deviation of the price data source, more accurately identify and eliminate any abnormal quotations, and ensure the accuracy and timeliness of the price feeds. We will upgrade the price feed contract, introduce a price balance protection mechanism, and conduct comprehensive identification and verification of quotations in all dimensions.
The self-feeding nodes will absorb the node cluster concept of the decentralized oracle platform, and form a distributed decentralized node cluster that is physically isolated from each other. Different nodes will be completely isolated and maintained by different personnel, and management rights will not be interoperable. Effectively improve the decentralization and security of the node cluster, and realize the effective unity of scalability and security on the oracle system.
5. Community Construction
A strong community builds good products to attract more high-quality community members and create network effects. Developers, $FOR holders and platform users are the backbone of the development of the FortTube community.
The core development team undertakes and supervises the construction of the ForTube community and ecosystem, defines and maintains the technical framework of the ForTube community. Under the framework of community autonomy, approve, adjust, delete or construct projects and maintain their sustainable development.
10% of all loan pool revenues will be allocated to research and development expenditures for system gas fees, security audits and other expenses. In addition, the ForTube community continues to maintain the Bug Bounty program for all technical personnel and third-party network security experts, encourages bug bounty hunters to find and feedback the bugs in the agreement, and issue bounty based on the severity of the bug.
The progress and success of the DeFi protocol depends to a large extent on the size and quality of the user base that manages them. ForTube V3 will launch a new risk control system and economic model, which completes the risk classification of the capital pool in the innovation zone and stable zone. The bonding curve model provides more risk and benefit combinations for $FOR holders, allowing users to reach an agreement with the ForTube agreement. 60% of all lending pool income will be distributed to the $fDAO token holders to encourage them to participate in governance and cover risks.
At the same time, 10% of all lending pool income will be distributed to the marketing team to incentivize users who contribute to the ForTube protocol. Eligible users will receive a series of incentives, including deposit and borrow mining, regular airdrops, fee reductions, invitation rewards, etc.
ForTube has launched a new membership system. The daily interest value generated by each user who deposited will be converted into USDT by a certain coefficient and accumulated star value. The top 10% of users with star value will be classified as “Black Member”, the top 10%-40% of users will be classified as “Gold Member”, and the remaining 60% of users will be classified as “Star Member”. At the beginning of each month, ForTube will airdrop a certain percentage of the previous month’s lending pool income to members in the form of $FOR tokens. In addition, inviting new users to deposit on the ForTube can also earn $FOR airdrop rewards.
ForTube will transfer the value of NFT assets to the corresponding NFT synthetic tokens based on the characteristics of NFT assets and the design concept of DeFi products. ForTube launched its first NFT and special NFT at its Christmas event in 2020. ForTube will introduce more NFT activities to provide users with better product ideas and experience in the future.
The upcoming version of ForTube also contains new columns for new users, which fully introduces the various links of the DeFi ecosystem, including stablecoins, lending, DEX, liquidation, NFT, and corresponding risk management, to help users become familiar with ForTube products and understand the industry knowledge to the greatest extent.
Be sure to follow us on social media for more updates and mining campaigns:
▲Announcement channel: https://t.me/the_force_announcement
▲ForTube website: https://www.for.tube/home
▲Knowledge Library of the ForTube platform: https://docs.for.tube/