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GAINS Associates

Complifi— Telegram AMA — April 18

On Sunday, April 18, we had the pleasure to welcome to our Telegram chat:

Dmitri Senchenko, CEO.

We asked him questions about the development of CompliFi.

Some sentences have been slightly edited for readability but the meaning has been conserved.

Summary

CompliFi is a derivatives issuance protocol combined with an Automated Market Maker (AMM). Deployed on Ethereum, it features minimal governance, no counterparty risk, no margin calls or liquidations, and limited sensitivity to blockchain congestion.

CompliFi is designed to charge fees at the moment when a user submits collateral to a vault in order to mint derivatives.

CompliFi redefines derivative payoff functions to fit within the confines of a fixed collateral pool. This results in all instruments having an upper bound on their potential returns, reached when 100% of the collateral has been redistributed in their favor.

Introduction

Q — Ayeley Commodore-Mensah from GAINS: Tell us a bit about yourself. What did you do before crypto and did you have any other previous venture in crypto?

A — Dmitri from Complifi: Before crypto, I worked in investment banking, focusing on mergers and acquisitions of financial institutions. This experience taught me a lot about financial engineering, which I am putting to good use in CompliFi

My first venture in crypto was an algorithmic stablecoin project, after which I became the founder of CompliFi.

About Complifi

Q — Ayeley Commodore-Mensah from GAINS: Tell us about Complifi. What’s the project about in a few simple sentences

A — Dmitri: CompliFi is a derivative issuance protocol + AMM on Ethereum. It allows you to trade and provide liquidity for derivatives as easily as you would for regular tokens on Uniswap. With CompliFi, there are no margin calls or liquidations — your exposure is the price you pay for a derivative, nothing more.

Q — Twitter user @HanceerBurak: I read your project has something called “CompliFi’s x5 Leveraged Token”. Can you tell us more about this? How does this work and what benefits users get from this? What does x5 stand for? What makes it different from other tokens we currently know?

A — Dmitri from Complifi: The x5 leveraged token is the first type of derivative issued and traded on CompliFi. It was designed as an intuitive way to gain 5 times leveraged exposure to any chosen asset (provided there is a price feed for it). Currently, you can trade ETHx5 and BTCx5.

Here is how this derivative works, using BTCx5 as an example:

- Each derivative comes as a pair of long and short position tokens — e.g. “BTCx5 Up” and “BTCx5 Down”

- When the price of BTC changes by 1%, the value of BTCx5 Up rises by 5%, and the value of BTCx5 Downfalls by 5%. In other words, the BTCx5 amplifies the price changes of BTC by the factor of 5 or -5.

- Both tokens have a price floor and ceiling of 0 and 2 USDC

- All our derivative have a duration of a month, after which they settle and holders can claim their payoffs

The whole point of having derivatives is that they allow you to take a bet that regular tokens can’t.

In case BTCx5 and ETHx5, they allow you to make more money on a correct directional bet than BTC and ETH themselves. Conversely, if you get it wrong, your losses will likely be greater.

Q — Telegram user ℝ𝕒𝕚𝕤𝕓𝕖𝕝𝕪𝕤 𓃗: In your docs, I could see that CompliFi is implemented on Ethereum. So I would like to know why you have chosen this ecosystem over others like BSC or Polkadot. In the cases of use of CompliFi like Ethereum, they grant greater efficiency? And have you thought about integrating more ecosystems in the future?

A — Dmitri from Complifi: Realistically, two chains are capable of supporting Defi right now — ETH and BSC. This may change before the year is out, but not yet.

ETH currently contains massive amounts of liquidity and, critically, is truly decentralized. As such, it is still the default choice for Defi. Gas fees are really changing things though, and BSC is addressing that problem. Not perfectly, but still.

Layer 1 battles should really heat up this year!

Q — Telegram user Dayo: At the AMM level, a portion of trading fees earned by LPs can be directed to COMFI holders. This mechanism has not been implemented’ At what stage will the second fee mechanism be needed? What exactly will be the trigger for the usage of this second fee mechanism?

A — Dmitri from Complifi: There are two natural ways to charge fees in the CompliFi setting:

1. When the derivatives are minted (which happens with every USDC-derivative transaction)
2. Like a regular AMM, we could redirect some of the trading fees earned by LPs to COMFI holders.

Option 1 is simpler to implement and burns less gas, and at the same time, it can likely generate the same level of revenue for COMFI holders as running both 1 and 2 at the same time. We are hoping to keep the protocol as simple as possible and will stick to option 1 as the default.

Creating a revenue stream for COMFI holders is high on the agenda — watch for announcements

Q — Telegram user Maria Fuentes: In your Medium blog they point out many disadvantages of current AMMs, but really very few investors know those characteristics, could you really explain to us in simple words, why we should use CompliFi AMM? Are there risks of loss?

A — Dmitri from Complifi: Ultimately, when providing liquidity to an AMM, it is important to ask 2 questions (at least!)

1) how many fees will it generate for me, what is the return on my capital?

2) what risk am I taking on when providing liquidity?

What CompliFi wants to achieve is:

- keep creating derivatives that users want to actively trade, generating lots of fees
- make sure that LPs are never overly exposed to the markets for which they are providing liquidity, no matter in which direction the market moves

Q — Telegram user tehMoonHunter 🤖⚡️: CompliFi says that any user can freely and without government approval creates and issue new derivative products and can also implement a new group of AMMs to issue their trade as this can make it possible to keep track of them in real-time, the oracle will adapt. To them without prior approval, how do we determine if a derivative is profitable, do they also carry their statistics for these groups?

A — Dmitri from Complifi: We decided to make our protocol as open as possible, and let anyone create and deploy a new derivative without going through a gov vote.

At the same time, curation remains critical to keeping users away from scams. The way we handle this is that while anyone can create a derivative, it will not show up on our app without going through a DD process.

At the same time, if someone decides to build a new app and host their derivative there, and has an audience ready to trade — who are we to say now? We don’t feel like we hold a monopoly on what’s right and wrong in the derivatives market.

Q — Telegram user Bernardetta Nana: COMFI has been used on the Ethereum mainnet, but not yet connected to the protocol, what keeps COMFI from connecting? and in your opinion, is it important for a community to guide the Complifiability strategy?

A — Dmitri from Complifi: Fully connecting COMFI to the protocol means implementing full-on decentralized governance. This is a big task that will influence the project’s future for years to come. We are simply taking our time with this workstream, but announcements are coming!

Q — Telegram user Antonio González: All CompliFi derivatives are fully guaranteed at all times, no matter how the market moves, there is always enough collateral to cover your profits. What mechanism do they have to achieve this? Can you explain what this mechanism consists of?

A — Dmitri from Complifi: Long and short positions in a CompliFi derivative are simply dividing a fixed amount of collateral between them. That collateral is sitting in a vault on-chain all along. The mathematics of all CompliFi derivatives relies on this fact and they all share this property

Q — Telegram user Dies Lienas: As 2 major problems of derivative holders, loss of value, and inability to collect payoff, how does CompliFi solve that?

A — Dmitri from Complifi: Loss of value cannot be “solved” — it is simply a market risk that is part of the game.

Collecting payoff is simple in CompliFi — it is always sitting on-chain, in full.

Token

Q — Lotfi from GAINS: What is the token use case and how does it capture the value of the ecosystem you’re building?

A — Dmitri: CompliFi’s governance token is COMFI.

Its revenue model is to charge a fee on all derivatives created and traded on CompliFi and then distribute it proportionally among the token holders. Currently, the fee is set at zero and we intend to keep it that way until the revenue distribution mechanism is fully implemented.

COMFI is also intended to give its holders governance authority over the protocol. We are working towards a decentralized governance mechanism — announcements with more details coming soon.

Q — Telegram user Rosemary Bianco: ✅ Talking about its native token “COMFI”, how can users acquire or buy it? Do you plan to make a public or private sale in the next few days or months? And what will be the utilities that this COMFI token will have on the CompliFi platform?

A — Dmitri from Complifi: We are not selling COMFI, but a liquidity mining program for the month of May will be announced shortly. As part of our drive to decentralize, CompliFi users will be able to farm COMFI.

Competitive Advantage

Q — Twitter user @Bostansemihh: Can you list killer features of Complifi that make it ahead of its competitors? What is the competitive advantage the CompliFi platform has that you feel most confident about?

A — Dmitri from Complifi: As I mentioned, CompliFi consists of an issuance protocol and a specialized AMM, working in tandem to create a powerful and flexible derivatives market that can handle a wide range of instruments. That, in itself, is a big step forward for decentralized derivatives.

CompliFi solves two big problems in decentralized derivatives:

1. Defaults, margin calls, liquidations

All CompliFi derivatives are fully backed by collateral at all times. That is very important in turbulent markets. While other protocols will try to get their users paid in full by issuing margin calls and liquidating, with CompliFi all the necessary collateral is always available.

As a CompliFi user, you will never have a margin call and your position will never be liquidated. The price you pay for a derivative is your maximum exposure. You may win or lose in the end, but you will never be asked to put up more money.

2. Market making in derivatives

Centralized exchanges have been dominant in derivatives trading because of their expertise in market making. It is very easy to lose money on this activity and until now, no one had a good solution for how to do it in a decentralized way.

We created our own unique Automated Market Maker (AMM) and want to challenge centralized exchanges in the derivatives market.

The AMM incorporates a number of critical innovations. For instance, it reprices derivatives prior to trading in every block, eliminating most of the scope for impermanent losses. Just as importantly, the AMM algorithmically manages LP risk by preventing excessive unhedged derivative exposure of its pool and incentivizing traders to decrease it.

Finances

Q — Ayeley Commodore-Mensah from GAINS: Did you raise funds so far? If so, how did you handle them? Are you planning to do any future raises?

A — Dmitri: We raised about $2.4m so far. Among our backers are Signal VC, D64 Ventures, and Moonwhale Ventures. Having already launched our protocol, the funding enables us to keep progressing at a great pace — expanding its capabilities and introducing new financial instruments.

We are not planning to raise in the near future, but a liquidity mining program is in the works and will be announced very soon. Its goal will be to make our users into stakeholders of the protocol and to ultimately fully decentralize its governance.

Business Development

Q — Ayeley Commodore-Mensah from GAINS: What stage is the project at?

A — Dmitri: CompliFi has been live for about 2 weeks, and has a TLV of $4.6m. It currently allows users to trade and provide liquidity for two derivatives — ETHx5 and BTCx5. They are essentially simple ways to get leveraged exposure to ETH and BTC.

Q — Twitter user @elliekingcash: What are your top 3 priorities in 2021? Could you share some plans for the upcoming year?

A — Dmitri from Complifi: We are extremely happy with where CompliFi is today. A year ago, we set out on a very ambitious journey to build a fundamentally different derivatives protocol. It was not an easy road, but what we now have on the mainnet is a more powerful tool than we originally envisioned — one that can now be used as a foundation to create many more exciting features.

Going forward, we plan to focus our efforts in three directions: 1) expanding our derivatives range, 2) decentralized governance, 3) scalability and transaction costs

In terms of new instruments, the first step is to create more “x5” derivatives based on underlying tokens that our users are interested in, such as UNIx5, YFIx5, BNBx5, etc. We would love to hear what derivatives you would like to trade.

As the next big step, we are looking to introduce perpetual versions of our derivatives. This is a significant task, but one that we feel will provide a critical puzzle piece for the nascent on-chain algo asset management industry.

On the governance front, we are taking time to build a governance mechanism that is both sustainable and inclusive, with funding to ensure that CompliFi continues to develop and grow into the future.

Layer 1 scalability and transaction costs are a critical factor for all of DeFi, but for derivatives in particular — they require lots of maths to be done on-chain, which is expensive. A number of solutions should be coming of age in the next 1–2 years and we are always looking at our options.

It was a pleasure having you in our group today, Dmitri. Anything else you’d like to say? Where can we follow you to stay updated? — Ayeley Commodore-Mensah from GAINS

Huge thanks to everyone for taking part, hope to see you on CompliFi!

Twitter | Discord | Telegram — Dmitri from Complifi

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