The Synthereum Money Printer use case

Jarvis and Aave…

Synthereum’s Money Printer contracts allow the minting of uncollateralized jFIATs to perform specific actions, such as performing arbitrages or supplying liquidity on a money market. These contracts have already been used to provide liquidity on Midas Capital, Aave, and Market.

An infinite source of liquidity

Under normal circumstances, minting jFIATs requires over-collateralization, which consists of depositing collateral whose value consistently exceeds the one of the jFIATs. This prerequisite caps the number of jFIATs that can be minted by the amount of collateral that can be brought, limiting the total liquidity available.

However, it is also possible to mint uncollateralized jFIATs, i.e., without depositing any collateral. This minting process enables an almost infinite source of liquidity!

Printing jFIAT may seem dangerous and remind you of how Central banks work: they print money out of thin air! Of course, it is not as simple as that. Central banks are printing money following a specific framework to perform particular and pre-determined operations. For example, Quantitative Easing involves printing money to purchase countries’ securitized debt on secondary markets.

Similarly, minting uncollateralized jFIATs requires a strict framework to avoid putting the whole Synthereum ecosystem and its users at risk.

Money Printer framework

Without a trustless framework that sets some limits, a malicious or coerced actor could mint an infinite amount of jFIATs and exploit the protocol:

• By draining all the collateral: an actor could mint an infinite amount of jFIAT and sell all of them for USDC on Jarvis Exchange; as a result, the other jFIATs will become uncollateralized and will be worth zero.
• By draining all the liquidity: there are multiple liquidity pools (secondary markets) with jFIATs; an actor could mint a large amount of jFIAT and sell all of them to empty these pools.

To avoid these doomsday scenarios, the Money Printer can only work using Flashloans or the Direct Deposit Module frameworks.

Flashloans

The jFIATs are borrowed without collateral and used to perform an arbitrage or a liquidation. The loan has to be repaid within the same block; otherwise, the transaction will revert; this last condition ensures that no uncollateralized jFIATs are left in the circulating supply.

• For an arbitrage, one can borrow jFIATs, sell them on an AMM for USDC, mint them back using some of the USDC, repay their loans and keep the leftover.
• For a liquidation, one can borrow jFIATs, liquidate an LP (on Synthereum v2) to get the USDC collateral back, mint them back using some of the USDC, repay their loans and keep the leftover.

Direct Deposit Module

The jFIATs are minted and directly deposited into an approved smart contract like a money market (Aave or Midas) or a liquidity pool (Uniswap or Curve).

• They are not in the circulating supply until they remain in a money market. But once borrowed, the jFIATs join the circulating supply and become collateralized by the collateral deposited on the money market. Therefore, some jFIATs are collateralized by the Synthereum protocol, and others by the money market.
• They are not in the circulating supply until they remain in a liquidity pool. However, once bought, the jFIATs join the circulating without being collateralized. Buying them impacts their price on the AMM, creating an arbitrage opportunity: users can mint jFIATs on Jarvis (with collateral) and sell them on the AMM. By doing so, arbitragers somehow replace the jFIAT without collateral with jFIATs with collateral.

Three different multi-sig called the committees, share the power of the module:

1. The Printer committee: a 5/8 multi-sig whose members are elected by the governance every three months; this committee can call the function to mint and deposit jFIATs, or to withdraw and burn them.
2. The Treasury committee: a 5/8 multi-sig whose members are elected by the governance every three months; this committee can collect the interests generated and can modify the max ceiling (maximum amount of jFIAT that users can mint)
3. The Core committee: a 2/4 multi-sig whose members are core team members; this committee can register approved smart contracts.

The Direct Deposit Module has recently been used to print and deposit 1M jBRL into Midas Capital, a money market on the BNB Chain.

Risks

Besides all the usual risks, the Money Printer carries a few risks related to the Direct Deposit Module:

• Drying up liquidity on the primary market: under normal circumstances, if too many jFIATs have been supplied into the money market, and have been borrowed and sold onto Jarvis, the selling-side liquidity on the protocol would be drastically reduced, preventing other users from selling, endangering the peg; the governance could quickly resolve the situation by removing liquidity from the money market to increase the interest rate, forcing borrowers to repay their loans; also, if users borrow a lot of jFIATs, it would lead to high interests rates which would in return incentivize other users to mint new jFIATs and deposit them into the money market, thus bringing more selling-side liquidity.
• Money market exploits: If an attacker could exploit the underlying money market or AMM protocol, they could access all the jFIATs and sell them onto Jarvis, draining up all the collateral and drying up all the liquidity.

The possibilities are limitless

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