UMA’s “Synthetic Token Builder” is now live on Rinkeby testnet! With the Token Builder, you can create tokens that track the price of anything (the S&P 500, the # of Twitter/IG followers someone has, the # of upvotes your meme has…). All you have to do is choose the price feed and deposit DAI.
How do you create synthetic tokens?
Make sure you are on the Rinkeby testnet and have testnet ETH and testnet DAI. If you don’t have any already, you can use the buttons in the UMA Synthetic Token Builder to get some.
How does the Token Builder work?
Under the hood, the dapp creates a token facility by launching a smart contract. After you deposit DAI into your token facility, you’re able to mint synthetic tokens that are fully backed by the DAI you deposited. Overcollateralizing your token facility ensures that the synthetic tokens are fully backed at all times. This helps reassure anyone buying your synthetic tokens that they’re fully backed (by you).
At any time, anyone can ask the smart contract to check if your token facility is undercollateralized. During this process, the smart contract checks what the latest price is from the price feed and checks if the amount of DAI you’ve maintained in the contract meets the required amount. If you do, you’re all set. If you don’t, the smart contract freezes all the collateral in the contract (you can’t deposit or withdraw), and assesses a penalty. Anyone who holds synthetic tokens that were minted by this token facility can redeem them for a proportional amount of the backing collateral, plus any penalty.
What can you do with synthetic tokens?
We have a few ideas, but are eager to hear your ideas:
- Create a token that tracks the price of CNY in DAI and use it to power a China-focused wallet.
- Get levered short exposure to TSLA by creating tokens that track the price of TSLA and then selling them on a DEX! (You just have to find someone willing to go long TSLA… )
- Create a version of PoolTogether that pays the performance of the S&P 500, rather than interest on DAI.
If you want to go one step further, you can modify the parameters of the Token Builder’s smart contract to create other kinds of synthetic tokens:
- Create a token that tracks the S&P 500 and Compound’s interest on DAI. By making the token’s margin currency cDAI instead of DAI, you can get yield-enhanced exposure to the S&P 500.
- Create tokens that track the borrowing interest rate of DAI on Compound to help borrowers hedge their interest rate risk.
Want to learn more?
For more details on the Synthetic Token Builder, please check out (and feel free to comment on) our public FAQ here.