Tech Update: Roadmap to real estate backed basket of synthetic currencies
We are participating in the rDai effort to build distribution for our platform. Affiliates can get a portion of the interest from the kTokens and pass the rest to their network. It’s a win win, especially with existing defi money market interest rates are extremely low.
To achieve the objective being to build a friction free on and offramp, we have established ADR which is an Australian Dollar pegged stable coin.
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However this is a stop gap measure as we are limited by 1000 tokens per holder and a limit of 10 Million maximum. Beyond that it becomes a regulatory nightmare.
Plus there remains a question of how we handle currencies in other parts of the world.
Synthetix has shown a clear mechanism on how you can get exposure to the performance of assets without actually owning them.
It is quite the clever system. They have a native token called SNX, which you have to own to mint a synthetic asset.
Similar approaches have been used by Maker DAI in which you use ETH to mint USD pegged DAI. However Maker employs a series of incentive and disincentive decentralized arbitrage based solutions to achieve the peg.
It can be often quite complex and the system has often flirted with melting down completely.
Synthetix employs a radically different approach.
You lock SNX and mint sUSD (synthetic USD). You are effectively borrowing the sUSD. However unlike Maker, there is no interest.
And unlike Maker there is no decentralized arbitrage based active tracing of the peg going on.
The approach is far more primitive.
They simply say that the sUSD is worth $1 and it will buy you stuff worth $1 on their platform.
SNX on the other hand fluctuates in value based on demand and supply, but the value of sUSD is always $1.
Now sUSD is ERC20 and nothing prevents you from taking it out of the system and using it elsewhere. And in theory nothing prevents others from buying and selling it at a price different to $1.
However within the Synthetix ecosystem it will always buy stuff worth $1.
Which means the value of sUSD is based on the success of the Synthetix ecosystem. The more likely that you will be able to achieve what you want on Synthetix that is worth a dollar the more likely the peg stays in place outside the system.
So what else can you do on Synthetix?
Well you can buy other synthetic assets using your sUSD. For eg there could be a sGold or sApple.
How do sGold and sApple reflect the price what their real world counterparts have?
Simple. Synthetix says that they do.
At this point it starts looking like a mad scheme. Who are you even going to trade with on such a portal.
But trust me there is a method to their madness.
The first thing we need to understand is that in Synthetix you are not actually trading. You are simply converting from one form of synthetic asset to another.
If you are confused, that is understandable.
When you lock in SNX, you are able to mint sUSD. However any asset has to be 800% collateralized.
Which means if you have $800 worth of SNX you will be able to mint 100 sUSD.
Now if your locked SNX goes up in value then you are able to mint more. Kind of like accessing the equity in your house when its price goes up.
And if your SNX goes down in value then you have to pay up else you risk losing your collateral.
The same house analogy applies, albeit in a reverse direction.
Now you want to trade sUSD to some other asset. Let’s say Bitcoin, you can get BTC worth $100 at that point. However you do not get actual BTC, you get sBTC (synthetic BTC) which traces the price of BTC.
You are not trading USD for BTC, all you are doing here is destroying your current token and minting a different token for the same value.
However the value of BTC might go up faster than USD. But the underlying pool of collateral which is SNX has not changed in value.
So where does your increased value come from?
The answer is simple, tokens are effectively a debt against the collateral locked. Sum of all of the token values (various different synths) is the total debt and it is against all of the collateral locked. So if everyone shoulders the debt equally and someone is deriving more value from it, the converse is that someone else is suffering.
If BTC went up, then those who did not convert to that asset would end up sharing an equal prorated portion of the debt without getting an equivalent upside. They would suffer so that those who made the right choice benefit.
To some extent it replicates what happens in a normal trade, so I would not call it an unfair process.
The system has some clever mechanisms to create value for the SNX token by ascribing fees from transactions to token holders and also incentivizing liquidity for SNX by rewarding liquidity providers on Uniswap.
It also has a clever way of rewarding people to come back repeatedly to the platform and stay there by giving away SNX tokens to users and vesting them for a year.
Kind of like a coffee punch card which gives you a free coffee after buying 9.
Why do we discuss all of this?
Because Synthetix lays down a potential trustless mechanism for creating an network of global currencies.
You can create any synthetic currency using this mechanism which can then be used by people in their countries. You can also have a system of decentralized anchors who convert back and forth from and to fiat.
The question is what can serve as an appropriate collateral.
A natural collateral can be real estate.
Konkrete is in the business of representing real estate assets in the form of ERC20 tokens.
Someone could come to the platform, demonstrate evidence that he owns a certain property and show the valuation reports etc and then mint property tokens.
These property tokens (after a DAO vote) can be accepted as valid collateral and the owner can mint sAUD or sGBP or sINR etc tokens.
rTokens can then be wrapped around the kTokens of such currencies.
These sTokens can be used as a real estate backed currency with multiple use cases and being backed by a tangible asset would be a hard currency.