Decentralized Finance (DeFi) has catalyzed the current bull market by injecting new value into the digital world through the overcollateralization of assets, Duet builds on the existing DeFi collateralization paradigm to provide more layers and richer options, bridging the gap between the traditional and digital worlds and giving global users better access to traditional areas such as commodities, precious metals and U.S. stocks in the digital world with ease. Precious metals and U.S. stocks have certain thresholds.
The DeFi of 2020 is in full swing. Many are cheering and excited for the coming digital currency bull market. But from a rear-view mirror perspective, Oracle is fine, Dex is fine, and these clusters of DeFi machines that leverage liquidity pools and fully market-based, fully automated transactions are likely just building the underlying infrastructure of the Internet of Value (Web 3.0).
Many players are happy to treat these infrastructures as mere Lego playgrounds to be passed around by drums, but clearly underestimate the grand scenario that DeFi presents, where synthetic assets become the pioneers to bridge the border between the two sides in the face of the trillion-dollar traditional financial market on the other side.
Among them, Synthetix and Mirror have each evolved unique evolutionary paths. Both operate on different principles, but have a common feature of accepting only a few crypto assets as collateral mainly from their own system, which greatly increases the user threshold and turns away assets such as Bitcoin and USDT with huge market capitalization and many users holding them, and there is no evidence that that using only system endogenous assets can guarantee the robustness of the system, but instead increases the risk of large fluctuations in system assets, which in turn threatens the security of the system.
Now, the Duet protocol, which innovates to target this pain point, comes to the center of the stage.
What is Duet?
Duet Protocol is a synthetic asset protocol. The so-called synthetic asset is to replicate real-world assets in the digital world, mapping the price fluctuations and investment returns of real assets in real time, and realizing the transmission, slicing and storage of value on the digital Internet. It is worth mentioning that Duet is the world’s first on-chain synthetic asset protocol with a hybrid casting mechanism (overcollateralization + algorithmic burning), supporting trillions of off-chain assets mapped in parallel without relying on centralized escrow.
Duet Protocol believes that the returns and volatility of real-world tradable assets can also be replicated, harmonized and intermingled in a distributed financial system.
As a result, the “core assets” of the digital age will be redefined in terms of growth, sophistication, scarcity, availability, and programmability, which Duet calls “Sharp Assets” – digital synthetic assets – and traditional assets with more established pricing systems (such as cash, bonds, stocks and shares). Duet calls these “Flat Assets” – physical financial assets, some of which have been digitized, such as SecurityToken.
The next stage of decentralized finance (DeFi) is to link “Downgraded Assets” and “Upgraded Assets”, Duet pioneered the dual asset minting model of “Overcollateralization + Algorithmic Stabilization”. Duet is the first to use algorithmic stabilization technology to mint digital synthetic assets, relying on market arbitrage mechanisms to support asset price anchoring, without artificial manipulation and redundant collateral. Widen the boundaries of digital assets.
Duet believes that “everything can be cast” is the inevitable direction of DeFi’s evolution, which is the biggest difference from existing synthetic asset protocols and the biggest feature of Duet. Compared with Mirror, which only accepts UST/MIR, and Synthetix, which only accepts SNX/renBTC/ETH as pledges, and the size of the underlying assets is limited to hundreds of millions of dollars in size, Duet Protocol accepts more than ten high-quality assets such as wBTC, ETH, USDT, DAI, LTC, etc. as castings. The Duet Protocol also accepts assets unique to the DeFi world as minted assets, including LP token in large Swap protocols and Certificate of Deposit token in large lending protocols, to effectively enhance the efficiency of users’ funds and improve the combinability of the protocol.
Duet Protocol will recreate traditional assets in a blockchain world, combining all of DeFi’s Lego blocks, with the ultimate vision of being an important bridge in the grand era of value migration to the Internet.
Overcollateralization creates a mirror world of physical assets
One of the biggest challenges DeFi faces today is how to get real-world assets on the chain in a de-trusted way, and one of DeFi’s revolutionary creations is the introduction of “overcollateralization” to support “fixed value”.
In traditional economic models, overcollateralization is a form of risk protection for cash assets, but from the perspective of value sinking, it is actually an expression of ‘fixed value’. Suppose Alice buys a string of “code” from Bob for $100, and the price of “code” is $100, what is the value of “code”? It is difficult to give an answer in a volatile market. Considering that Alice paid $100 in exchange for real money, then a 30% discount on the original price, protected by the discount space, the market’s willingness to accept the exchange will be significantly enhanced, and it can be said that at the price of $30, a new consensus value is formed that is much more solid than the original asset price.
When the carrier of this “fixed value” is “code”, “code” has value, and people can directly synthesize assets with the existing digital assets in the blockchain world in the form of overcollateralization, and carry the physical financial assets to the blockchain world.
In the Duet protocol, the container that carries the fixed value, i.e., the synthetic asset, is called dAsset, which is used to anchor the corresponding financial asset in the physical world, reflecting the price fluctuations of the financial asset in real time and becoming a digital mirror of the physical asset. At the same time, it has the common characteristics of digital assets: infinitely divisible atomicity, ready accessibility and security protected by algorithms.
The scope of dAsset synthetic assets (i.e., the underlying of investments) extends to all public markets with traceable fair prices: 1.
- Duet in mirror stable coins DuetUSD, DuetEUR, DuetJPY, etc., as standardized investment vehicles.
- including BTC, stocks, ETFs, bonds, futures, FX, interest rates and indices and commodities, etc.
For example, if you want to cast shares of Tesla Corporation :
First you deposit $1500 worth of 1 ETH (or any protocol-backed asset) locked into a smart contract (Collateralized Debt Position, CDP, collateralized debt position) as collateral.
Depending on the risk parameters of this collateral (1/3 funding rate), a Tesla stock token dTSLA worth $500 is generated, which is approximately 0.83 shares at a market price of $600/share.
- At this point, you have four disposal options.
- Sell dTSLA for US dollar fiat currency.
- or prepare an equivalent amount of stablecoin (USDT1) to deposit into the swap protocol to become a liquidity provider (LP).
- or deposit the dTSLA into a lending agreement in exchange for a partial loan, the amount of which may vary from agreement to agreement.
- Do nothing but maintain the CDP always fully collateralized.
When it is time to get back the collateral (ETH), repay 0.83 shares of dTSLA and get back the 1 ETH that was locked up in the first place.
All of the above actions can be done without going to a brokerage house to open an account and without exchanging dollars to get any specific small share of stock.
Debt Pooling and Adjustable Liquidation
The process of creating a dAsset by a user is actually a process of incurring debt to the CDP, and Duet uses a dynamic debt design. After a user pledges a higher-tier asset to mint a dAsset, the dAsset is considered an asset of the system, and the user’s coin-denominated debt increases or decreases as the dAsset price rises and falls. These dAssets consist of indices, precious metals, stocks, crypto assets, etc. This basket of assets has varying degrees of positive and negative correlation, and the prices of different types of assets can be hedged against each other. The greater the variety of assets, the more the volatility of the overall debt pool is spread out, reducing the risk factor.
Like all CDPs, Duet also has a minimum debt liquidation line, which corresponds to the pledge rate c-ratio, in order to reduce the impact of high volatility of crypto assets, and once the asset price falls below the liquidation line, the system will initiate a mandatory asset liquidation and auction process.
However, unlike other static liquidation models, Duet introduces an adjustable liquidation model in the economic model, which provides users with an open choice to improve their capital utilization and maximizes the security of synthetic assets.
For example, in Duet, users can pledge a certain amount of Duet to reduce the minimum pledge ratio required by the system, and the strength of the pledged Duet to the c-ratio is determined by the ratio of Duet to the amount of collateral in the position itself. As shown in the figure, the more Duets a user pledges, the lower the liquidation line of the position will be and the more liquidity will be released for minting assets.
Algorithmically Stabilized Coin Assets Redefine the ‘Invisible Hand’
Duet will take an unprecedented approach to “redefine” the price of financial assets. All minted assets will be backed by the system token DUET, and price fluctuations of minted assets can be passed to DUET, which will be destroyed and minted back to help stabilize the price of minted assets. During the destruction or recast process, the real-time asset prices are fed through the prophecy machine without counterparty intervention, thus no slippage due to liquidity pool depth issues.
The Duet system encourages users to regulate the cast asset price through an arbitrage mechanism that keeps the cast asset price stable, as an example.
When the price of 1 share of dTSLA > 1TSLA, the user will destroy 1 share of dTSLA equivalent DUET token to the system to mint 1 share of dTSLA, and the user can sell 1 dTSLA at the market price to obtain a premium, driving the dTSLA price closer to the TSLA price, and the supply of DUET in the system decreases and an increase in the DUET price.
When the price of 1 share of dTSLA < 1TSLA, the user can inject 1 share of dTSLA into the system to cast DUET equivalent to 1TSLA, and the user relies on the trading market to obtain the difference in price to increase the demand for dTSLA, and the price of dTSLA increases and gradually converges to the equivalent of 1TSLA. The supply of DUET in the system increases and the token price may decrease.
This unique way of stabilizing asset prices created by Duet does not rely on collateralizing additional assets, takes full advantage of people’s tendency to profit, and is regulated by the “invisible hand” – market will and algorithm, compensating for the low capital utilization caused by simple lock-in, and coupled with the stable decentralized and censorship-resistant characteristics of the algorithm, it has the The opportunity to achieve a truly decentralized and stable digital synthetic asset for the first time.
Synthetic assets are the new starting point of the Internet of Value
The sky-high liquidity of fiat currencies in 2020 is the source of DeFi’s excess value, creating the perfect testing ground for the Internet of Value.
The emergence of synthetic assets is the self-evolution of DeFi, which already has a progressively larger world base with solidified value forming digital assets at the bottom, externally relying on Oracle to depict the price fluctuations of physical assets, and internally enabled by DEX for no-slip, high-depth free exchange. With the rapid development of these infrastructures, it is possible to migrate traditional financial assets to the digital world.
In this process, Duet’s mission is to help “price” physical assets that can be chained on the chain. Under Duet’s synthetic asset model, there is no longer a need to pledge or escrow the spot of the underlying asset, but to generate the price of the asset on the chain based on the prophecy machine. Thus, the protocol can create financial derivatives with almost zero friction cost, reduce transaction costs under the traditional territorial financial system, and “soft anchor” the price index of multiple assets through user arbitrage behavior.
From a collateral perspective, it is important for the existing DeFi industry to include asset classes that are negatively or uncorrelated with the bull and bear cycles of digital assets in the market. This will reduce the leverage of the crypto-world financial system while diversifying the risk of price volatility in a single market. Forward agreements are planned to incorporate non-onchain native assets as collateral, thus truly linking the blockchain and the real world.
From the perspective of investment products, from Bitcoin to S&P 500, from Tesla stock to gold, the wide variety of futures, insurance and other derivatives that can be freely designed, the 7X24 global never-ending exchange of price information, and the ability to trade private assets anytime and anywhere, the idea of allocating quality assets from different global capital markets with just one digital wallet is about to come true for investors. It is conceivable that in the future this will create a trillion-dollar market for reducing social costs and increasing productivity.
So, Duet Protocol is just beginning the overture of the duet played between the real world and the digital network.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/everything-can-be-cast-read-about-the-new-defi-synthetic-asset-protocol-duet/
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