Twindex 2.0: Introducing Fractional-Algorithmic Synthetic Assets — Secured by Chainlink
TL;DR We’re excited to announce the launch of fractional-algorithmic synthetic assets on Twindex 2.0! A combination of the KUSD stablecoin and the platform token TWX will be used to mint synthetic assets, which involves referencing Chainlink Price Feeds for current asset valuations of the assets being minted. Innovative mechanisms will keep the prices pegged, enabling trading of synthetic assets at real-world prices, 24/7, on the Binance Smart Chain.
While the world converges to better understand the next wave of crypto trends, we are now ready to announce our contributions to these efforts — DeFi synthetic assets. To reflect a version of what the future of synthetic assets could be, we’re excited to showcase the release of Twindex 2.0.
Although synthetic assets are still fairly new, fractionalized algorithms are an even newer and more advanced mechanism that helps assets track real-time market values. Problems that initially frustrated many synthetic asset communities can now be resolved by pegging them to collateral, eliminating premium and/or discount price issues.
Minting new types of synthetic tokens will no longer put users into a collateralized debt position (or in a short position). You can actually mint and trade new assets, just like real-world assets, without liquidation.
Our new synthetic assets on Twindex will be the first to apply a fractional-algorithmic algorithm (FAA) approach. This means tokens are partially backed by the KUSD stablecoin and partially backed by the utility token TWX. The combined ratio will be classified as the “Collateral Ratio” of the stablecoin, resulting in a dynamic token.
Because the KUSD stablecoin is still the trusted medium and its value is backed by collateral, it maximizes the stablecoin’s capital efficiency by reducing the required collateral as much as possible. This is where algorithmic synthetic assets are good at — creating value without needing to have fully backed assets.
Twindex synthetic assets (tAssets) can also be used in farming pools to earn dividend-like profits in addition to the capital gains normally earned by buying and selling assets. To keep the tAssets price pegged to the real-world price, we present several mechanisms.
Every token holder can profit when the price is off the peg by minting and redeeming. As the Collateral Ratio changes, everyone is also incentivized to keep the backed assets correlated to the Collateral Ratio with buybacks and re-collateralization mechanisms.
The Collateral Ratio itself is adjusted dynamically with several influences, including the Growth Rate of the utility token. All of these measures are put into place to prevent damages from panic selling which can result in a bank run, similar to the Iron Finance incident.
The Collateral Ratio is the ratio in which the stablecoins and utility tokens are required to create the Fractional-Algorithmic synthetic assets. For Twindex synthetic assets, it is the ratio between KUSD and TWX. A collateral ratio of 100% means that the user needs 100% worth of KUSD and 0% worth of TWX to mint tAssets, while a collateral ratio of 80% means that the user needs 80% worth of KUSD and 20% of TWX to create tAssets. Each synthetic asset has its own Collateral Ratio.