jAssets by BLKSWN

The jAsset protocol is a community project that has not yet been confirmed by the Jellyverse DAO. More information is available in the introduction.

This documentation serves as an alpha version and provides a brief overview of the jAsset system without delving into extensive technical or mathematical details.

What is the jAsset System?

The jAsset system is an economic system that enables trading of decentralized assets (referred to as jAssets). The system is being developed by BLKSWN PTE. LTD. with the goal of combining the trade of decentralized assets with the benefits of blockchain technology. The focus is on ensuring that the synthetic assets follow the price development of real assets (as oracles) in traditional markets, thus enabling users to anticipate their price movements. Due to the potentially very volatile oracle prices, the emphasis is on the security of the system to avoid underinsurance. The system is based on Liquity, a lending protocol that has already established itself on numerous EVMs. This has been extended to include a multi-collateral and debt mechanism, allowing users to use multiple ERC20 standard tokens as collateral. There is still only one vault (margin account) per address, summarizing the collateral ratio across all used tokens.

Oracles

Apollon utilizes pyth.network as its decentralized oracle provider. Clients request current prices from Pyth, which are then passed to the contract mutations. These mutations update the oracles through a Pyth interface, with the user covering the gas fee incurred for the oracle update.

After the oracles are updated, the PriceFeed assembles a price memory cache. This cache contains the prices of all relevant tokens and is used during execution. This schema was implemented to optimize gas consumption by ensuring that each price is requested from Pyth storage no more than once per execution.

If a token price has not been updated within the last 5 minutes, the price feed is marked as untrusted. In this state, the minting of new debts is disabled. Only functions that increase the Total Collateralization Ratio (TCR), thereby reducing the system's risk, are permitted. Additionally, there is a fallback to a secondary price feed, which is directly written to the protocol by governance. This fallback is intended to cover pre-market and post-market hours, during which pyth.network may not provide prices, but trading on NASDAQ has already started.

User Interface

The user interface is deliberately designed to be very similar to the structure of a central exchange. Opening positions, whether long or short, as well as providing liquidity, is made available as a "one-click solution." The system is designed so that interaction with the blockchain occurs in the background, so that only transaction confirmations are performed by the user. In addition, the jAsset system offers familiar tools for chart analysis, enabling users to make investment decisions based on technical analysis. The user interface includes important information, such as the over-insurance of one's own vault or the current oracle value of the jAssets compared to their traded value on the DEX.

Liquidity Management

A significant portion of interactions within the jAsset system occurs through the vault. After providing collateral, the vault allows the creation of jAssets or a stablecoin (referred to as jUSD) to access decentralized assets. This offers the user the opportunity to:

  • Provide liquidity in the pools, thereby benefiting from the generated fees and pool rewards. In the context of DeFi, this type of liquidity provision is often referred to as "Liquidity Mining."

  • Open a long or short position for the jAsset, thereby speculating on the asset's price movement.

A unique feature of the jAsset system is that both collateral and debts can consist of multiple assets. For example, it is possible to deposit cryptocurrencies like BTC or ETH along with a stablecoin in the vaults as collateral, thereby creating a long position for a jAsset. This way, a user can participate in the appreciation of the cryptocurrency while also benefiting from the price movement of the jAsset. This enables the implementation of various investment strategies, such as leveraging or building hedge positions.

If the collateral ratio falls below 110%, the vault is liquidated. Stability pools are used as the primary mechanism to secure the system during liquidation. If this pool is empty or inadequately funded, there is a system-wide stability pool as additional security. Another security measure is the redistribution of assets among all vault holders. Further details will be available shortly.

In the case of the stablecoin, buybacks can also be made to move the price of the stablecoin towards the peg ($1) in the event of a price discount.

Price Development

To ensure that the prices of jAssets reflect the prices of real assets, various hard and soft coupling mechanisms are present. These mechanisms offer incentives to build a counterposition in the event of a premium or discount, so that the jAsset ideally reflects the real price.

Premium

  • Due to the 110% collateral ratio, the premium is capped at 110%. If a jAsset is purchased with a premium of more than 10%, users have the opportunity to benefit from the high premium. For example, if the premium is 15%, a user could deposit collateral in a vault and open a short position in that asset. This would cause the premium to decrease. After the swap, the user's yield would be greater than the collateral deposited in the vault. Even if the vault is subsequently liquidated, there is a profit for the person who minimized the premium by selling the jAsset.

  • Once a certain premium level is reached (the exact formula will be published in the technical documentation), the fee for opening additional long positions is increased. This makes it increasingly unattractive to continue betting against the current oracle price with a rising premium.

Discount

Similar to the premium, the fee for selling the asset increases once it reaches a certain discount level.

Redemptions

A redemption is a mechanism that comes into play when jUSD is traded at a discount. In this process, the redeemer pays back the jUSD debts of another vault and receives in return the collateral deposited in that vault at the respective counter value. If different tokens are used as collateral in the vault, they are distributed evenly. The redeemer must pay a fee, which depends dynamically on the period since the last stablecoin minting and amounts to at least 0.5% of the collateral. The vault from which the redemption takes place suffers no loss, but there is a shift in the asset portfolio.

The vaults are sorted by PICR (Passive Collateral Ratio) to determine the order of redemption. The vault with the lowest PICR is redeemed first. The PICR represents the collateral ratio of the last interaction (minting, repayment, updating of collateral) with the vault.

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