The synthetic asset in Kresko
In the simplest terms a synthetic asset is any asset or bask of assets that follows the value of some other asset. Using the Kresko synthetic asset protocol users can acquire synthetic assets as an 18-decimal precision ERC-20 token, known as a Kresko Asset or krAsset for short. Kresko Assets are pegged to the value of some other asset which is called the underlying asset.
It is necessary for Kresko Assets to always have up-to-date information about the underlying asset, so each Kresko Asset is connected within the protocol to an oracle feed that transmits tamper-proof fresh market information of the underlying asset and it will be instantly reflected on the protocol. Each Kresko Asset also has it's valuation risk adjusted by the multiplier krFactor.
Kresko Assets reflect the value of the underlying only within the core synthetic asset protocol.
There are no guarantees for Kresko Assets to have any value elsewhere.
Fundamentally they offer a permissionless way to invest or speculate in the value of the underlying asset with minimal counterparty-risk. This makes financial markets accessible for users with otherwise restricted and/or untrustworthy access.
Here are a few common use-cases:
Basic use-cases are common financial activites like investing and trading. To seamlessly facilitate these activities for users, Kresko offers an automated market maker similar to Uniswap which is loosely coupled with the protocol. In the AMM Kresko Assets can be exchanged to other assets or vice versa. With the protocol and the AMM, users are able to easily create exotic positions not easily replicated elsewhere.
Using kresko assets you can easily hedge a position elsewhere. Simply having a short position in the synthetic asset and a long position for the underlying at the same time can be used to manage risk according to the ratio of positions.
For swapping to be possible the assets must have liquidity available against other assets. Users can create this liquidity by providing an equal value of a Kresko Asset and some other asset into the AMM. In exchange for this service, users who swap their tokens will pay a small fee on each swap to the liquidity providers.
Liquidity Providers can use this to create a delta neutral CDP in the protocol to greatly mitigate price-risk when providing liquidity.
- Stocks: Assets traded on traditional exchanges. eg. AAPL, TSLA.
- Commodities: Commodities such as gold, silver, and oil. eg. IAU, USO.
- Exchange-traded Funds (ETFs): A basket of assets based on an index or another asset(s). eg. QQQ, VTI.
- Synthetic Cryptoassets: Synthetic representation of other cryptoassets eg. ETH, BTC.
Similar to collateral, the protocol values each krAsset differently based on its risk profile. Generally, the higher the volatility of an asset, the higher the risk.
The krFactor is a number between 1 and infinity that is used to calculate the risk-adjusted valuation of a krAsset. It shows the debt taken to borrow $1 worth of krAsset.
krFactor is a premium that is applied to the collateral requirement for borrowers and it is higher for riskier assets.
Given a Kresko Asset a, krFactor can be represented as:
Additionally, krFactor can be used to encourage (i.e., by setting low krFactor) or discourage (i.e., by setting high krFactor) borrowing of certain Kresko Assets based on the needs of the protocol.
A configurable parameter for each Kresko Asset which is used to deduct a fee when borrowing Kresko Assets. This fee is taken from the collateral deposits in Last In-First Out order and is transferred to the fee recipient address set in the protocol.
It must be within 0-10%.
A configurable parameter for each Kresko Asset which is used to deduct a fee when repaying Kresko Assets. This fee is taken from the collateral deposits in Last In-First Out order and is transferred to the Fee Recipient address set in the protocol.
It must be within 0-10%.
For example, if a borrower repays $100 worth of krAsset and the repayment fee is 1.5%, then the protocol collects $1.50 worth of repayment fee from the collateral.
The quantity, price, and krFactor are used to determine the debt (d) incurred by borrowing a krAsset.
Given a borrower’s krAsset b, oracle price
, and krFactor
, the debt
is calculated as follows:
Alice wants to borrow 1 krTSLA, Oracle price of 1 TSLA = $1,000, krFactor for TSLA = 1.05, then the debt is:
For multiple Kresko Assets borrowed, the total debt (D) is calculated by adding the values of all the individual debts.
Given n krAssets, total debt D is:
if Alice has borrowed 1 krTSLA (d = $1,050), 1 krAAPL (d = $180), and 1.2 krIAU (d = $48), then the total debt is:
If Alice has borrowed 1 krTSLA (d = $1,050), 1 krAAPL (d = $180), and 1.2 krIAU (d = $48), then the total debt is: