Kresko Assets
The synthetic asset in Kresko
Overview
A synthetic asset or Kresko Asset in the protocol is a derivative tracking the price of another asset or group of assets. This exposes the holder to an external asset without owning it. New Kresko Assets are minted as regular ERC-20 tokens and can be freely used outside of the protocol.
Each Kresko Asset is evaluated, deployed and configured separately. One asset could be swappable in the SCDP but not mintable from the ICDP, or one is depositable as collateral into an ICDP while another is not.
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.
Types of Kresko Assets
Stocks, ETFs: Assets traded on traditional exchanges. eg. AAPL, TSLA, QQQ.
Commodities: Commodities such as gold, silver, and oil. eg. IAU, USO.
Synthetic Assets: Synthetic representation of other cryptoassets eg. ETH, BTC.
Indices, Rates: eg. Combining multiple assets with different weights, ETH volativity, BTC borrow rate.
Stock Splits and Stock Merges
Kresko Assets handle stock splits and merges gracefully. Asset balances can be rebased using a positive or a negative rebase index. This adjustment instantly reflects in the account balances and protocol valuations and no user action is required.
Dividends
The synthetic assets created through the protocol do not pay any dividends.
What can I do with them?
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:
Speculative
For example, Kresko Assets borrowed using the ICDP can be exchanged to another Kresko Asset which translates to a short position on the borrowed asset.
Conversely, using KISS or synth wraps to obtain Kresko Assets which are further swapped using the SCDP allows any Kresko Asset to be acquired without borrowing that can be used to eg. open a long position on an asset.
Hedge
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.
Liquidity
You can also provide liquidity into the SCDP which is incentivized from the fees paid by traders. Alternatively, anyone can bootstrap liquidity for the Kresko Asset in an external AMM like Uniswap.
Other
Another option is to perform the liquidations in the protocol. Further, a bit advanced use-cases are things like price arbitrage, extending or using the protocol with your own smart contracts.
Kresko Assets can also be whitelisted as a Collateral Asset.
Liquidity Providers can use this to create a delta neutral CDP in the protocol to greatly mitigate price-risk when providing external liquidity.
kFactor
Protocol values each Kresko Asset separately based on its risk profile. The higher the volatility of an asset, the higher the risk.
The kFactor is a number between 1 and infinity that is used to calculate the risk-adjusted valuation of a Kresko Asset. It shows the debt taken to borrow $1 worth of a Kresko Asset.
kFactor is a premium applied to the collateral required for borrowing, it is higher for riskier Kresko Assets.
Given a Kresko Asset a, kFactor can be represented as:
Additionally, kFactor can be used to encourage (i.e., by setting low kFactor) or discourage (i.e., by setting high kFactor) borrowing of certain Kresko Assets based on the needs of the protocol.
Open Fee
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%.
Close Fee
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.
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