Oikos, synthetic assets and decentralized exchange, a primer
What is Oikos?
Oikos is a platform enabling the creation of on-chain synthetic assets that give exposure to other assets by tracking their real-world price. Some examples are fiat currencies (EUR, GBP) and commodities like gold and silver (XAU, XAG).
The system supports any kind of asset, including market traded shares (Apple, Amazon, Google, etc.) but also more complex products, like indices (NYSE, NIKKEI), futures, options and CFD.
As such Oikos can be seen as a bridge between the cryptocurrency ecosystem and the legacy financial industry.
Why synthetic assets?
Some common questions asked by users are:
Why would I need a synthetic asset? Why not directly buy the tracked asset?
The answer is: there are several advantages to it. First of all, it allows the diversification of a portfolio without ever leaving the crypto ecosystem.
Decentralization and security are other important factors at play: when trading synths, all activity happens with smart contracts. Security is guaranteed by regular code audits and counterparty risk is almost entirely absent.
Lastly, holding synthetic assets shields you from costs and risks associated with safely storing and transacting the tracked asset, e.g. gold can be purchased on futures markets but taking actual delivery of it introduces several logistic problems.
How does it work?
The platform revolves around a token called OKS (Oikos network token). Synths are minted by locking OKS tokens into a smart contract.
The system currently requires that you lock 7.5 times more value than the synths you mint.
For example, suppose the OKS token price is 1 USD (for sake of simplicity), if you want to mint 100 USD, you will need to lock:
100 * 7.5 = 750 USD worth of OKS tokens.
This is done to provide stability to the system via “over-collateralization”.
In the case of a black swan event or a sharp decline in OKS price, the system has enough value locked to liquidate and cover the market value of synths minted.
How does OKS derive its value?
This kind of system providers a lot of benefits for its users. It creates a market for crypto and price-stable assets that can be traded without liquidity limitation and slippage. When doing synth exchanges on the system (e.g. sUSD to sBTC), a small fee is taken and distributed among synth issuers (OKS stakers). This reward incentivizes the issuance of synths and the maintenance of a healthy collateralization ratio, thus enabling a positive feedback loop that will fuel adoption and growth.
OKS tokens have a built-in inflationary supply schedule. Starting the first year, 1,442,308 OKS will be added every week, with a decay rate of 1.25% starting at week 40 and running for 194 weeks. At week 234, a terminal rate of 2.5% perpetual inflation will be reached. The minted supply will be used to reward stakers and to incentivize long-term network participation.
Roles of OKS token holders
OKS holders provide liquidity to the system by staking OKS tokens and minting synths that are traded on the Oikos Exchange.
As mentioned, synths can be traded without a counterparty. This is very useful for synth holders but it creates risk for OKS stakers. Consider this scenario:
Alice issues 1,000 sUSD by staking 7,500 USD worth of OKS. Her staked OKS are locked in the system until she pays back her share of the system’s total debt (the total debt is the USD value of all synths issued). Alice then sells all the sUSD she issued to Bob, who in turn exchanges it all for sBTC. Now, imagine the BTC gains 10% overnight. The total debt of the system is now 1,100 USD instead of 1,000 USD, which means that Alice needs to pay 100 USD extra to recover her collateral. Since staking carries some risk, stakers are rewarded with fees, inflationary supply, and they are encouraged to hedge their risk through external trades.
The debt register allows the system to track the outstanding value of synths minted by OKS holders. Debt refers to the value of synths to be burned to recover an amount of locked OKS collateral. The total debt in the system changes as exchange rates fluctuate. To keep track of the total debt we record the debt percentage for each OKS holder when they mint or burn.
So for example, if Alice mints the first 100 sUSD, she will represent 100% of the debt. If Bob then mints the same amount of sUSD he will represent 50% of the debt in the system. In order to determine Alice’s debt, we look at the cumulative change in debt since she entered the system and we apply this to her original percentage of the total debt.
So while Alice initially represented 100% of the debt, after many other OKS holders have issued, her debt might go down to 1%. When Alice wants to exit, we look at the sum of cumulative debt changes to find out her percentage and then compute her debt obligation in Synths to exit the system and unlock her OKS.
Oikos bridges the gap between the worlds of traditional finance and cryptocurrency through its decentralized synthetic asset issuance and exchange system. Our mission is to fulfill the largely untapped potential of censorship-resistant synthetic assets. Progressive improvements to the technology and growing adoption will steadily increase the utility of the platform. A move over to a decentralized governance process will also reduce systemic risk and increase the long term viability of the project.
Built on Tron
Tron is a cryptocurrency launched in 2017. Compatibility with Solidity and Ethereum VM makes it a viable platform for decentralized applications in the emerging field of decentralized finance. Tron also offers cheap transactions and has seen a steady increase in users and in recent times.