Blockchain technology and cryptocurrencies have revolutionized the lives of many unbanked people across the world. With the addition of decentralized finance to the industry, millions of people heaved a sigh of relief. However, with these massive opportunities made available by blockchain and cryptocurrency, people are still unable to invest in various asset classes like stocks, indices, bonds and commodities. Such possibilities would mean that there will be many people investing at significantly higher long-term returns as well as mitigating and diversifying risks.
With the centralized solutions available today, such possibilities can be a far cry at best. On the other hand, decentralized solutions suffer from the high volatility of some of these highlighted assets. To ensure that decentrally issued derivative products that mirror the value of underlying assets are solvent at any time, the assets need to be hugely over-collateralized. A good example is Synthethix, which needs a collateralization ratio of approximately 600%. The downturn is that returns for investors are significantly reduced in the process. ISSUAA Protocol is a next-generation decentralized finance protocol exclusively built for derivates of real-world and crypto assets on the blockchain and is live on Polygon. ISSUAA uses a different approach to solve the problems highlighted.
A General Overview of the ISSUAA Protocol
The ISSUAA Protocol is a next-generation DeFi protocol designed to tokenize real-world and crypto assets on the public blockchain network. It is decentralized; hence users don’t need to trust any centralized middleman. The basic concept behind the ISSUAA Protocol is the idea to always release synthetic assets as a pair. When a user is minting new ISSUAA assets, he will have to escrow a fiat pegged stablecoin (USDC). After doing this, the user will receive a derivative token pair of the synthetic asset. This pair includes a long token that mirrors the value development and price of the underlying asset and a short token that inversely mirrors the price of the underlying asset.
The above design implies that whenever the price of the underlying asset increases by, say, $1, the long token will gain $1 while the short token will lose $1 in value. This means that the change in the value of the two assets combined remains unchanged. Hence, the underlying asset will always be fully funded irrespective of the direction of the price movements of the underlying assets. Aside from providing unique and highly attractive tokenomics for investors and liquidity providers, the ISSUAA Protocol is set up as a decentralized autonomous organization (DAO) and is community-driven and community governed.
In the market, the ISSUAA Protocol is arguably the most capital-efficient, next-generation synthetic asset protocol. Unlike most other synthetic asset protocols like Synthetix or Mirror, ISSUAA does not need over-collateralization due to the long and short tokens/pools on all assets. Therefore, every single dollar stablecoin is working for investors on the protocol. Moreover, when providing liquidity in long and short pools of the same underlying assets, the risk of impermanent loss will be greatly minimized. Therefore, the ISSUAA Protocol offers the best low-risk yield farming in the market. Liquidity providers (LPs) earn 0.25% trading fees on every trade on the ISSUAA marketplace at very low risk. These LPs will on top of this be attractively rewarded every week with the value-bearing ISSUAA Protocol governance tokens (IPTs).
The Tokenomics of The ISSUAA Protocol
The $IPT token is the governance token of the ISSUAA Protocol, and it has a maximum supply of 100 million IPTs. It has not only the function of the ISSUAA DOA governance token but it is - for attractiveness for investors - also directly linked to the cash flows generated on the ISSUAA marketplace: While liquidity providers receive 0.25% trading fees, 0.05%trading fee of every trade in the ISSUAA marketplace is kept for the governance token. These IPT trading fees are locked in the protocol and can be redeemed via burning the governance token. Meanwhile, the proceeds will be based on the share of the tokens in relation to the maximum total supply.
Since the maximum supply can never be attained, burning the IPT tokens will discount the current fee pool per issued token. Therefore, burning the IPT tokens increases the fee pool per token for the remaining holders. The fee per token is bound to increase over time with every trade executed on the ISSUAA marketplace, thus providing an ever-increasing floor price for the IPT token.
Most of the IPT tokens (60%) will be allocated to users of the ISSUAA protocol (80% goes to LPs while the remaining 20% will go to IPT holders taking part in governance votes). Every week, 3% of the IPT tokens remaining will be rewarded to both LPs and participating users in governance votes. See the whitepaper for more details about the ISSUAA Protocol project.