Introduction
Last updated
Last updated
As the crypto world is flourishing, the diversification of cryptocurrencies is an irresistible trend. Many different kinds of tokens, such as Interest-Bearing Tokens(IBT), derivatives tokens, and hybrid assets, are enriching the crypto world. At the same time, DeFi infrastructure built on smart contract platforms, such as DEXes, lending protocols, yield aggregators, etc., is developing rapidly. The existing infrastructure, however, is restricted by the community, contract upgrades, cognition, and other factors, so they are falling behind the fast evolution of new crypto assets.
In response to this great trend and times, WarpFi came into being. It focuses on solving the trading dilemma of IBTs in DEXes. During the development of cryptos, the existing algorithms adopted by DEXes(AMM/PMM) can't reflect the benefits (beared interest) of IBT in the trading price, which causes the loss of IBT traders. Some of IBT holders even has to exchange IBTs into the original tokens before trading on the DEX, and this is complicated in process and requires time commissions. However, this is the mainstream trading method of IBTs. And this is a great business opportunity for DEXes that are specialized for trading IBTs. The core algorithm adopted by WrapFi is called Tracking Market Maker(TMM), which is an upgrade from the PMM algorithm. TMM tracks the interest fluctuations in IBT issuers' smart contracts, and integrates the interest information into the prices oracles. This algorithm is pivotal to the transaction of all IBTs. For this reason, the TMM algorithm can be called Price-Recorrection Mechanism (PRM). And with the help of cross-chain oracles, interest monitoring of different chains, and contract integration, TMM is better than other algorithms in terms of IBT trading.
The scale of IBTs is still difficult to estimate, but with the increase of on-chain assets, assets that bear interest will be more in the future. And with the development of DeFi, more IBT will be issued in related scenarios. In the lending protocols, the interest comes from the supply and demand of crypto capital. And when we talk about PoS, the interest is generated from the token inflation of the network. As for the algorithm stable coins, the interest comes from the dynamic adjustments of the algorithm. What's more, Staked LP, mining assets, protocol-dividend assets, etc. all bear interest. The interest of native tokens lies in various application scenarios. These tokens all come with a Voucher Token, such as the cToken of Compound, the rToken of StaFi, and the BAS of Basis. Their value is supported by the native tokens and smart contracts guarantee the fulfillment of value.
The development of IBT will boost the development of supporting tools. Currently, DEX, Lending, Yield Farming are designed for native tokens. For instance, you will find it convenient to trade ETH on Uniswap, but if you trade IBTs on that, the trading price often has a great gap with the real exchange rate released by the IBT's issuer. If you sell cTokens on Uniswap, you may not find a reliable price because the Uniswap cannot fetch the real time interest of cToken in Compound into its price oracle. For another instance, Aave is friendly for the loan of native tokens, but IBTs are difficult to enjoy their due interest on their platform. Because if you lend rETH on Aave, the value of rETH will increase with the accumulation of Staking Reward, but Aave's price oracle cannot effectively capture that.
In the world of DeFi, new tools tend to support IBTs. Trading tools will first emerge, and asset management tools will follow. Trading tools will liberate tokens' liquidity. Only when liquidity is worry-free can IBT-based products and derivatives flourish. After that, the demand for asset management will increase, such as IBT-based index, leverage, and hedging contracts, etc. We call this Wrapped Finance, which refers to the ecosystem of a specific kind of asset. Wrapped Finance is short for WrapFi and it aims to become the underlying contract in Wrapped Finance, providing liquidity for IBT assets.
The standardization of the underlying protocol is the problem that WrapFi is solving for now. We are developing and perfecting TMM algorithms. Currently, different IBTs are varied in interest-generation methods, as well as their calculation methods and on-chain standards. This makes it impractical for WrapFi to implement a universal solution. Therefore, when WrapFi takes off, its priority is to support mainstream IBT assets and gradually support and open the access standard, which is more practical. However, we will never stop exploring a universal solution and it remains an important agenda for WrapFi.
WrapFi is the pioneer of Wrapped Finance. For a long time in the future, WrapFi will grow with Wrapped Finance, and we believe that IBT will become a sophisticated ecosystem. That's a very important reason why WrapFi exists.
The idea of Wrapped Finance evolved from Decentralized Finance. In theory, Wrapped Finance refers to the ecosystem of a specific kind of asset, while Decentralized Finance makes you think of non-custodial management contracts. Wrapped Tokens include many types of assets, such as WBTC, WETH and IBT. WBTC and WETH assets are more dependent on some DeFi protocols, so we narrow down Wrapped Finance to the ecosystem of IBTs.
Compared with spot assets, IBTs advantages are their interest-bearing attribute. Without security and risk issues, IBTs are preferred under the same liquidity conditions compared with native tokens. Especially the crypto players are rather bold sometimes, which is favorable for the development of IBTs.
Under this circumstance, the peripheral development based on IBT is almost disjointed. Let’s try to understand the current ecosystem. The first step in the development of on-chain assets is Tokenization. At present, the environment for Tokenized assets has been well developed, with friendly trading tools and asset management tools. The second step is Derivatives. We call derivative assets Wrapped Tokens, which are varied by different functions, and a big group is IBT. Compared with the first step, there are almost no tools that could serve IBTs properly and friendly. That is the status quo for most DeFi applications now: the interest generation of assets is well-supported, but interest-bearing assets is not.
Let's prove that by calculating the growth of the value of cTokens, which is just one kind IBTs, in the past year (in order to simplify the calculation, cToken value equals TVL). The value of TVL in April 2020 is $93,722,250, but by April 2021, the TVL has reached $10,006,144,321, an increase of 10 times more within just one year. It is hard to imagine that the development of services for this billion-dollar-token is almost zero. Though billion-dollar level isn’t outstanding compared with the whole crypto world, but there's huge potential.
With more kinds of assets emerge, it is of great importance and urgency to develop IBT based tools, like DEX, asset management tools and Index, etc.
