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WrapFi Solution
More cryptocurrencies have emerged as Interest-Bearing Tokens (IBT) with the development of DeFi. Their interest may have originated in different sources, though. The existing IBTs are mainly applied in the following scenarios:
1) PoS Staking. It is the earliest Interest-Bearing Tokens scenario with the largest asset scale. The interest comes from the inflation of the PoS network. IBTs applied in PoS Staking is represented by StaFi's rToken series, such as rETH, rDOT, rKSM, etc.;
2) Lending. In this scenario, the interest comes from the borrower. The representative tokens are cTokens of Compound, such as cETH, cDAI, etc.
3) Vaults. In this case, the interest of IBT assets come from the DeFi Yield Farming income strategy. The representatives is the ibETH issued by Alapha Homora;
4) Others. There are other scenarios such as the LP tokens issued by DEXes and the staked DeFi governance tokens like xSUSHI that could receive dividends, and so forth.
With more scenarios been discovered, more IBTs are issued and become the premium assets with high growth rate in the DeFi world. However, when IBT asset holders trade in the secondary market, such as DEXes, they often find that the trading price of IBT deviates greatly from the real exchange price. Also, the trading liquidity is insufficient. Those problems greatly cap the adoption of IBTs as well as their circulation across different DeFi protocols. As a result, capital efficiency is gravely lowered.
To stabilize the price of IBTs in the secondary market remains a problem that must be solved to boost the adoption of IBTs.
Before we introduce WrapFi solution, let's take a look at how existing IBTs are priced, and why now DEXes are not friendly to the traders of IBTs. Generally speaking, the price discovery system exists in the following two markets:
1) The primary market price. It refers to the exchange rate between the IBT assets issued by the project party and the Deposited Tokens(DT), like in the cETH token scenario, ETH is the deposited token and cETH is IBT. For example, the exchange price of the cETH Token announced by Compound is: 1 ETH = 49.899947569999995 cETH (3:30 AM UTC, April 9, 2021). This is called the primary market exchange price of cETH, which changes in real-time. By change it usually means rises.
2) The secondary market price. It is the real-time trading price of IBTs in DEXes represented by Uniswap. This price is supported by the primary market price. The two prices now, as we mentioned before, has a rather big gap, mainly because:
The AMM DEXes like Uniswap. The trading price between IBT and DT is determined by the constant product formula of XY=K. So the IBT/DT trading pair price will be still if there is no transaction given a period of time. However, the primary market exchange rate of IBT/DT has been constantly changing, so there will still be a gap between the IBT/DT price on DEXes and the real exchange rate in the primary market. This gap will rapidly expand if the liquidity of IBT lacks in the AMM DEX.
● The PMM DEXes like DODO. This, in theory, can track the exchange rate of IBT/DT in the primary market. But as a universal solution, DODO cannot adjust oracles for each and every IBT token, which is often not issued on the Ethereum. So the problems that are happening in Uniswap also can be seen in DODO-like DEXes.
● In addition to the DEX transaction price algorithm, the size of the liquidity pool is another important contributing factor to the secondary market price of IBT. But now, it takes rather a high cost to encourage users to provide liquidity for IBTs. So the trading volume for those assets, especially issued by medium and small DeFi protocols , are nearly stagnant. And the DEX trading price faces a huge gap compared with the real exchange price in the primary market.
● There's another problem: trading IBTs of different types requires the interactions between multiple assets and multiple public chains, which is quite complicated and specific work. Therefore, the IBT trading market needs a dedicated DEX solution .
As an emerging and promising new type of crypto assets, IBTs is facing an extremely unfriendly and unreasonable secondary trading market, which should be solved immediately for bothe IBT issuers and holders.
Therefore, WrapFi seeks to redefine the trading mechanism of IBTs in DEXes, which will solve the liquidity and price gap problems of IBTs/DT. WrapFi's mission is to become the first and best DEX that is dedicatedly born for IBTs.
Last modified 6mo ago
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