Capital efficiency
As explained previously, rather than using an AMM, buying and selling jFIATs are performed using a mint and burn mechanism. This design allows for greater capital efficiency for liquidity providers.
In the current version of Synthereum, there is only one liquidity provider; a second version of the protocol will allow anyone to become a liquidity provider.
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Clearing of funds

Since all the actions (minting and selling, buying and burning) happen within the same transaction, they can be compensated. Following the previous example:
  • For buying, instead of the pool having to spend 110 USDC to mint jEUR and then receiving 100 USDC when selling them, the pool utilizes the 100 USDC of the buyer and adds 10 USDC to form the collateral. Therefore, 1 USDC in the liquidity pool allows for buying $10 worth of jEUR. The minting CR can be changed, allowing for a bigger or smaller buying capacity, to adapt to a specific situation.
BuyingCapacity=LiquidityCRβˆ’1BuyingCapacity = \frac{Liquidity}{CR-1}
  • For selling, instead of spending 100 USDC to buy back the jEUR, and then retrieve 110 USDC, the pool utilizes the jEUR to redeem the 110 USDC, and then uses them to pay 100 USDC to the seller, and keeps the rest. Therefore, there is no liquidity needed for selling jEUR; the maximum amount of jFIATs that can be sold is the maximum amount of jFIATs that have been minted with the pool.
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Single asset pool

Thanks to this burn and mint mechanism, the pool only needs to hold collateral (only USDC at the moment) to facilitate the buying and selling of jFIATs.
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Liquidity

The entire liquidity is available at the reference price, and therefore cannot guarantee the execution of any size of trades, unlike bonding curve-based systems.
Last modified 1mo ago