Blockchain technology and cryptocurrencies have the potential to change the lives of hundreds of millions of unbanked people worldwide to the positive. Besides the possibility to execute and receive payments without having a bank account as well as to save money without having to fear inflation and government interference, the opportunity to invest into various asset classes such as equities, stock indices, commodities, bonds and crypto assets would open up the chance for many to invest at significantly higher long term returns and to diversify risks.
However, at the moment this opportunity is unavailable. Centralized solutions, with a custodian locking up the respective assets, are difficult to realize as security laws in most countries would not allow them without the issuance of prospectuses, KYC procedures etc.
Decentralized solutions on the other hand have so far suffered from the high volatility of some of these assets. In order to make sure that decentrally issued derivative products, which mirror the value of an underlying asset, remain solvent at any given time, these assets have to be significantly over-collateralized. An example here is Synthetix, which requires a collateralization ratio of 600%. This, however, significantly limits the returns for investors which help to fund the issuance of these derivative assets.
Another significant problem with the existing systems such as Synthetix is risks associated with adding assets to the system. If synthetic assets are minted, somebody needs to take the contrary position — this role is being taken by the investors. In theory, the risk could be diversified and offset by long and short positions. However, in reality this is not the case. While there are ways to offset these risks, they require additional investments, which will further reduce returns. In reality, Synthetix investors which have provided assets to the system would have lost money in recent months, if this would not have been offset by staking rewards, which however need to run out over time.
ISSUAA thus takes a different approach to solve this problem:
- To mint synthetic derivative assets on ISSUAA, investors must deposit stable coins, which are pegged to the USD.
- Investors will receive not one but two tokens. One long token, which one to one mirrors the development of the underlying asset as well as a short token, which inversely mirrors the development of the underlying asset.
With this solution, no central counterparty, that assumes the risk of a price change, is needed and it is secured that there is always enough collateral to fund all outstanding assets.
The system will be governed by a governance token, the ISSUAA Protocol Token (IPT) and is set-up as a decentralized autonomous organization (DAO). IPT will be issued to investors which provide liquidity in the ISSUAA asset market pairs and for participating in voting processes. The rate of issuance is dependent on the delta between the amount of issued tokens as well and the max supply, which amounts to 100m IPT. Additionally, IPT will also be issued to investors who add liquidity to the IPT / USD stable coin LP pool on ISSUAA. This reward mechanism is designed to attract as much capital as quickly as possible, as we believe that this will significantly increase the attractiveness of the system and thus also the value of the IPT token.
The value of the IPT token will result from fees, which are generated from trading derivative assets. These fees are locked in the smart contract of ISSUAA. To access these funds, IPT tokens can be burned. Given that the fees per token are set to increase constantly, it will however be highly unlikely that investors chose to burn IPT tokens in larger volumes as the market price should most likely exceed the value of the locked up fees.
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