SOFA.org’s ambition: unify the clearing standards for DeFi derivatives

24-06-07 10:00
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For a newcomer to the crypto industry, DeFi is a track that cannot be bypassed. However, with the continuous development of the industry, the mechanism of DeFi has become more and more complicated. Not only newcomers, but even many DeFi Degens need a lot of time to sort out its operating mechanism.


If the previous DeFi ecosystem was an entry-level Lego for children, then the current DeFi ecosystem is a technology group Lego composed of thousands of building blocks. How to innovate DeFi and lower the entry threshold may be imminent.


Recently, a decentralized non-profit organization "SOFA.org" was created by multiple DeFi protocols, well-known investment institutions, middleware, public chains, etc., dedicated to promoting the highest DeFi standards, supporting high-quality projects and promoting the adoption of blockchain technology by mainstream finance. Its founding members include top listed crypto investment banks Galaxy Asia Trading Ltd., OKX Wallet, Coincall, HashKey Capital, SignalPlus, Chainlink, etc.



DeFi Android "SOFA.org"


Liquidation is one of the most important links in DeFi derivatives trading, ensuring the stability of the system and the interests of participants. At present, DeFi derivatives are of various types and complex structures, involving multiple assets and complex trading logic.


In a decentralized environment, liquidation needs to rely on smart contracts and decentralized protocols to achieve automation and trust minimization. And this link is carried out in real time to ensure the security of funds and the integrity of transactions for all participants.


SOFA.org's short-term goal is to establish a complete clearing and settlement ecosystem to solve the problem of complex derivatives on the chain.


In other words, SOFA.org's short-term goal is to become the Android of DeFi. Different DeFi protocols are like many mobile phone manufacturers, and can clear different financial derivatives based on SOFA.org. The underlying derivatives positions are like mobile apps that can be installed on mobile phones from different manufacturers.


This means that protocols that join SOFA.org will achieve underlying interoperability, and protocols can clear each other's derivatives positions, thereby deriving more complex on-chain products.


SOFA Protocols, a structured product protocol that aggregates the advantages of DeFi


After completing the construction of the basic framework, SOFA.org will launch the structured product SOFA Protocols. SOFA Protocols is a hybrid derivatives protocol that aggregates the functions of multiple DeFi products. It will be launched on Ethereum and Arbitrum, and will support more EVM-compatible chains such as Linea and X Layer in the future.


When users use the SOFA Protocols dApp, institutional market makers continuously transmit the executable prices of structured products to the dApp. Users can choose and execute a specific structured product from these quotes, and then the funds are sent and locked in the product's DeFi vault. At the same time, the market maker's maximum risk exposure will also be sent and locked in the vault. It should be noted that if the transaction parties fail to provide the required assets at this stage, the transaction will not be executed.


Once the assets of both parties are successfully locked, the system will mint corresponding position tokens for the user and the market maker.


Interestingly, these position tokens are designed with the ERC-1155 standard, a standard contract interface that can be used for multiple token management. ERC-1155 tokens have the same functions as ERC-20 and ERC-721 tokens, and can even use the functions of both at the same time. This means that SOFA Protocols ERC-1155 tokens contain detailed information such as positions, option expiration dates, and strike prices at the beginning of their launch, and have strong scalability and compatibility.


When the product expires or the user wants to withdraw funds, the relevant proceeds will be released and can be collected by users and market makers in the vault.



As we all know, the price trend of crypto assets is nothing more than rising, falling, or sideways. SOFA Protocols regards the trend of the market as a structural form and divides it into Bull Trend, Bear Trend, and Rangebound. Based on these structural forms, SOFA Protocols will launch two products, "Earn" and "Surge", for different risk preferences and investment strategies.


Earn aims to prioritize capital protection and achieve stable returns. Its mechanism is to pledge the initial investment to a mature yield agreement, such as Compound or AAVE, to obtain basic interest. This step will be strictly reviewed, and the choice of which agreement will be decided by a vote of governance token holders. If market conditions meet the preset criteria, additional profits can also be provided. The Earn model has a lower risk level, and its advantages are the security of the initial investment, stable and reliable returns, and the potential for additional profits without risking the principal. However, compared with high-risk products, its potential returns are lower, and profits are limited in the case of highly volatile markets.


For example, a user chooses a Rangebound structured product with an annualized return of 4% in Earn for investment, and believes that the price of ETH will fluctuate between $3,500 and $3,900 before June 28. Then, at maturity, if the price of ETH is between $3,500 and $3,900, the user will receive excess returns. If the price of ETH exceeds $3,900 or is below $3,500, it will also receive an annualized return of 4%.



The Surge product maximizes potential returns at high risk. Its mechanism is to predict the price range of a crypto asset at a specific time, and if the underlying price is within the predicted range, a high return will be obtained. If the prediction is wrong, the invested funds will be lost.


If the user predicts that the price of Bitcoin may be in the range of 71,250-74,000 US dollars on June 11 and invests 20 US dollars, the potential return will reach 60.28 US dollars. Of course, the maximum loss is 20 US dollars.



In fact, experienced DeFi Degen can see that SOFA Protocols' products are like the product of a large number of different DeFi protocols. Its innovation lies in integrating the advantages of a large number of protocols, providing a more intuitive UI interface and easier-to-use interactive products for new entrants and users who are unwilling to delve into DeFi. It aims to improve the user experience and also provides the market with a wealth of financial tools, which promotes the further development of the DeFi ecosystem.


Flywheel effect? Curve War Reappears


In terms of economic model, SOFA.org adopts the dual-token model used by most GameFi projects, but a unique gaming mechanism is incorporated into its design. SOFA.org's dual-token system includes the utility token RCH and the governance token SOFA.


The total supply of RCH tokens is 37 million. Before the official launch, 67.6% of the total supply, or 25 million RCH tokens, will be put into the Uniswap liquidity pool together with at least 700 ETH (about US$2.7 million) to establish the initial price and liquidity. The corresponding Uniswap LP tokens will be destroyed, which means that this part of liquidity will be permanently locked in Uniswap.


The remaining 32.3% of RCH tokens will be gradually unlocked according to a fixed schedule. After the launch, RCH will unlock 12,500 per day and reduce by 20% every 180 days until all tokens are distributed. This distribution method ensures the gradual release of tokens and avoids excessive market volatility.



In the early stage of the project, the daily output of RCH accounted for only 0.05% of the circulation, which had little impact on the market. At the same time, all revenue within the SOFA.org ecosystem will be used to purchase and destroy RCH on Uniswap to further increase its scarcity and value.


The governance token SOFA is expected to be launched 6 months after the project goes online. The core function of the SOFA token is to give holders voting rights, enabling them to directly participate in the decision-making of the ecosystem. As a decentralized, non-profit, open-source technical organization, all decisions of SOFA.org will be decided by voting by SOFA token holders.


Early founding members and developers, ecosystem advisors, active community members, early RCH AMM liquidity contributors, and CeFi and DeFi protocols that support SOFA protocol position tokens have the opportunity to obtain SOFA tokens.


The economic value of the SOFA token is directly linked to its governance function. Holders can vote on the introduction of new financial products, the allocation ratio of RCH between introduced products, and the allocation ratio between protocols within the ecosystem. In addition, the addition of new collateral and partners also requires SOFA holders to vote.


As the popularity of SOFA.org increases, a positive flywheel effect will be formed between RCH and SOFA, detonating the market. As the usage of SOFA.org increases, all fees will be used to purchase and destroy RCH. However, the daily output of RCH is fixed, which will further increase the scarcity and market value of RCH.


After the RCH price rises, some users will increase their use of SOFA.org ecosystem projects to obtain more RCH, while other users will buy SOFA tokens to influence the distribution of RCH. There may also be SOFA.org ecosystem projects that bribe SOFA holders to obtain a higher RCH distribution ratio, thereby increasing the use of the project.


It seems like a new Curve War.


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