Pynths Protocol by PERI Finance is a decentralized cross-chain synthetic issuance and derivative exchange protocol. It’s designed to replace liquidity providers with a debt pool funded by stakeholders.
Pynths utilizes Polkadot’s Optimistic Virtual Machine (OVM) that reduces the cost and time of transactions exponentially by harnessing WASM and Substrate. Using optimistic rollups and Polkadot’s Relaychains will enable PERI Finance users access to a wide breadth of both traditional finance and crypto assets in the form of leveraged and unleveraged synthetics products. Added benefits of using Polkadot’s parachain are quick transaction speeds at low cost without the risk of flash loans and front running.
PERI Finance’s synthetic assets on the accompanying PERI.Exchange are labeled as “Pynths.” Pynths are synthetic assets whose price follows the price of an underlying asset. Pynths offer users a way to buy and sell financial instruments without owning the physical underlying asset.
Pynths, PERI and PERI.Asset
The utility token, pUSD, will be used to create a liquidity pool in the process of staking, generating the most basic Pynth, pUSD. Additionally, pUSD will be used as a governance token within PERI DAO, which will play a crucial role in steering the ship for PERI Finance’s ecosystem.
PERI Improvement Proposals (PIP), meanwhile, are the voting system used to collect community opinions from stakeholders. Anyone can submit a proposal to survey community opinions or vote on proposals using 1 PERI, which is returned after a proposal passes or fails. For example, the ratio of PERI to USDC in the debt pool will be 8:2; this can be changed if proposed and voted in favor by PERI DAO.
PERI.Asset is an AI arbitrage trading system operated by fundraised PERI token sales, lasting up to 20 months. The AI creates profits by finding risk-free arbitrages in traditional finance and crypto markets and distributes them to stakers based on network involvement. The purpose is to reward stakers without risking additional assets. Profits will also be used to buy back PERI from other exchanges to be paid as a reward and the rest will be burned.
PERI.Exchange is a DEX offering synthetic assets using virtual automated market makers (vAMMs). Users are able to convert one Pynth to another without slippage or liquidity concerns because the smart contract debt pool is backed by staked collateral, also known as the PERI.Pool.
The exchange supports four asset classes, forex, commodities, indices and cryptocurrencies.
Forex supports pUSD, pEUR, pGBP, pAUD, and pCAD. Commodities support both gold and silver per ounce and oil is supported per barrel. In addition, cryptocurrency supports pBTC and pETH and inverse products such as piBTC and piETH. Users have the opportunity to frictionlessly shift their assets from market to the next without tedious procedures or oppressive censorship.
vAMM’s circumvent liquidity providers by delegating the debt pool as the counterparty.
The debt pool is a smart contract collateralized by PERI and USDC staked by the holders, so the liquidity is infinitely available without being plagued by slippage.
Users will be able to use the vAMM for taking short or long positions of Pynths with up to 20x leverage. Perpetuals run off periodic funding payments with the following formula:
FundingPayment = PositionSize* ((TWAP_Perpetual – TWAP_Pynth)/24)
Approximately .03% of the value is the notional amount charged for Pynth perpetuals. The fees are sent to a pool which will be distributed according to each stakeholder with a C-ratio of 400% or higher.
Building PERI.Pool With Rewards
PERI Finance replaces LPs with stakeholders by means of smart contracts, encouraging PERI holders to lock up PERI and in return mint pUSD, the default Pynth.
The smart contract will generate pUSD for the debtor until capped by the optimal collateral rate of 400%. Once the system records the debt, the smart contract creates pUSD and deposits it to the debtor’s wallet. The debt generated in this way is divided by the total amount of debt increased by the activity to determine the debt deposit ratio.
The PERI Pool is used as the counterparty to the transaction. To repay the debt, the required amount of pUSD must be burned. Once the burn begins, the system calculates the amount of debt paid and unlocks the PERI that was acting as collateral. If the user has insufficient pUSD to pay back collateral, they must use pUSD earned in other ways to unlock it.
Holders can earn rewards in three different ways for their participation in PERI Finance. The first is skimmed from trading fees and pooled whenever leveraged or spot Pynths are bought or sold. The second type is PERI inflation rewards, designed to pay users for staking their PERI and USDC, rewarded in pUSD. The last type of reward is PERI.Asset’s AI arbitrage finder. Profits earned using this technique will go to stakers and to further benefit the ecosystem as a whole.
The PERI platform will be deployed on Ethereum first. After a brief transition period, PERI will become compatible with Polkadot’s network. Once PERI is successfully added to the parachain, the team will focus on development of their leveraged Pynths and other risk management solutions.
Having a high optimal collateral rate (400%) is a troublesome issue that the team will continually address. In order to make staking even more lucrative, collateral will need to drop to 100% or below. Rising risk from lopsided synthetic asset positions will be mitigated by implementing liquidation pynths, loss insurance funds and hedging both on and off-chain markets.
PERI Finance will look after its clients by keeping investment less costly, more transparent and simpler by creating a best-in-class synthetic DEX trading platform.