Introducing Phantom: The ultimate cross-chain protocol for Synthetic Asset issuance & exchange
The DeFi industry’s market capitalization continues to grow exponentially, attracting investors from Wall Street to individual investors. As such, we see an ever-closing gap between the traditional and the crypto: banks are offering cryptocurrency services to mainstream investors, while stocks and bonds are being traded on crypto platforms. As both markets continue to cross over, both institutional and retail investors need new financial instruments, such as synthetic assets, to take advantage of the changing landscape so as to capture higher returns.
Synthetic assets have long been a fixture in traditional financial markets. As the financial world grows increasingly interested in distributed systems and token-based applications, we see growing popularity in crypto-based synthetic assets.
What are synthetic assets?
Synthetic Assets offer users exposure to various assets without needing to hold the underlying asset itself. Synthetic Assets were initially financial products tailored to an exclusive group of institutional investors based on their cash flow needs, due dates, and risk profiles. When trading synthetic assets, investors do not need to directly engage with the target asset on the spot market, but instead through a series of financial instruments that track the asset’s movement, thereby getting a similar investment result.
As a simple example, someone can create his synthetic option position by:
- buying a call option on a stock for $2
- selling a put option on a stock for $1.95
*For easy understanding, transaction fees and risk-free interest are omitted from the calculation.
If both options have the same strike price, let’s say $30, this strategy will have the same result as purchasing the underlying security at $30 when the options expire or are exercised. As a result, we have successfully Invested in the stock without buying or selling the actual stock. The synthetic option position would have the same fate as a real investment in the stock but without the capital outlay.
Up until recently, only a handful of institutional investors has had access to the global derivatives market. However, with the emergence of decentralized finance (DeFi), anyone with a smartphone and an understanding of synthetic assets can access these powerful investment tools.
The potential for Synthetic Assets?
Synthetic Assets (“synths”) have the potential to be the long-awaited ultimate weapon, not only for DeFi but for the blockchain industry. However, looking at the market, three issues limit synths to seize a bigger market.
Issue 1: Limited asset variety.
One of the advantages of synthetic assets is that they allow investors access to a broad range of investment products and markets.
However, synthetic assets currently available in the market are still limited to cryptocurrencies, futures & stocks, which is a far cry from the rich categories of real-world assets.
Issue 2: Single collateral.
Currently, most synthetic asset projects only accept a single platform token as collateral, thereby leading to certain limitations.
For example, suppose a synthetic asset must be minted with Token A as collateral only and over-collateralized with a 10x ratio. In that case, the total market value of the collateral that this platform can accommodate must be limited to 10% of the total market value of A token.
Notes: Data based on real-time market capitalization as of April 13, 2021
The fact that these DeFi project tokens have smaller market capitalization and consensus, greater volatility, and narrower purchasing channels than mainstream digital currency assets such as stable coins or Bitcoin will limit the entry and total amount of synthetic asset platforms.
Issue 3: Running on a single blockchain.
Most protocols run on a single blockchain such as Ethereum.
When the Ethereum blockchain becomes congested, transactions don’t get completed on time, and fees often go through the roof. A reliable and sophisticated financial product should be like a building with multiple backup power sources, allowing users to choose the fastest and cheapest transaction link.
Some projects have added cross-chain support to address this issue, such as Mirror on BSC.
Phantom: A Cross-chain Synthetic Asset Protocol Supporting Real-world Asset
Phantom is an optimized DeFi protocol for synthetic assets and their IDO issuance. It is designed to solve the above problems hindering the current DeFi industry, with the following features:
I. Multi-market Synthetic Asset support
When developing synthetic assets on Phantom, the range of asset types includes not only common cryptocurrencies but also expands to traditional and mainstream markets; examples of Phantom’s comprehensive synthetic asset coverage include:
- Crypto Assets: pBTC, pETH, etc.
- Currencies: pUSD, pEUR, etc.
- Reverse Assets: piBTC, pETH, etc.
- Commodities: pGold, pSilver, etc.
- Stocks: pTSLA, pGOOGL, etc.
- NFTs: pNFT assets linked to actual commodities such as pTeslaModelS, etc.
II. Diversified Collaterals
Phantom allows a broader variety of collaterals for generating synthetic assets such as:
- Stablecoins: USDT, DAI, USDC, etc.
- Major cryptocurrencies: BTC, ETH, etc.
- Quality Tokens: CFX, BNB, etc.
- NFTs: Popular Crypto NFTs and more
Since Phantom allows for a wider variety of collaterals, it effectively lowers entry barriers to potential users. It creates a liquidity advantage over projects that have market cap and liquidity issues. As the simple calculation shows below, Phantom offers market participants more flexible choices with a much higher volume cap.
- Data based on real-time market capitalization as of April 13, 2021
2. Phantom’s market cap is calculated using USDT, BTC, ETH, USDC, and DAI market caps divided by 200%.
AMM liquidation Mechanism:
For collaterals in the DeFi market, a common issue arises when the price of the collateral falls significantly, resulting in the collateral ratio falling below a particular value, leading to the liquidation of the collateralized assets.
However, current liquidation solutions are often limited by market liquidity and often result in delayed asset processing, causing further losses.
Phantom prioritizes its liquidation procedure with its AMM pool to solve this issue, thereby protecting investors even in the most extreme situations.
III. Cross-chain Compatibility
Phantom will support multiple public chains, including Conflux, Ethereum, Binance Smart Chain, and more, thus achieving cross-chain compatibility and interoperability among popular platforms while reducing transaction fees for users.
In essence, the nature of synthetic assets allows us to move real assets from one blockchain to another without collateral and swap, thus reducing cross-chain costs and risks for investors.
The richness of the asset classes, the acceptance for multiple collaterals, and the ability to operate across chains will make Phantom one of the most versatile protocols for synths insurance.
Phantom’s core team consists of technical leads, architects from Conflux, and blockchain industry experts. And it has received early investment and full resource support from Conflux and a prominent player & investor in the eSports space.
How Phantom works?
Phantom uses both debt pool and CDP models to enable the generation of synthetic assets that are linked to real commodities such as gold, equities, NFT, and others. Such procedures are usually completed through the over-collateralization of multiple types of tokens such as PHM, ETH, USDT, and CFX. A detailed process usually includes the following steps:
1. Users generate synthetic assets on the Phantom platform by overcollateralizing BTC, ETH, USDT, DAI, BNB, CFX, PHM, etc.; they can also synthesize pNFT (can be further split into pAssets for liquidity creation) tokens by pledging NFTs.
2. Once minted, pAssets or pNFT tokens can be freely traded on Phantom exchanges and other decentralized exchanges.
3. pAsset Holders can participate in the platform’s liquidity mining to earn PHM and fee rewards for passive income.
4. When holders decide to redeem synthetic assets, they can execute the operation on Phantom and exchange for their collateral.
5. As mentioned above, Phantom will launch corresponding smart contracts to support various collateral and synthetic asset combinations. Unlike the current market that uses a single over-collateralization ratio (e.g., 800% for SNX), each collateral and synthetic asset pair will have a unique collateralization rate and liquidation ratio.
Phantom working in synergy with NFTs
Phantom’s NFT backed synthetic assets — pNFTs — can be backed by assets covering several types of markets — crypto NFTs, stocks, commodities, special events such as E-sport events, etc. In essence, We can use anything with transparent pricing and a trading market to generate a corresponding pNFT on Phantom.
Use case №1: Buying or Mining your own Tesla.
For example, we could make a physical Tesla Model S car into its NFT counterpart and then use it as collateral on the Phantom platform to synthesize 100,000 pNFT tokens.
At this point, the users can participate in the trading without considering the price threshold of a real car.
Imagine that when Tesla plans to advertise an innovative self-driving car model, their marketing department could generate pNFT tokens and give them to invited customers. While users holding a certain number of pNFTs could synthesize different souvenirs or vouchers, or even a new car. This practice could even change the way of branding & marketing.
Use case №2: Supporting your favorite e-sport player/team.
Also, Phantom could turn a winning moment from an E-sports tournament into a value-preserving NFT, which could work as collaterals in Phantom to mint pNFT tokens through a smart contract, thus providing more liquidity for NFT trading. At the same time, NFT exchanges such as OpenSea can be leverages towards providing an anchor price for the synthetic assets.
Overall, Phantom’s model allows E-sports teams, KOLs, and tournament organizers to access more diversified means of operation and revenue streams.
The Promising Future of Phantom
Phantom’s development path is based on the following 3-phase plan.
Milestone-1. Synthetic Assets Protocol:
Phantom will launch a Multi-market synthetic asset protocol, supporting the generation of a wide range of assets ranging from crypto to stocks and commodities.
Milestone-2. Asset Issuance Protocol:
Golive of a decentralized asset issuance protocol that supports both fungible tokens and non-fungible tokens (NFT).
Milestone-3. AMM based liquidation:
Release a decentralized exchange with an AMM-based liquidation mechanism, supporting a wide range of high-quality assets as collaterals.
With an ever-increasing number of investors becoming interested in DeFi every day, Phantom brings the 24/7 trading, no-middleman, and trustless security that DeFi offers to traditional financial products by bridging them with digital currencies to make them more attractive.
At the same time, Phantom will connect investors with the eSports industry, the automotive industry, the collectibles industry with pNFT trading.
Whether it is digital currencies, traditional financial assets, cars, commodities, collectibles, electronic native artworks, as long as they meet the requirements of having a credible price source, transparent transactions, and liquidity, all items can be synthesized and traded as assets through Phantom.