Optimally Collateralizing Synthetic Assets
Optimally Collateralizing Loans and Synthetic Assets
Many traditional protocols use fixed collateralization ratios to back loans and other asset classes. Typically these values are determined by the DAO or are completely arbitrary and incredibly high to protect the protocol from insolvency.
Determining the most optimal collateralization values is mandatory for sustaining and growing a balanced economy. When realistic collateralization requirements are met, a strengthened and growth-focused ecosystem can emerge. Sigmadex proposes taking into account numerous market factors when determining collateral requirements. This method includes historical averages of assets, support levels, liquidity, as well as a number of other factors that could contribute to assessing collateralization. By intelligently gauging each asset's requirements individually a bridge can be made between the loans, synthetic assets, and the assets which back it.
By creating this valuable bridge through loans and synthetic assets, Sigmadex anticipates elevation for retail individuals alongside traditional financial investors providing an equal and accessible playing field for everyone, appealing to the masses regardless of wealth. In many circumstances, heavy overcollaterization is a turn off, especially for retail customers who are unable to put up the minimum backing to earn insignificant amounts of rewards through basic DeFi models.
Cryptocurrency collateralized synthetic currency models which are driven by immutable smart contracts can have tremendous implications within the traditional finance space. In their essence, these models offer cryptocurrency holders the leverage to trade many other assets as well as their potential derivatives without having to transfer assets outside of the cryptocurrency ecosystem.
How the Sigma Risk Index Works
The Sigma Risk Index consists of many algorithmically calculated values which are updated dynamically by querying multiple trusted Oracles. This enables the index to be updated frequently with AI-determined collateralization variables based on the present state of the market, enabling a more fluid resolution of correct collateral requirements. Sigmadex allows the index to determine how much collateral should be requested for optimal backing without having to intake excessive amounts.
Assset Price
Collateral (Others)
Collateral (Sigmadex)
05-07-2020 3,526 650% 405%
As you can see in the example above, the collateral requested are different by the day and vary based on asset pricing.
By using a hybrid between dynamic and fixed collateralization model we are able to optimize the amount of bond required to back loans and mint synthetic assets.
By bringing the possibility of new asset classes into the Sigmadex ecosystem, a whole new world of opportunities open up for the ever-growing retail community. With unbridled access to financial markets, the barriers that once separated institutional and retail investors fall away. This new-found financial access is without borders or middlemen, and opens a door to not only massive growth but endless possibilities.