Highlight of Crafting Finance Whitepaper

9 min readMay 22, 2021

Crafting Finance #version 0.5#

Hello Crafters! Here’s what we’re covering today，

Whitepaper Brief introduction
Major Modules: Forge, Sharing Debt Pool (SDP), Kingsman (DEX)
Other Modules: Debt Pool, Fee Pool, Interest Pool, Oracle
Token Distribution and Economics
Roadmap of Development

Introduction

Crafting Finance is a synthetic asset issuance protocol and decentralised contract trading exchange based on the Polkadot contract chain. It natively supports multi-token collateral, including the token CRF issued by Crafting Finance, Polkadot (DOT), Kusama (KSM), Bitcoin (BTC) and Ethereum (ETH), and synthesizes any cryptocurrencies or stocks, bonds, gold and any other off-chain assets directly through smart contracts and oracles. Users can forge a certain synthetic asset, such as the US dollar, by collateralizing supported tokens, and automatically have a long position in the asset. Users can also convert minted assets into other assets through the trading platform, so as to realize the purpose of shorting the asset and longing other assets. The assets minted by all the users correspond to the liabilities of the entire system, and the proportion of each user’s liabilities has been determined at the time of forging, so that their respective profits can be calculated. Because such a collateral pool model does not require a counterparty, it perfectly solves the problems of liquidity and trading depth in decentralised exchange(DEX).

The main functional modules of the entire system are Forge and Kingsman. Forge are where all synthetic assets are minted. Kingsman is the decentralized contract exchange using sharing debt pool trading mode. Other important modules of the system include collateral pools, fee pool, interest pool, and oracles.

Major Modules

1) Forging Synthetic Assets

The synthetic assets issued by the entire system are all produced by users staking certain collateral. The initial collateral includes CRF, DOT, KSM, BTC and ETH, and the collateral rate depends on the variation of the collateral itself. We plan to refer to the collateral rate of other projects at the early stage of the project and set the rate between 150% and 800%. For example, if a user wants to mint synthetic assets worth $100, he/she needs to put $150 to $800 collaterals, depending on which collateral he/she uses. The user’s collateralization ratio should be as high as possible than this prescribed ratio, that is, when the price of the collateral drops, the collateralization ratio may be insufficient. At this time, the user should replenish the collateral or return (destroy) a part of synthetic assets. The system stipulates that only users who are greater than or equal to the specified collateralization ratio will receive system rewards as an incentive. In the future, the collateral and collateral rate can be adjusted through community governance. When users stake collaterals and forge synthetic assets, corresponding debts are generated. When the user wants to unlock the collateral, he must repay the debt, that is, destroy the previously generated synthetic assets.

In order to encourage users to use CFR as collateral, users who stake CRF will earn a larger proportion of the system rewards. This will be explained in detail in the token economics section.

Assets synthesized by direct staking of collateral in the entire system can be fitted in to four different categories: stablecoins (RaftStable), simple synthetic assets (Raft), synthetic bonds (BondRaft) and smart synthetic assets (UnivRaft).

Stablecoins (RaftStable)

Stablecoins are a very important part of synthetic assets, such as rUSD and rEuro which can be used as denomination currency in the whole system as well as contract trading. Furthermore, stablecoins can also be used as collateral lending. Users can borrow stablecoins such as rUSD and exchange it into real world dollars.

Simple synthetic assets (Raft)

Simple synthetic assets can be cryptocurrencies such as rBTC and rETH, stocks such as rAAPL, gold such as rXAU and any real world assets.

Synthetic bonds (BondRaft)

Synthetic bonds are synthetic assets paying interest issued by the system.

Smart synthetic assets (UnivRaft)

Smart synthetic assets means that users can issue any kind of a financial contract through this system. By this way, we can stimulate any financial derivatives and include the whole world’s assets.

2) Sharing Debt Pool

Once a user minted some synthetic assets, the assets can be put into the sharing debt pool (SDP), and the user will be assigned a fixed debt ratio which is the ratio of the value of the user’s synthetic assets to the value of all synthetic assets in the entire system. “Fixed” means this ratio will not change due to changes in asset prices, and will be used to calculate the user’s profit and loss. This ratio will only change when a new user mints new assets or an existing user destroys existing assets.（We will have a single arcitle to introduce our SDP）

3) Optional Joining of SDP

Because of the principle of the sdp trading mode, users who generate any synthetic asset and join the debt pool will automatically become a long holder of the asset (the principle will be explained later). That is, even if the user generates a stable currency, it will automatically become a long position in the stablecoin, causing losses when other assets rise. We call this loss “crafting loss”. This is like another form of impermanent loss in liquidity mining. To avoid this loss, we innovatively provide users with the option of whether they want to join the debt pool. So a user can choose not to join the debt pool if he/she does not want to take the risk. In this case, users can essentially use this system as a lending platform, and the system will charge interest on the assets users minted. The interest rate will be determined by community governance later.

In order to encourage users to join the debt pool as much as possible, users who join the debt pool will earn a larger proportion of the system rewards. This will be explained in detail in the token economics section.

4) Kingsman

Trade in Kingsman

Kingsman is an exchange that provides conversion of different synthetic assets and contract trading, using SDP trading mode. Due to the design characteristics of SDP, this DEX does not require a counterparty, and there is no issue of trading depth.

All synthetic assets can be converted into other synthetic assets in Kingsman, e.g. from cryptocurrencies such as rBTC, rETH, and rDOT, to foreign exchange such as the euro, yen, renminbi, and even gold and various stocks. It supports both long and short. All these assets are systematically synthesized, not real assets, and their conversion rate is determined by the external real price provided by the oracle. This conversion process does not require a counterparty, and users can always convert all their assets supported by the system with unlimited liquidity.

When performing synthetic asset conversion in Kingsman, users need to pay a 0.3% transaction fee, which enters the system fee pool. And all the fees will be converted to CRF using auction or DEX. 40% of the fees will be distributed as rewards to users who meet the specified collateralization ratio in the entire system, and the reward ratio is determined by the debt ratio. Another 40% will be destroyed. The remaining 20% will be reserved for future maintenance and development of the system. For new users, they need to hold debts for more than a certain number of days or cumulatively use them for more than a certain number of days (to be determined) to be eligible for the fee pool rewards.

The prices or conversion exchange rates of all synthetic assets in this system are provided by the oracle machine reading external exchange data, and future planning can introduce decentralized oracles.

Other Modules

1) Debt Pool

The debt pool is the sum of synthetic assets generated by all users. It records the real-time inventory of all synthetic assets in the system. According to the amounts of synthetic assets generated by each user, the debt pool also records every user’s debt ratio. Whenever a new synthetic asset is generated, the debt ratio of the system must be recalculated.

2) Fee Pool

Users trading or converting synthetic assets on the DEX will incur transaction fees. The fee ratio is set at 0.3%, and these fees all enter the fee pool. And all the fees will be converted to CRF using auction or DEX. 40% of the fees will be distributed as rewards to users who meet the specified collateralization ratio in the entire system, and the reward ratio is determined by the debt ratio. Another 40% will be destroyed. The remaining 20% will be reserved for future maintenance and development of the system. The system stipulates that only users whose collateral is the CRF and join the SDP can receive rewards, as an incentive for CRF holders. Because the collateral price fluctuates, it is stipulated that only users who meet the collateralization ratio are eligible to receive rewards.

3) Interest Pool

Uses who choose not to join the SDP will pay interest on their synthetic assets, and the interest will enter the interest pool. 80% of the interest will be converted to CRF and the converted CRF will be destroyed as another way to support the price of the token. The remaining 20% will be reserved for future maintenance and development.

4) Oracle

Since the price of contract trading needs to be read from outside sources, the oracle is a very critical part of this project. In the initial stage, the system will use the centralized oracles provided by the project team, and in the future, it will introduce more secure decentralized oracles.

Token Distribution and Economics

Token Distribution

Crafting Finance Token: CRF

Max Supply: 2,000,000,000

The Crafting Finance(CF) token is CRF, with a hard cap of 2 billion. The token distribution is:

40% for liquidity Incentive;

19% for offering and sale;

1% for initial liquidity;

14% for ecosystem partners;

6% for project marketing;

5% for advisors;

15% for team.

Economics

CRF is the project token as well as the governance token. So, first of all, all the parameters involved in CF, including the increase or decrease of the types of collateral, the adjustment of the collateralization ratio, the types of synthetic assets, etc., can be determined by voting by CRF holders.

Also, we have three kinds of economic incentives for CRF holders currently.

All unallocated and future tokens to be issued annually will be used as rewards depending on the types of users. According to whether the user uses CRF as collateral and joins the SDP, there are four types of users in the system.

Users who use CRF as collateral and join the SDP will earn 60% of these rewards.
Users who use CRF as collateral but do not join the SDP will earn 20% of these rewards.
Users who use other tokens as collateral but join the SDP will earn 20% of these rewards.
Users who use other tokens as collateral and do not join the SDP will earn 0% of these rewards.

The fees collected from trading in Kingsman will enter the fee pool. And all the fees will be converted to CRF using auction or DEX. 40% of the fees will be distributed as rewards to users who meet the specified collateralization ratio in the entire system, and the reward ratio is determined by the debt ratio. Another 40% will be destroyed. The remaining 20% will be reserved for future maintenance and development of the system. The system stipulates that only users whose collateral is the CRF and join the SDP can receive rewards, as an incentive for CRF holders. Because the collateral price fluctuates, it is stipulated that only users who meet the collateralization ratio are eligible to receive rewards.
Uses who choose not to join the SDP will pay interest on their synthetic assets, and the interest will enter the interest pool. 80% of the interest will be converted to CRF and the converted CRF will be destroyed as another way to support the price of the token. The remaining 20% will be reserved for future maintenance and development.

Roadmap of Development

2021 Q2

1) Realize the functions of staking DOT and CRF, forging synthetic assets, including rUSD, rBTC, rETH, rAAPL, rXAU, etc.

2) Realize the debt pool function: When a user newly generates or destroys rUSD, the debt ratio is re-determined, and the user’s profit is calculated based on the change in asset prices.

2021 Q3

1) Realization of Kingsman version 1.0.

2) Realize the function of fee pool: transaction fees are included in the fee pool to complete the benefit distribution of CRF users.

3) Realize the trading function on the Web end, allowing users to freely trade various synthetic assets. It is convenient for users to stake CRF or DOT to mint rUSD and destroy rUSD. Allow users to view the debt ratio, total system debt, balance of personal synthetic assets, rewards income, etc.