General Overview

# Main Actors

S&F is built around 3 main actors:

• Traders
• Liquidity Providers
• Data Providers

Each of these actors have different reasons to participate in the protocol and are linked together by incentives.

# Traders

Traders can swap between synthetic assets and the native token of the network.

Traders will pay a swap fees for each trade, and a funding rate for each synthetic asset they hold. While the swap fees is a fixed fee for each trade, the funding rate will depends on the demand for the synthetic asset and is therefore variable.

Trades are a 2 step process, in the first step the trader will lock the native token of the network to mint the synthetic asset, once a new price is available, the trader - or a permissioned third party - can claim the synthetic asset. This 2 step process can be automated. It is here to avoid oracle latency attacks.

Such a trade is called an OTC trade, because it feels and behave like a traditional OTC trade, it is done at regular interval and is not subject to slippage.

Traders can also trade synthetic on the secondary market with other traders. This is a regular DEX trade, and is subject to slippage. Market trades are just normal swap on a DEX, and don't require a 2 step process.

# Liquidity Providers

Liquidity providers deposit liquidity into pools and define a rate for these liquidities.

Trader will then swap through LP liquidity to mint the synthetic.

Liquidity providers compete constantly with each other on the rate. I can deposit my liquidity in the active range of the funding rate and become immediately active, pushing more expensive liquidities outside the active range.

Example:

Alice deposit 1 ETH into the S-USD (Synthetic USD) pool.

She defines a 1% funding rate. Bob wants to swap 1 ETC for x S-USD, he will deposit one ETC in the pool and swap through Alice's 1 ETC liquidity. Alice now earn the funding rate on her 1 ETH liquidity. If the price of the USD relative to ETC decrease, the pool will release some of Alice's liquidity. As Bob's S-USD is now worth less than 1 ETH.

# Data Providers

Data providers can submit data to an Oracle contract. An Oracle is a contract that implement a proof of stake consensus.

In order to submit a price one must first stake a certain amount of ETC in the Oracle contract.

A bounty is distributed among all honest data provider for each round of data. The bounty is funded by the swap fees of the pools. The share of the bounty is defined by the amount of MANA owned by a data provider. The more MANA a data provider has, the more bounty he will receive.

The more stakes, the more MANA you get for each successful data provided. Only one MANA is minted per round and distributed to stakers.

Example:

Alice staked 900 ETC in the Oracle contract, and has 10 MANA. Bob staked 100 ETC in the Oracle contract, and has 90 MANA. The bounty for the round is 100 ETC. Alice will receive 10 ETC, and Bob will receive 90 ETC.

Alice will end the round with 10.9 MANA, and Bob will end the round with 90.1 MANA.

However, after 100 rounds, Alice will have more MANA than Bob if the stakes remain the same. Alice will have earn the trust of the oracles and will get more bounty for each successful data provided.