General Overview

# Why S&F?

# The Problem

The promise of a decentralised economy on ethereum or any other smart contract blockchain has not been fulfilled.

Most protocols on Ethereum rely on stablecoin such as USDT, USDC or DAI. These stablecoins are not trustless, and are subject to censorship.

They are also not backed by real world assets, those tokens are issued by a custodian and is not different from what banks are doing today.

There is another family of stable coins, often called algorithmic stable coin, Terra-Luna being the most tragic example of the genre. Algorithmic stable coin are synthetics backed by doubtful assets most of the time.

From all the stablecoin or synthetic on the market today, none of them are truly decentralised. There is a single point of failure either in the price feed, the custodian, or the algorithm.

Minting real world asset onchain is not just the holy grail of DeFi, it is also a life or death problem for the whole ecosystem. We can and we should do better.

# The Solution

To emit synthetics onchain, you need what is called an oracle, a real world data or price provider.

Today's oracles are merely a third party, decoupled from the protocol interest. They are nonetheless non-incentivised and centralised.

S&F wants to create the right game theory around synthetics. It achieves this by providing 2 key pillars to the derivative issuance.

• A funding rate free market.
• Incentivised Oracles.

By having all the actors in the same protocol, we can create a game theory to incentivise the right behaviour. This is how blockchain works, and this is how S&F works as well.

In a nutshell, liquidity providers are competing to provide liquidity to traders by defining a funding rate, the cheapest the funding rate, the likeliest the liquidity will get picked and earn funding rates.

Some of the swap fees from the pools are aggregated into a bounty that get distributed to each honest data provider on each price round. The Oracle contract is a proof of stakes for data providers.

S&F is not free to use for synthetics token holders. They pay or earn a funding rate on their coins. Synthetics on S&F are rebase tokens.