An upgrade for the SDP trading mode

In Crafting Finance, we have upgraded the sharing debt pool model (SDP) proposed by Synthetix. Different from Synthetix, in which users have no choice and can only join the debt pool when forging synthetic assets. We innovatively proposed that users can choose whether to join the debt pool, and found that even if users do not join the debt pool, they can still trade in the system (Kingsman), and bring more possibilities to the entire system. Below we use two simple examples to illustrate.

Example 6: Suppose there are user A and user B. User A chooses not to join the debt pool when forging synthetic assets, and user B chooses to join the debt pool when forging synthetic assets. Suppose that before A and B forged synthetic assets, there were originally $100 rBTC in the system. Then, A forged $100 of rUSD but did not join the debt pool, and B forged $100 of rBTC and joined the debt pool. Then, the assets and liabilities of the entire system become $200 rBTC in the debt pool, and $100 rUSD outside the debt pool. B accounts for 50% of the system’s liabilities, and A has no debt ratio because he/she has not joined the debt pool.

Now if B buys $100 rUSD from A, and the $100 rUSD is not in the system, can it be traded in the system? The answer is yes. For example, B converts this $100 rUSD to rBTC through our trading system Kingsman, and the assets in the debt pool become a total of $300 rBTC, -$100 rUSD, the total assets and liabilities of the system are still $200, and B’s debt ratio is still 50% which is $100. That is, by allowing the balance of an asset in the debt pool to be negative, we have realized that synthetic assets that are not in the debt pool can also be traded in Kingsman.

Example 7: If there is no user B, can user A who does not join the debt pool directly go to Kingsman to trade? The answer is also yes. Imagine that the debt pool originally had $100, and it was all rBTC, while A forged $100 of rUSD but did not join the debt pool. If A converts rUSD to rBTC through Kingsman, the assets in the debt pool will become $200 rBTC and -$100 rUSD, and the total assets or liabilities of the debt pool will still be $100. How to calculate profit and loss? In fact, it can still be calculated according to the debt ratio. For example, if the price of BTC to USD doubles, the assets in the debt pool will become $400 rBTC and -$100 rUSD, that is, total assets or liabilities have become $300, of which $200 is A's assets. However, because A has not joined the debt pool, A's debt is still 0! So A's profit is the current $200 minus the initial $100, and the profit is $100. Note that after removing A's assets, the assets in the debt pool are still $200, but the liabilities are $300, so other people in the debt pool will lose $100! That is to say, in this example, when A finds that everyone in the debt pool is long in BTC, and BTC price will indeed rise, A can use the external rUSD to exchange rBTC through Kingsman to earn money from those with long positions in the debt pool.

Conversely, if BTC price falls, people in the debt pool will make a profit, and A will lose money, that is, people in the debt pool can earn external money. In Synthetix, if the entire system is long in BTC, no one will make a profit and no one will lose no matter how the BTC price changes. Therefore, our design can introduce additional liquidity from the outside, which greatly improves the original design of Synthetix.