What is Saffron Finance (SFI) | What is Saffron Finance token | What is SFI token

What is Saffron Finance (SFI) | What is Saffron Finance token | What is SFI token

Saffron is a protocol for tokenizing on-chain assets, including contracts that otherwise impair access to utilized capital. Tokenized ownership of on-chain assets gives liquidity providers greater flexibility and uninterrupted access to their underlying collateral while enabling leveraged staking and bespoke risk management. What is Saffron Finance (SFI) | What is Saffron Finance token | What is SFI token

About saffron.finance

Saffron is a protocol for tokenizing on-chain assets, including contracts that otherwise impair access to utilized capital. Tokenized ownership of on-chain assets gives liquidity providers greater flexibility and uninterrupted access to their underlying collateral while enabling leveraged staking and bespoke risk management.

Peer to peer risk exchange

Existing decentralized earning platforms expose liquidity providers to complex code driven outcomes. Network participants must evaluate an array of catastrophic scenarios where the resulting state could wipe out their holdings or lead to significant impermanent loss. It is hard to anticipate the net effect of extreme market volatility or focused economic attacks. Saffron narrows the set of possible outcomes by giving liquidity providers dynamic exposure.

Dynamic exposure

The first application of Saffron gives liquidity providers the option to select customized risk and return profiles via the use of Saffron pool tranches. Saffron separately tokenizes the future earning stream and the net present value of utilized principal in each tranche. Earnings, based on tokenized holdings, are distributed accordingly across all tranches via payback waterfalls.

Payback waterfall

The initial application of the payback waterfall is split between two primary tranches. -A yield enhanced “A” tranche. -A risk mitigated super-senior “AA” tranche.

Added liquidity, when removed, is used to pay back the initial principal of AA holders before paying the principal and interest of the yield enhanced A tranche. In exchange for this enhanced return, participants of the A tranche must stake Saffron’s native tokens (SFI) to mitigate against failures on the underlying platform (such as Compound, Aave, or Curve). The Saffron protocol in this scenario acts as an escrow service for transfer of risk between A tranche participants and AA tranche participants. Saffron also includes an “S” tranche for allocating liquidity efficiently as it is needed based on a tranche balancing algorithm.

Introduction to Saffron

A standard for tokenizing on-chain collateral

Saffron is a protocol for tokenizing on-chain assets, including contracts that otherwise impair access to utilized capital. Tokenized ownership of on-chain assets gives liquidity providers greater flexibility and uninterrupted access to their underlying collateral while enabling leveraged staking and bespoke risk management.

Peer to peer risk exchange

Existing decentralized earning platforms expose liquidity providers to complex code driven outcomes. Network participants must evaluate an array of catastrophic scenarios where the resulting state could wipe out their holdings or lead to significant impermanent loss. It is hard to anticipate the net effect of extreme market volatility or focused economic attacks. Saffron narrows the set of possible outcomes by giving liquidity providers dynamic exposure.

Dynamic exposure

The first application of Saffron gives liquidity providers the option to select customized risk and return profiles via the use of Saffron pool tranches. Saffron separately tokenizes the future earning stream and the net present value of utilized principal in each tranche. Earnings, based on tokenized holdings, are distributed accordingly across all tranches via payback waterfalls.

Payback waterfall

The initial application of the payback waterfall is split between two primary tranches.

  • A yield enhanced “A” tranche.
  • A risk mitigated super-senior “AA” tranche.

Added liquidity, when removed, is used to pay back the initial principal of AA holders before paying the principal and interest of the yield enhanced A tranche. In exchange for this enhanced return, participants of the A tranche must stake Saffron’s native tokens (SFI) to mitigate against failures on the underlying platform (such as Compound, Aave, or Curve). The Saffron protocol in this scenario acts as an escrow service for transfer of risk between A tranche participants and AA tranche participants.

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Tranche selection

Saffron also includes an “S” tranche for allocating liquidity efficiently as it is needed based on a tranche balancing algorithm.

Launch

Saffron is a launching with a web3 application: saffron.finance. The Saffron smart contracts (pool, token, adapter, and strategy) are deployed in standby mode on the Ethereum mainnet and are set to go live on November 1st, 2020 at 2:00pm UTC. The first epoch begins exactly at that time.

Epochs

Epochs are 14 days in length. Over the duration of an epoch liquidity providers earn interest on underlying platforms and mine SFI tokens. While liquidity is locked in the pool LPs may trade their Saffron LP tokens representing proportional ownership of the pool. When an epoch ends liquidity providers are able to remove their liquidity alongside SFI mined and interest earned.

Upon launch all liquidity will be added into the S tranche to kick off liquidity mining. The AA and A tranches will be enabled in the second epoch.

Liquidity mining

Saffron is launching with DAI liquidity mining. All DAI added to the Saffron pool is deployed to Compound and earns interest. In future versions of the protocol additional currencies and platforms will be added dynamically.

SFI is mined using the dsec (dollars per second) equation:

dsec = dollar value * seconds

Liquidity providers mint dsec tokens representing the dollar value of capital they’ve added to the pool multiplied by the number of seconds until the end of the current epoch. SFI generated at the end of the epoch are redeemable in proportion to the total outstanding dsec tokens generated during that epoch. For example, if Alice owns 10% of outstanding dsec tokens then she receives 10% of the SFI subsidy. Interest earned is also distributed this way.

Saffron’s native ecosystem token: the Spice token (SFI)

SFI tokens, or Spice tokens, are the native currency of Saffron driving all of its features, products, and incentive structures.

Attributes of the SFI token:

  • ERC-20 capped at 100,000 SFI.
  • Tokens are a subsidy for liquidity providers and are awarded via liquidity mining.
  • The first epoch will generate 40,000 tokens.
  • SFI token subsidy is halved every epoch, up to and including epoch 7.
  • Beginning on epoch 8, halving discontinues and SFI are steadily released at a rate of 200 tokens per epoch, until reaching the 100,000 cap or a governance vote to change the emission schedule.
  • SFI tokens must be staked before an LP can join the yield-enhancing A tranche.
  • There are no fees in version 1, however, upon introduction of fees SFI staking will entitle stakers to a proportional share of fee revenue.
  • Fees continue to provide incentives when SFI token generation ends.
  • The Saffron team is allocated 25% of all SFI minted.

Emission schedule

SFI tokens are minted at the end of each epoch and distributed to dsec token holders and the Saffron team.

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The first 6 months of SFI emission (an epoch is exactly 14 days)

Team tokens will be used for ongoing development and providing liquidity on decentralized exchanges.

Approximately 15,000 tokens will be available to the Saffron treasury after the first six months of SFI generation. This ensures ongoing flexibility in the protocol. On-chain governance, once implemented, can decide how the remaining coins are allocated.

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Treasury spending should be decided by governance when fees significantly outpace subsidy incentives

The SFI subsidy is split between all pools evenly, except the SFI staking pool, which is a special case. The SFI staking pool’s share of the subsidy is a fixed percentage of the total amount.

Smart contracts

The Saffron smart contracts have been deployed and their code has been verified on etherscan and added to a GitHub repository.

Saffron smart contracts have not yet been audited and users should exercise caution. Code audits and economic attack vector evaluation are included in the team’s ongoing development timeline.

That being said, the Saffron pool, adapter, strategy, and token contracts have been tested with 10,000 DAI in a beta test epoch on the Ethereum mainnet.

The Saffron pool beta contract address is:

0x7DB640b1190B192E8C977208D863e0e1E821CBdB

  • DAI interest, SFI mined, and principal tokens were all correctly distributed to LPs who successfully redeemed the correct amounts according to their beta dsec and principal token balances.

Introducing Saffron V2

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At a high level, Saffron V2:

  1. Adds 4 new pool types
  2. Implements new capabilities for Binance Smart Chain as well as Ethereum (The V2 beta includes earning BUSD yield on Venus and ETH yield on Alpha Homora)
  3. Upgrades the original V1 pool types
  4. Introduces 4 new key features:
    • Perpetual staking
    • Unlocked pools
    • Liquidity targeting
    • Tranched exchange rates

New pool types

Saffron V2 introduces 4 new pool types.

  1. *Market rate pool *- where the cost of insurance rises and falls based on demand, and junior tranche returns reflect tranche capacity. This pool launches in beta mode today.
  2. *Fixed interest rate pool *- where the senior tranche earns a steady APY, and junior tranche has a variable return rate.
  3. *Perpetual ERC20 staking pool *- where users can participate in SFI staking, Sushi LP, and UNI-V2 for rewards. SLP and UNI-V2 pools will transition into IL mitigation pools later on.
  4. Impermanent loss mitigation pool - where senior tranche buys protection against impermanent loss, and junior tranche earns enhanced APY from trading fees and/or Liquidity Mining rewards (more details to come).

Binance Smart Chain & Ethereum pools with Alpha & Venus

The first V2 pools will be market rate pools with S, AA, and A tranches enabled for BUSD/Venus and ETH/Alpha adapters. This means BUSD will be supplied to Venus to earn yield on BSC, and ETH will be supplied to Alpha Homora’s ibETH contract to earn yield on Ethereum.

Enhanced V1 pools

The existing V1 enhanced interest rate pool (10X junior tranche DAI/Compound, DAI/Rari, WBTC/Compound, etc.) will be next to receive an upgrade to the new V2 perpetual enhanced interest rate pool structure. More information on this will be released in a detailed post follow-up.

Each of the new pools have passed the conceptual stage and already have code committed. We plan to iterate on and greatly expand new pool types during the duration of the V2 beta. Saffron V2 is flexible and will result in a wide variety of new pools implementing creative solutions for the unique challenges of decentralized finance.

New features

Some of the new features in V2 pools include, but are not limited to:

  • Perpetual staking - where pools with epochs roll over automatically. Major gas savings and user experience improvement.
  • Unlocked pools - replacing time-locked capital with a yield curve based on utilization rate. Users can join and leave unlocked pools at any time. The market rate pool released today is the first implementation of an unlocked pool.
  • Liquidity targeting (target APY = SFI price * reward schedule / TVL) for more effective distribution of SFI liquidity mining rewards.
  • Tranched exchange rates - a new concept invented by the Saffron team.

Tranched exchange rates

Tranched exchange rates are a new concept pioneered by our team and replace the V1 SAFF-LP token structure. V2 SAFF-LP tokens accrue value over time with an ever-increasing exchange rate relative to pool base assets. This new LP token structure powers each of the new features listed above and has the added benefit of simplifying integration with DeFi visualization software and widely used dashboards (Zapper, Zerion, DeBank, and more).

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Tranche exchange rate flowchart

Governance

Saffron V2 makes off-chain governance much easier to implement. The structure of the V2 pools makes LP tokens more consistent, introduces a general interface for exchange rates, and will include new governance features built in to each pool.

We are also hiring for a new role: governance developer, who we imagine as a blend between programmer and human coordination optimizer. The eventual goal of Saffron is to become a fully autonomous and decentralized organization that self-perpetuates and captures value via the protocol’s optimization of risk and return. If that sounds interesting to you then please don’t hesitate to join the community and participate in building governance today.

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