Mar 12, 2021
Introducing Tethys: Democratized Liquidity Pool Powered Stablecoin On & Off Ramps
One of the largest barriers blocking mainstream adoption of blockchain is the unavoidable pain of onboarding and offboarding capital primarily from legacy financial systems.
There are three main contributing factors that are affecting adoption:
Abstraction
Most DeFi products are focused on the acquisition of a customer base that has familiarity with blockchain concepts such as stablecoin pegs, addresses, gas fees, transaction hashes, block-times and many others.
This has set high entry barriers for mainstream adoption as DeFi applications offload these complexities onto their user base. Until the blockchain community tackles this inward-facing vs outward-facing problem then mass uptake of decentralized finance systems will continue to struggle.
Chai, a payment application developed and launched in Korea is a concrete example of successful abstraction. They have made full use of the advantages of lower fees and shorter transaction times, combined with a seamless user experience to create an outward facing payments system that targets mass market adoption.
Maintaining Value Parity
The market is flooded with onramp solutions that span several blockchains and allow users to purchase crypto currencies through a simple user interface such as MoonPay, Transak and Wyre.
Specifically for stablecoins these vendors and many others are subject to short and medium term peg volatility, and as a result are unfriendly for developers who wish to avoid presenting excessive fees and calculations to their end users.
Applications that are subject to this peg volatility struggle to provide a 1:1 rate between fiat currencies and their stablecoin counterpart, which prevents a comfortable user experience and likely hinders mainstream adoption as users are left wondering why deposits experience such high value loss.
Hop Count
For projects that provide deposits or for crypto users looking to minimize their transaction fees, the few viable routes available use exchanges such as Binance or Coinbase for conversions and withdrawals.
A user looking to acquire EUT on Terra would need to:
- Register and complete KYC with an exchange
- Deposit EUR through a chosen payment method, which may be subject to additional fees
- Exchange their EUR to a token or cryptocurrency that contains a pair with a Terra supported token or cryptocurrency such as USDT or BTC.
- Purchase the Terra supported token or cryptocurrency such as LUNA.
- Withdraw to a Terra wallet and potentially incur withdrawal fees.
- Finally, perform an EUT swap which may incur additional trading fees.
This process is highly inefficient and burdensome for the end user and as you can imagine is inhibiting mainstream adoption. Businesses and developers have accepted the status quo, by building their systems around these overly complex processes.
Introducing Tethys by Saturn Money
Tethys is a democratized liquidity pool powered gateway that enables seamless transitions between fiat and stablecoin based currencies, encouraging development and adoption of the Terra ecosystem.
Developers and crypto users can on-ramp and off-ramp directly from European bank accounts, with lower fees and with enforced value parity within 3 simple steps.
Mechanics
Liquidity Pools
Tethys aims to introduce fiat and stablecoin liquidity pools for GBP/GBT and EUR/EUT pairs. Unlike traditional liquidity pools for activities such as trading, Tethys liquidity providers will be immune to impermanent loss, have control over flexible community governance and also have the potential for other rewards, offering the liquidity provider a new income stream.
In order to act as a liquidity provider for Tethys, a user would deposit a designated amount of stablecoin on-chain to the Tethys pool alongside an off-chain fiat deposit into a custodial EUR/GBP bank account pool.
Providers that deposit both the stablecoin and fiat currency into the pool would in turn receive Liquidity Provider (LP) tokens that will, over-time accrue fees and rewards whilst staked.
Balance Mechanism
A liquidity provider can redeem their LP tokens for a percentage share of the underlying liquidity pools, this would get deposited directly into the liquidity providers’ EUR/GBP bank account and Terra wallet.
To maintain pool balance and prevent unidirectional flows we are proposing a fee determined through the function:
f = fee function
(x) = Stablecoin or fiat input amount
h = base fee
b = post-transaction pool balance
k = fixed exponent
Where the f fee percentage for a given transaction of (x) fiat or decimalized stablecoin is equal to a base fee h plus the post-transaction pool balance b risen to a fixed exponent k.
In the event of a balance shift in the pool too far towards a given direction, the fee balancing mechanism would begin to at first gradually increase on either deposits or withdrawals, as to discourage that behaviour and simultaneously increase the liquidity provider APR percentage return if the behaviour persists, which in turn should encourage pool expansion.
Any continuous shift towards the direction would result in steeper rises in the balance fee and likely result in an eventual halt until pool rebalancing completes. A mechanism of pool rebalancing through incentives in emergency situations is still being researched.
Additionally, incentivized partnerships (detailed below) can be selected and accepted by governance voters based on the partnerships’ expected or desired behaviours, which in turn would advocate pool stability and lower fees on Tethys.
Incentivized Partnerships
Partnerships with selected vendors would help balance the Tethys liquidity pools. Take for example a yield generating DeFi protocol, it is likely that onramp activity (deposits in EUR/GBP) would far outweigh the offramp (withdrawals from EUT/GBT) and thus the impact on the pools would be dominated towards a fiat currency shift.
Therefore, a counteracting force to balance the liquidity pools can increase trading volumes while reducing the potential for fee increases. An example of this could be protocols or applications involved in real world asset fundraising that allows the fundraiser to withdraw those funds off-chain in EUR/GBP, this example would help balance the stablecoin demand and act as a balancing agent.
Arbitrage opportunities would be discouraged for liquidity providers through lock-in periods that assume any major peg deviation would autocorrect through Terras’ stability mechanisms during that time prior to the return of owed assets from within the pool.
Governance
There are a number of decentralized governance opportunities for Tethys, listed as follows:
Fee Adjustments
Liquidity providers would propose and accept adjustments to the fee calculation in order to adapt to market conditions.
Currency Adoption
Liquidity providers would propose and accept adoption for new fiat / stablecoin pairs within the gateway.
Incentivized Partnerships
Liquidity providers would vote to allow subsidized access to the Tethys liquidity pools in return for airdrops or other incentives from platforms building on the Terra ecosystem.
Limitations
In an ideal world, a system such as this would be implemented through fully decentralized architecture. However, in order to enable a fiat currency pool and ensure automation of on/off ramp services, Saturn will have to act as a custodian to the pools and implement and maintain all associated infrastructure.
Saturn will also ensure that the gateway is compliant with all required AML/KYC regulations and aims to operate as a PSD2 compliant licensed PISP (Payment Initiation Service Provider) in the future.
This does mean that the system as a whole is not completely decentralized by definition. We believe in transparency and honesty, and want you, the reader to be aware of this.
Value
Maintaining Value Parity
Tethys operates on the assumption of eventual parity and will rely on the Terra price stabilization mechanisms to correct any peg deviation for stablecoins.
Tethys will enforce a 1:1 parity transaction between fiat and stablecoin currencies, resulting in an improved user experience and developer experience compared to other gateway operators that rely on active prices from exchanges.
Increasing Adoption
Tethys will provide a full suite of APIs for developers who wish to build on Terra and target European customers. Developers will be able to leverage Saturns’ direct banking integrations to create the same seamless user experience that Saturn Money achieves by traversing the fiat to crypto barrier with minimal fees.
Furthermore, the suggested Tethys base fee can, through decentralized governance, be waived for chosen preferential providers in return for accepted alternative value returned to liquidity providers.
An example of this would be a developer requesting to waive the LP fee for their application in exchange for volume based airdrops of a token to Tethys liquidity providers. This would further improve any potential user experience that developers hope to implement to, for example, ensure that when users make deposits, they receive exactly the same amount in stablecoins.
Reduced Fees
Centralized systems operated by other gateway service providers are generally inward-facing and attract customers that are familiar with stablecoins and how pricing can vary due to a peg deviation. As a result, value loss on a simple transfer has potential to greatly increase, in addition to any provider service fees.
Reduced fees in Tethys will be achieved by the flexible governed fee mechanism and the 1:1 parity guarantee during peg deviation. This would help improve the flow of onboarding fiat value to the Terra ecosystem for European users.
Summary
Tethys’ goal is to provide scalable guarantees and pluggable infrastructure on value transfer for fiat and stablecoin transactions. We are preparing to launch a frictionless gateway that allows for a seamless transition between fiat and selected stable coins with absolute parity via direct banking integrations.
Tethys will allow users to reduce effort, hop count and swap fees that currently occur when performing value transfer to Terra.
The gateway will allow developers to have an accessible, responsive and easy-to-use API to utilize in their projects in order to create pleasant on-ramp experiences for deposits and withdrawals.
Tethys will incorporate both governance and reward mechanisms for fiat and stable coin liquidity providers and will be fully AML/KYC compliant and licensed for European payments.
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