F-assets and market crashes

[brianwalden]

I was heavily invested in the Terra ecosystem and now I'm totally rekt. I'm handling it ok.

Flare won't have the same extent of the problem that UST/LUNA has because F-assets are overcollateralized, but because F-assets are backed by FLR, a loss of trust in the system can still create a large contraction.

This is perhaps more similar to DAI where it had to be bailed out by Maker in the March 2020 crash and switch to a model where now I think over half of it's collateral is in other stablecoins. But I don't know if that model with a high percentage of stablecoin backing can work for Flare.

I think the problem remains, what happens in a big crash like we're seeing now? The people backing F-assets are going to get liquidated, the people doing the liquidating are going to sell which creates more downward pressure on Flare. The backstop is ultimately trust in the system - a belief that at some point the spiral down will stop and and the people invested in the F-asset system will be able to go back to making money again. We saw DAI get pushed to the ropes in 2020 but survive and Terra absolutely cratered. What will Flare do to handle a situation like this?

[brianwalden]

One thought I just had is that FLR will be collateral for other volatile assets, that will make it easier to maintain the proper collateral ratio in a falling market.

[Montoya]

Sorry to hear about your loss. I don't ultimately know if there is a solution to the problem you cite. It exists in equities as well, despite over a hundred years of public trading and countless regulations and financial tools. 2008 being the prime example of this. I think most simply fool themselves into believing the risk doesn't exist in stocks and bonds, or it is tempered.

Government's sometimes try to handle this issue by buying assets/currencies directly during a run. If people globally start dumping Turkish Lira, for example, it creates a feedback loop, thus encouraging more dumping. The gov in Turkey may buy up a bunch of lira with USD, to try propping up the price. But the question is whether this is actually fixing the problem or simply hiding it. I also don't think it is feasible in a decentralized system as it directly subverts the entire purpose.

I think ultimately if the ecosystem can develop enough that it includes a lot of assets backed by, or representing things in other unrelated sectors (not crypto), it will temper this to some degree. For example, if there comes a point where a significant number of loans are backed by real estate or equities or assets representing real capital goods, it will place a lower end on how far the value can drop in such a run, due to the "hopefully unrelated" trading value of the underlying good.  If you have only crypto backing the value of crypto, during a crypto crash it is likely both will go down, possibly to a catastrophic and unrecoverable level. Perhaps there would be less risk if you have a significant amount of the value backed with real estate, or equities as well.

I guess what i'm saying is diversification of value represented in the ecosystem will cushion any run because it is less likely that every sector will suffer similar collapses. 

[Guest]

Think of SGB and FLR as bridge assets for networks connected through the F-Asset and LayerCake systems. Their prices will have lower volatility if there are tight and deep order books. Think of them as analogous to XRP, but for crypto. 

It’s likely why Flare took the hit to delay mainnet… to implement LayerCake.

As long as liquidity is high, volatility will be low. The prices of the assets themselves (F-Assets, SGB, FLR, etc) doesn’t matter IMO, from a risk perspective, as long as people use the systems and the order books are kept tight and deep. So the network’s job will be to incentivise users to use it. Being able to bring smart contracts to L1s without that capability is a good start.
 

[Seoulite]

On 5/12/2022 at 11:21 PM, brianwalden said:

I was heavily invested in the Terra ecosystem and now I'm totally rekt. I'm handling it ok.

Flare won't have the same extent of the problem that UST/LUNA has because F-assets are overcollateralized, but because F-assets are backed by FLR, a loss of trust in the system can still create a large contraction.

This is perhaps more similar to DAI where it had to be bailed out by Maker in the March 2020 crash and switch to a model where now I think over half of it's collateral is in other stablecoins. But I don't know if that model with a high percentage of stablecoin backing can work for Flare.

I think the problem remains, what happens in a big crash like we're seeing now? The people backing F-assets are going to get liquidated, the people doing the liquidating are going to sell which creates more downward pressure on Flare. The backstop is ultimately trust in the system - a belief that at some point the spiral down will stop and and the people invested in the F-asset system will be able to go back to making money again. We saw DAI get pushed to the ropes in 2020 but survive and Terra absolutely cratered. What will Flare do to handle a situation like this?

Sorry guys I’ve been out of the loop for a few weeks because of my wedding.

Sorry to hear about your losses mate. I remember you were big on Terra. Is there no hope of things coming back? I haven’t followed exactly what happened with it so don’t know the details.

As for Flare, you’re right at the bottom is just belief that the system works. Problem is every system is like that, so I guess we just have to hope that enough trust is built up, and that Flare have been learning from the mistakes of other systems. 

[henne111]

12 hours ago, Seoulite said:

Tut mir leid, Leute, ich war wegen meiner Hochzeit ein paar Wochen nicht auf dem Laufenden.

Tut mir leid, von deinen Verlusten zu hören, Kumpel. Ich erinnere mich, dass du groß auf Terra warst. Gibt es keine Hoffnung, dass die Dinge zurückkommen? Ich habe nicht genau verfolgt, was damit passiert ist, also kenne ich die Details nicht.

Was Flare betrifft, so glauben Sie ganz unten, dass das System funktioniert. Das Problem ist, dass jedes System so ist, also müssen wir wohl hoffen, dass genug Vertrauen aufgebaut wird und dass Flare aus den Fehlern anderer Systeme gelernt hat. 

I wish you congratulations on your wedding. And all the best on the new path of life, as a couple!

[brianwalden]

On 5/20/2022 at 9:43 PM, Seoulite said:

Sorry guys I’ve been out of the loop for a few weeks because of my wedding.

Sorry to hear about your losses mate. I remember you were big on Terra. Is there no hope of things coming back? I haven’t followed exactly what happened with it so don’t know the details.

As for Flare, you’re right at the bottom is just belief that the system works. Problem is every system is like that, so I guess we just have to hope that enough trust is built up, and that Flare have been learning from the mistakes of other systems. 

Congratulations.

[MickeyBFresh]

On 5/12/2022 at 10:21 AM, brianwalden said:

I was heavily invested in the Terra ecosystem and now I'm totally rekt. I'm handling it ok.

Flare won't have the same extent of the problem that UST/LUNA has because F-assets are overcollateralized, but because F-assets are backed by FLR, a loss of trust in the system can still create a large contraction.

This is perhaps more similar to DAI where it had to be bailed out by Maker in the March 2020 crash and switch to a model where now I think over half of it's collateral is in other stablecoins. But I don't know if that model with a high percentage of stablecoin backing can work for Flare.

I think the problem remains, what happens in a big crash like we're seeing now? The people backing F-assets are going to get liquidated, the people doing the liquidating are going to sell which creates more downward pressure on Flare. The backstop is ultimately trust in the system - a belief that at some point the spiral down will stop and and the people invested in the F-asset system will be able to go back to making money again. We saw DAI get pushed to the ropes in 2020 but survive and Terra absolutely cratered. What will Flare do to handle a situation like this?

I’m sorry for your loss with Luna but your on statement on FXRP is factually incorrect.
F-Assets like FXRP are NOT synthetic assets like $DAI, the difference being that the underlying or a portion of the underlying native XRP is held as well as $FLR collateral on Flare. There’s also two methods of minting F-Assets, self mint means native asset locked on XRP and put your own collateral of at least 100% collateral in $FLR on Flare.(still waiting for details)  If you go to move off any of your original XRP you’ll be slashed from $FLR collateral equivalent value. This is called self mint F-assets. Since, XRPL has no way of locking assets in smart contracts.  But this is where Flare attestation system, the state connector and a set of Attesters running nodes on XRPL are constantly digesting every 3 ledger closings and relaying back info of accounts if the balance has decreased. . If price of $FLR begins to drop you simply redeem FXRP back to your own XRP which you’re holding anyway. 
No risks of anything like Luna/UST or DAI

Your $FLR collateral earns weekly $FLR rewards by delegating detachable vote power while simultaneously being used as collateral. Might even earn portion of fees paid by minters who borrow collateral from Agents, it’s unclear if that $FLR collateral receives any native assets paid in fees

Alsp, your FXRP you minted earns daily $FLR as reward for being value onto Flare causing FLR to be locked as collateral. $FLR Rewards come from dedicated incentive pool, not inflation.  
 

There’d a 2nd way to mint F-Assets like FXRP, which is also NOT a synthetic asset like DAI. XRP holders can pay a fee to Agent’s who are regulated entities but system is still trustless and low risk. You’re paying fee in NATIVE XRP for them to put up collateral of 250% in FLR, now they can’t just run off with XRP, some will remain on XRPL. That’s about as much as we know now but since the Flare state connector is literally digesting each ledger closings it’s able to manage the agent’s collateral and liquidations in real time

If FLR price decreases vs XRL or XRP rises 68% bs FLR by 68%+ in 2min 45secs then that would potentially put some strain on system but even that can be managed. Idea is to let volatility of FLR stabilize somewhat and launch F-Assets in phases with caps on amounts as system becomes more robust

This is my speculation here now, I think it’s Likely Agents who lend FLR collateral will use some of XRP they were sent to mint their own FXRP with their own FLR collateral or borrow from another agent. They already have put up 250% in FLR for the user that minted FXRP and paid Them fee in XRP. 

they mint 1/2 XRP into FXRP with another agent or themselves then provide true cross chain liquidity between XRP/FXRP on DEX built on state connector which would be another way they can earn in a low risk manner blue chip  native assets like xrp with no impermant loss or liquidation risk of XRP/FXRP liquidity. 
 

F-Assets are designed completely differently 

I’m really sorry about your loss in Luna ecosystem. Learn from the difficult times is all you can do now. 

[brianwalden]

On 5/27/2022 at 9:49 PM, MickeyBFresh said:

I’m sorry for your loss with Luna but your on statement on FXRP is factually incorrect.
F-Assets like FXRP are NOT synthetic assets like $DAI, the difference being that the underlying or a portion of the underlying native XRP is held as well as $FLR collateral on Flare. There’s also two methods of minting F-Assets, self mint means native asset locked on XRP and put your own collateral of at least 100% collateral in $FLR on Flare.(still waiting for details)  If you go to move off any of your original XRP you’ll be slashed from $FLR collateral equivalent value. This is called self mint F-assets. Since, XRPL has no way of locking assets in smart contracts.  But this is where Flare attestation system, the state connector and a set of Attesters running nodes on XRPL are constantly digesting every 3 ledger closings and relaying back info of accounts if the balance has decreased. . If price of $FLR begins to drop you simply redeem FXRP back to your own XRP which you’re holding anyway. 
No risks of anything like Luna/UST or DAI

Your $FLR collateral earns weekly $FLR rewards by delegating detachable vote power while simultaneously being used as collateral. Might even earn portion of fees paid by minters who borrow collateral from Agents, it’s unclear if that $FLR collateral receives any native assets paid in fees

Alsp, your FXRP you minted earns daily $FLR as reward for being value onto Flare causing FLR to be locked as collateral. $FLR Rewards come from dedicated incentive pool, not inflation.  
 

There’d a 2nd way to mint F-Assets like FXRP, which is also NOT a synthetic asset like DAI. XRP holders can pay a fee to Agent’s who are regulated entities but system is still trustless and low risk. You’re paying fee in NATIVE XRP for them to put up collateral of 250% in FLR, now they can’t just run off with XRP, some will remain on XRPL. That’s about as much as we know now but since the Flare state connector is literally digesting each ledger closings it’s able to manage the agent’s collateral and liquidations in real time

If FLR price decreases vs XRL or XRP rises 68% bs FLR by 68%+ in 2min 45secs then that would potentially put some strain on system but even that can be managed. Idea is to let volatility of FLR stabilize somewhat and launch F-Assets in phases with caps on amounts as system becomes more robust

This is my speculation here now, I think it’s Likely Agents who lend FLR collateral will use some of XRP they were sent to mint their own FXRP with their own FLR collateral or borrow from another agent. They already have put up 250% in FLR for the user that minted FXRP and paid Them fee in XRP. 

they mint 1/2 XRP into FXRP with another agent or themselves then provide true cross chain liquidity between XRP/FXRP on DEX built on state connector which would be another way they can earn in a low risk manner blue chip  native assets like xrp with no impermant loss or liquidation risk of XRP/FXRP liquidity. 
 

F-Assets are designed completely differently 

I’m really sorry about your loss in Luna ecosystem. Learn from the difficult times is all you can do now. 

I appreciate everything you do for the crypto ecosystem. People like you who educate the masses are incredibly important.

But from a collateral perspective F-assets are exactly like DAI. The only real different is they're collateralizing volatile assets rather than stablecoins, which may help then in an overall market downturn.