F-Asset System

XRP

XRP (FXRP)

Stellar

Stellar (FXLM)

Litecoin

Litecoin (FLTC)

Dogecoin

Dogecoin (FDOGE)

F-Asset Overview

F-Asset Mechanics

F-Asset Rewards

F-Asset System | Overview

F-Assets on the Flare Network serve as a trustless representation of a digital asset residing on another blockchain. One of the main use cases for the Flare Network is to bring the complex logic of smart contracts to cryptocurrencies from non-turing complete blockchains like XRP, Litecoin, and Dogecoin to start. These assets on Flare will be denoted as FXRP, FLTC, and FDOGE respectively. Through the power of the F-Asset System, Flare Network will allow users of these cryptocurrencies to mint their assets as F-Assets on the Flare blockchain. The benefits of creating a F-Asset position include earning FLR from the F-Asset rewards pool, delegating the detachable F-Asset vote to the Flare Time Series Oracle via signal providers, creating stablecoins from collateralized F-Asset positions (i.e. Trustline), and participating in DeFi products like on Flare Finance.

In the process of minting a F-Asset, the user will have to pay the agents of the F-Asset system a variable creation fee in the native token’s value for the agent’s service of providing and maintaining the collateral ratio of 2.5x the native asset’s value in Spark (FLR). Additionally, the minter of F-Assets will be able to swap back into the native version of the F-Assets at any time for a miniscule redemption fee (i.e. FXRP –> XRP). In the chance of a F-Asset position becoming undercollateralized, the F-Asset System encourages other agents to recollateralize a failing agent’s position via incentives. If a default were to occur on a F-Asset position, the originator of the F-Assets would be paid out the value of their position in FLR plus an additional amount to cover trading fees to exchange back into their previous position of say XRP. The F-Asset System is a truly dynamic and trustless way to bring value from other blockchains onto Flare.

Check out the following blogs to learn more about f-asset rewards, risks, and mechanisms: Closing the circle on XRP <> Flare Interoperability, Creating & Redeeming FXRP, and Flare Recap & LTC Integration.

F-Asset System | Agents

The minting of F-Assets includes multiple parties and mechanisms ensuring that the F-Asset System can maintain its robustness and trustless nature. Agents will more than likely be institutional entities at the outset of the F-Asset System due to the higher risk/reward proposition that requires agents to post collateral in FLR for the minting of F-Assets. This is not to say that retail investors could not act as agents from the outset, but this will require a certain level of technical and financial sophistication. Agents will have to absorb volatility shocks to the crypto markets as well as efficiently manage their capital to make this risk worth their while. Additionally, agents are required to honor redemptions on-demand, which means they must have the technical capabilities to return the underlying assets to parties wishing to leave the Flare Network on short notice.

Multiple agents will be backing any one F-Asset position to diversify the risk of default on the appropriate collateral ratio. The F-Asset System will automatically match originators with agents and protect originators from the default risk of agents. The first of these protection mechanisms is when an agent falls below the required collateral ratio for a given period of time set by governance, the F-Asset System smart contracts will then start purchasing F-Assets off the open market to either close the agents position or reduce it until they are back to the proper collateral ratio. Agents can take proactive measures to avoid a collateral call band by either increasing the amount of collateral they have in the system or closing their position with the underlying assets they custody. Therefore, the underlying assets the agents custody for originators minting F-Assets acts as a hedging mechanism for agents to stay above water on their positions during poor market conditions. Agents are able to mint new F-Assets with the underlying assets they custody for immediate closure against their accounts. This moves the requirement for honoring redemptions to other agents with healthy accounts.

There is certainly many aspects to manage as an agent. Their value proposition includes being able to earn FTSO rewards from their FLR collateral, minting fees in the underlying assets, and yield from the underlying assets they custody for redemption. The nature of the underlying assets not being locked on the native chain provides capital efficiency to participants in the F-Asset System as well as proper hedging mechanisms for the agents.

F-Asset System | Originators

The originators of the F-Asset System can be anyone from retail to institutional that would like to utilize the value of their crypto assets in various DeFi protocols. Originators should understand that the price of the F-Assets they mint is pegged to the underlying assets price output by the Flare Time Series Oracle. This means that originators are able to maintain exposure to the underlying asset prices while participating in the Flare Network. Additionally, holders of F-Assets are incentivized by the rewards pools, which will be distributing around 25% of the originally minted supply of FLR to these F-Asset holders on a daily basis. In order to mint F-Assets, originators will have to pay a collateral reservation fee in FLR to prevent spamming of the system. They must then deliver the underlying assets they wish to mint plus the variable creation fee to the set of agents providing collateral on their position. The F-Asset System will then mint and deliver the F-Assets to the originator for use on the Flare Network.

Originators have the right to redeem their underlying assets on-demand and their is no minimum time period required for F-Assets to stay minted. When originators choose to redeem their F-Assets for the underlying assets, they will pay a redemption fee in FLR and return their F-Assets to the F-Asset System to be burned. The originator will then be delivered the corresponding amount of the underlying assets on their native chains by agents called upon to honor the redemptions. It is important to note that you technically do not need to be an originator to redeem the underlying assets of F-Assets. If you purchase F-Assets through a mechanism like FlareX, then you now have the right to redeem the underlying assets. It is also not required to redeem underlying assets, if you wish to cash out of the F-Assets. Users could always just sell the F-Assets directly for a stablecoin, which can be taken to an exchange or other entity to swap for fiat.

F-Asset System | Considerations

The F-Asset System is a dynamic and fluid decentralized application built on the Flare Network, which is connected to different blockchains via the State Connector System. Originators and agents are not locked in with one another. Both parties retain the right to exit their positions at any time by conducting the correct actions to close out their accounts. Wallet applications like MetaMask, Bifrost, and D’Cent will build the interfaces for interacting with the F-Asset System to make the minting of F-Assets feasible for less technical participants. The Flare team has centered the F-Asset System around two main ideas, which are that agents will always have more to lose by defaulting on required actions rather than honoring them and strong incentives are built-in for others to rectify failing positions.

Concerns around the volatility of the price ratio between FLR and the F-Assets will most likely be valid in the early days of minting F-Assets. However, over time, the more F-Assets minted the more FLR collateral will be needed, thus putting upward pressure on the price of FLR. It is a reasonable assumption that FLR will have some positive correlation to the F-Asset prices. As the F-Asset prices rise, more collateral is needed; as they fall, the F-Asset System needs less collateral. Additionally, the correlation between the FLR price and the underlying assets will need to be taken on a weighted scale based on the percentage of F-Assets minted through an underlying asset. Therefore, if you expect more FXRP to be minted than any other F-Asset, then the correlation in price of FLR would be strongest with the XRP price compared to the other underlying asset prices.

F-Asset System | Fee Types

The F-Asset System utilizes several different fees to prevent spamming and compensate agents for their services to the originators. All of these fees can be adjusted by governance parameter changes and vary in size based on the action the fee pays for. The examples below utilize FXRP to simplify the explanations.

Collateral Reservation Fee: required for originators to mint F-Assets and prevents spamming of the F-Asset System as users willing to reserve collateral via a payment are more likely to actually mint F-Assets; fee is paid in FLR

USD Value of FXRP to be minted * XRP/FLR price ratio * 0.001

Creation Fee: required for originators to mint F-Assets and provides agents with market-determined compensation for providing and maintaining the collateral for F-Assets; fee is paid in underlying asset

USD Value of FXRP to be minted * market based fee rate

Redemption Fee: required for originators to redeem underlying assets on-demand from the agents and provides proper compensation for this service; fee is paid in FLR

USD Value of FXRP to be redeemed * Redemption Fee rate

The creation fee will be largely variable and determined by the supply of collateral compared with the demand to mint F-Assets. The Flare team’s hope is that this bidding mechanism will provide more equitable scenarios for originators than a fixed fee would have provided. Originators looking to mint F-Assets will take the lowest fee offered by the agents of the F-Asset System.

F-Asset System | Creation of FXRP

FXRP Creation

Originator wants to mint 100 FXRP.

Originator delivers .5 FLR (.1% collateral reservation fee * 500 FLR) to the agent.

Originator delivers 100 XRP + 5 XRP (5% creation fee * 100 XRP) to the agent.

Agent delivers 1,250 FLR (2.5 collateral ratio * 100 FXRP * 5 FLR/XRP price ratio) to the collateral pool.

F-Asset system delivers 100 FXRP to the originator.

*** This is a general example with fixed numbers for ease of understanding.

F-Asset System | Redemption of XRP

XRP Redemption

Originator wants to redeem their 100 XRP used to mint FXRP.

Originator delivers 100 FXRP back to the F-Asset System to be burned.

F-Asset System delivers 1,250 FLR back to the agents.

Agent delivers 100 XRP to the originator.

No redemption fee is paid as the rate is 0% but up for a governance vote after launch.

*** This is a general example with fixed numbers for ease of understanding.

F-Asset System | Redemption Failure of XRP

XRP Redemption Default

Originator wants to redeem their 100 XRP used to mint FXRP.

Originator delivers 100 FXRP to the F-Asset System.

Agent only delivers 50 XRP and buys a Lambo with the other 50 XRP.

F-Asset System pays out the originator with 252.5 FLR (50 XRP * 5 FLR/XRP price ratio * 1.01 default fee).

F-Asset System burns half of the agent’s remaining 997.5 FLR in collateral pool resulting in 498.75 FLR burned and 498.75 FLR delivered back to the agent.

If the agent had honored the system, then they would have received 1,250 FLR back on redemption of the originator’s XRP; however, the agent received 748.75 FLR value (50 XRP * 5 FLR/XRP price + 498.75 FLR), which is a 40% haircut on their original position value. This provides a major incentive for the agent to be a good actor within the F-Asset System and honor their obligations.

*** This is a general example with fixed numbers for ease of understanding.