Why is it taking so long? The FAssets system is finally incoming!
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Autor: Andrzej Mackowiak 04.12.2023r.
From its inception, the Flare Network has demonstrated unwavering dedication to its mission of enabling trustless blockchain interoperability. A key goal of this mission is unlocking the value from siloed blockchains by adding smart-contract functionality to assets without that feature. This paradigm ensures that no third party can compromise the system.
Flare’s team has taken a unique approach to tackling the blockchain interoperability challenge. Rather than building upon existing blockchains, they opted to introduce their own layer-1 solution, where core features are firmly rooted in the protocol. This steady and methodical approach has yielded consistent and stable development, as evidenced by the remarkable progress we’ve witnessed over the past few months.
This approach stands in stark contrast to the majority of crypto projects, which often prioritize lofty goals and unsubstantiated hype over genuine progress.
The introduction and rigorous testing of protocols like Flare Time Series Oracle, State Connector, and the upcoming LayerCake will pave the way for achieving Flare Network’s intended goal: seamless and trustless blockchain interoperability.
Recently, the latest update about the progress of the FAsset system was released. This system is poised to enable a significant influx of value into the Flare Network. It enables non-smart contract tokens such as XRP, BTC, and DOGE to be brought onto Flare, where they can be used trustlessly in smart contracts on this network and bridged to other chains. To describe this system in a few words, I would call it a ‘cross-chain collateral system’.
In this article, I will deep dive into the FAsset system, its components and explain the reasons for the prolonged delay in its release.
The FAsset system
After several months of anticipation, additional details about FAssets have been revealed. So, what precisely is the FAssets system?”
It is an innovative and complex system developed by Flare Labs, an independent private entity unaffiliated with the Flare Foundation. The system enables seamless integration of tokens that do not have smart contract functionality like XRP, BTC, and DOGE with the Flare ecosystem . This breakthrough technology allows these tokens to be used within the secure smart contract environment of the Flare network, which in turn enables seamless interactions and makes it easier to move them to other blockchains. Unlike many wrapped asset systems for non-smart contract tokens, FAssets are trustless, meaning that you do not have to risk using a centralized intermediary to use your tokens with smart contracts. The Flare Lab’s solution makes it easier for users to unlock the potential of their non-smart-contract tokens and enable them to be used in decentralized applications, such as DeFi or NFTs, which currently are the prime usecase for crypto.
FAssets are formally delta-neutral synthetic instruments. These financial instruments are specifically designed to maintain a delta of zero. Delta, in this context, represents the sensitivity of an instrument’s price to changes in the price of its underlying asset. Consequently, a delta-neutral instrument exhibits resistance to price fluctuations of its underlying asset.
FAssets are multi-collateralized. This is a type of collateralization in which multiple assets are used to secure the value of a given instrument. In the case of FAssets, this collateral includes Native tokens (FLR/SGB), Stablecoins or ETH with a minimum of 200% collateralization.
The FAssets system has four main roles within the system. Each role has different responsibilities in ensuring the system works smoothly.
- Minter/redeemer: The minter is the customer who creates FAssets using underlying tokens. The redeemer is the customer who returns FAssets to get back their underlying tokens.
- Agent: The agent helps minters and redeemers create and return FAssets. They lock up collateral to mint FAssets.
- Liquidator: If an Agent’s collateral value becomes too low, the Liquidator helps bring it back to balance by redeeming FAssets.
- Challenger: If an Agent misuses the system, the challenger can provide proof to the protocol, and the agent will be punished.
Here are some advantages of using FAssets:
- Security: FAssets are secured by the network’s native token (FLR/SGB) , stablecoins or ETH, making them less susceptible to fraud or theft.
- Liquidity: FAssets can be traded on Decentralized Exchanges, making them liquid and easy to exchange for other assets.
- Interoperability: FAssets can be transferred between different blockchains, making them interoperable and accessible to a wider range of users.
- Scalability: FAssets are designed to be scalable, meaning that they can be used to represent a large number of assets.
- Affordability: FAssets are relatively inexpensive to use.
What are the benefits of minting FAssets beyond the obvious ones of enabling EVM for tokens that do not have this functionality?
- Additional rewards in the form of $FLR tokens. FAsset holders will receive $FLR tokens from the network’s rewards pool. (Cross-Chain Incentives Pool)
- The ability to participate in DeFi. Holders can simultaneously participate in DeFi, earning additional yield. (e.g., by adding FAsset to a DEX liquidity pool or on a lending platform.)
- The ability to earn on underlying assets. The received $FLR tokens are eligible for monthly airdrops and can subsequently be delegated to FTSO or staked or provided to the system as collateral for FAssets to earn fees on underlying assets (e.g., XRP, BTC, Doge).
- Increase in the value of $FLR tokens. The greater the demand for minting FAssets, the more collateral in the form of $FLR/SGB will be required by the system, which will ultimately lead to an increase in the value of $FLR.
Currently two-thirds of the total value of the blockchain market is currently locked in networks that do not have smart contract functionality. As a result, they cannot participate in the DeFi or NFT market, or even have the ability to host dApps. The FAssets system will add smart contract functionality to networks connected to the system. This will give wider community the ability to participate in the decentralized economy in a safe, secured, cheap, and scalable way.
The FAssets system is currently undergoing private testing on the Coston Network. The tests are scheduled for completion in Q1 of next year, followed by their implementation on the Songbird Canary Network.
The essential components of the Fassets system
The FAssets system is enabled by Flare’s data acquisition protocols, the State Connector and Flare Time Series Oracle. The FTSO provides decentralised price feeds for all the assets involved, and the State Connector can verify that a required action has taken place on a different chain.
State Connector — Unlike FTSO, which provides probabilistic data, the State Connector protocol provides deterministic data from other blockchains and off-chain data sources. Deterministic data is data that is known to be true or accurate, and that is not subject to change. This means that the data can be precisely predicted and calculated. Examples of deterministic data include mathematical equations, physical laws, and computer algorithms. When we ask a binary question of “yes” or “no”, or “1” or “0”, deterministic data allows for a precise answer.
The State Connector offers improved security, flexibility, and faster processing than other oracle systems on the market. It is a key element of the Flare Network because it enables integration with other platforms and the creation of new applications. The State Connector, together with the Flare Time Series Oracle (FTSO) protocol, provides reliable and decentralized data. The State Connector provides a consistent state of the other blockchains.
The key strength of the State Connector is its ability to verify the validity and history of transactions, while reducing the risk of reorg attacks on connected blockchains.
LayerCake Protocol — currently in development by FlareLabs. FAssets are issued on the Flare network, but they can be transferred to other ecosystems using the LayerCake protocol. This protocol enables secure and protected cross-chain transfer. LayerCake enables the transfer of assets between blockchains in a new and innovative way. The advantages of the protocol are its speed, performance, scalability, and security.
Each transfer using the Layercake protocol is insured in transit with a 1:1 coverage in the form of a real asset. Using security in this way allows for the lowest delays in bridge-building that does not require trust from the other side, while providing insurance in case of its improper behaviour. Such a solution also protects against blockchain reorganization.
After the exchange is completed and the wrapped asset is on the user’s account, the security is unlocked after a short time, ready to be used in another cross-chain exchange. For this reason, this security is called “Bandwidth” because it determines how much value can flow through the bridge at a given time. Its existence makes LayerCake a solution that does not require multisig, any management role, or any trusted party in the system.
Here are some specific examples of how the LayerCake protocol can be used:
- Transferring assets between different DeFi protocols: With the LayerCake protocol, users can transfer assets between different DeFi protocols, such as Uniswap, Compound, and Aave. This allows users to access a wider range of DeFi services and products.
- Transferring assets between different blockchains: The LayerCake protocol can be used to transfer assets between different blockchains, such as Ethereum and Solana. This allows users to take advantage of the benefits of different blockchains, such as speed, scalability, and security.
- Creating cross-chain swaps: The LayerCake protocol can be used to create cross-chain swaps, which are easy and efficient exchanges of assets between different blockchains.
- Providing liquidity for decentralized exchanges: The LayerCake protocol can be used to provide liquidity for decentralized exchanges. This will allow exchanges to offer a wider range of assets and better prices for users.
- Enabling cross-chain gaming: The LayerCake protocol could be used to enable cross-chain gaming by allowing gamers to use their assets in games on different blockchains.
- Allowing cross-chain payments: The LayerCake protocol could be used to allow cross-chain payments by allowing users to make payments in different digital currencies on different blockchains.
Breakthrough solutions need time for solid testing and gradual implementation. Otherwise, if something goes wrong, the only chance to introduce a revolutionary solution can be ruined by one mistake. Building such an innovative system as FAssets is a rather complex task, requiring the use of previously well-functioning and tested in many aspects FTSO and State Connector protocols. Slow and gradual growth is crucial for the safety of the ecosystem. The Flare team, despite their minimalistic but smart marketing strategy, built, tested, and introduced the protocols that ultimately made it possible to build FAssets system.
The current regulatory climate also undoubtedly required finding an optimal solution that would not expose the project to any harm. The team took the time to establish the fundamentals of the project and build without any regulatory concerns. This is due to the fact that the Flare Network is now fully decentralized.
So far, both in terms of the speculative cycle of the market and the development of the Flare Network, we are early and those who see the potential that the network has will surely be rewarded, whether through the possibilities of testing and using various types of incentives available on the network, such as rewards for delegation to FTSO, staking on the network, monthly airdrops, or in the future for providing underlying assets to the FAssets system. The foundations of the project are growing stronger daily as the original ideas are successfully implemented step by step, which will undoubtedly translate into speculative benefits in the future. However, for me personally, the fundamentals of the Flare Network hold greater importance, and they remain strong. The fact that the Hugo’s team is building a sustainable and robust system that, in my opinion, will serve as the foundation for next-generation interoperable blockchains compels me to support this project.
The FAssets system solution will definitely bring value to the Flare Network and drive the demand for underlying assets (FLR/SGB/Stablcoins/ETH), which will attract more users from different chains willing to participate in the system and earn yield from their assets. Flare definitely deserves a place in the top 10 in terms of MC, but for the health of the ecosystem, it is better that this would result from the use case as an input of solutions such as FAssets, rather than from ordinary speculation. Nevertheless, the upcoming bull market promises to be interesting for the Flare Network community.