FAssets will bring smart contracts to tokens like BTC, XRP and DOGE, welcoming these valuable communities into the decentralized economy where they will be able to participate in DeFi, NFTs and more.
According to CoinGecko, as of 5 September 2022 only $322B of the total $1.01T value of crypto tokens can currently run smart contracts. This means that more than two-thirds of the current total value of blockchain is unable to participate in the decentralized economy.
By minting these non-contract tokens into FAssets on Flare, new utility is brought to these chains. No longer are they simply an investment asset - now they can be put to work earning yield or rewards in decentralized applications on the Flare network, with DeFi, NFT and Metaverse use cases available. They can also be bridged onto other smart contract chains using Flare’s Layer Cake bridges.
When FAssets launches, anyone who mints FAssets and brings value to Flare will be able to earn a share of the monthly rewards from the cross-chain incentive pool.
The first FAssets to be launched will be for BTC, XRP, LTC, DOGE, ALGO, FIL and XLM. They are powered by Flare’s native interoperability technology: The Flare Time Series Oracle provides decentralized price data for each underlying asset, and the State Connector is able to trustlessly and securely prove that assets have been locked up on the origin chain.
FAssets effectively operates as a collateral lending system, where Flare native token holders lend collateral for minting of FAssets, and are paid with the underlying asset, such as BTC.
Each FAsset (e.g. FBTC, FDOGE) is backed by an amount of native token collateral (FLR). For security and to account for market volatility, the system ensures the amount of collateral locked is of greater value than the FAssets that are minted. The ratio of the collateral amount to the value of the FAsset is the Collateral Ratio. Different Collateral Ratios are required depending whether the FAssets are self-minted or minted by an Agent.
Agents, minters & redeemers
> The Agent is the main player in the FAsset system. They supply the collateral that is backing minted FAssets. Each agent has locked collateral that reflects the amount of FAssets they are backing.
> A minter pays the agent with the underlying asset, e.g. XRP, for the right to utilize the Agent’s collateral for minting. In this process, assets are paid and FAssets are minted on Flare.
> A redeemer does the opposite, it sends FAssets to the system. The system burns those FAssets and the redeemer receives the underlying asset in return.
> Agents receive fees from minters - in FLR tokens to reserve the collateral, and in the underlying asset (e.g. DOGE) to pay for the mint. Minters will receive rewards simply for holding FAssets and bringing their value on to Flare.
With FAssets, approximately an additional 70% of the total value of all cryptocurrency tokens will be able to participate in decentralized finance on Flare, unleashing a wave of liquidity for application builders. Token holders will also be able to use Layer Cake to bridge their FAssets to other smart contract chains to utilize their dapps.