Saffron is a protocol for tokenizing on-chain assets, including contracts that otherwise impair access to utilized capital. Tokenized ownership of on-chain assets gives liquidity providers greater flexibility and uninterrupted access to their underlying collateral while enabling leveraged staking and bespoke risk management.
Peer to peer risk exchange
Existing decentralized earning platforms expose liquidity providers to complex code driven outcomes. Network participants must evaluate an array of catastrophic scenarios where the resulting state could wipe out their holdings or lead to significant impermanent loss. It is hard to anticipate the net effect of extreme market volatility or focused economic attacks. Saffron narrows the set of possible outcomes by giving liquidity providers dynamic exposure.
Dynamic exposure
The first application of Saffron gives liquidity providers the option to select customized risk and return profiles via the use of Saffron pool tranches. Saffron separately tokenizes the future earning stream and the net present value of utilized principal in each tranche. Earnings, based on tokenized holdings, are distributed accordingly across all tranches via payback waterfalls.
Payback waterfall
The initial application of the payback waterfall is split between two primary tranches.
- A yield enhanced “A” tranche.
- A risk mitigated super-senior “AA” tranche.
Added liquidity, when removed, is used to pay back the initial principal of AA holders before paying the principal and interest of the yield enhanced A tranche. In exchange for this enhanced return, participants of the A tranche must stake Saffron’s native tokens (SFI) to mitigate against failures on the underlying platform (such as Compound, Aave, or Curve). The Saffron protocol in this scenario acts as an escrow service for transfer of risk between A tranche participants and AA tranche participants.
Saffron also includes an “S” tranche for allocating liquidity efficiently as it is needed based on a tranche balancing algorithm.
Launch
Saffron is a launching with a web3 application: saffron.finance. The Saffron smart contracts (pool, token, adapter, and strategy) are deployed in standby mode on the Ethereum mainnet and are set to go live on November 1st, 2020 at 2:00pm UTC. The first epoch begins exactly at that time.
Epochs
Epochs are 14 days in length. Over the duration of an epoch liquidity providers earn interest on underlying platforms and mine SFI tokens. While liquidity is locked in the pool LPs may trade their Saffron LP tokens representing proportional ownership of the pool. When an epoch ends liquidity providers are able to remove their liquidity alongside SFI mined and interest earned.
Upon launch all liquidity will be added into the S tranche to kick off liquidity mining. The AA and A tranches will be enabled in the second epoch.
Liquidity mining
Saffron is launching with DAI liquidity mining. All DAI added to the Saffron pool is deployed to Compound and earns interest. In future versions of the protocol additional currencies and platforms will be added dynamically.
SFI is mined using the dsec (dollars per second) equation:
dsec = dollar value * seconds
Liquidity providers mint dsec tokens representing the dollar value of capital they’ve added to the pool multiplied by the number of seconds until the end of the current epoch. SFI generated at the end of the epoch are redeemable in proportion to the total outstanding dsec tokens generated during that epoch. For example, if Alice owns 10% of outstanding dsec tokens then she receives 10% of the SFI subsidy. Interest earned is also distributed this way.
Saffron’s native ecosystem token: the Spice token (SFI)
SFI tokens, or Spice tokens, are the native currency of Saffron driving all of its features, products, and incentive structures.
Attributes of the SFI token:
- ERC-20 capped at 100,000 SFI.
- Tokens are a subsidy for liquidity providers and are awarded via liquidity mining.
- The first epoch will generate 40,000 tokens.
- SFI token subsidy is halved every epoch, up to and including epoch 7.
- Beginning on epoch 8, halving discontinues and SFI are steadily released at a rate of 200 tokens per epoch, until reaching the 100,000 cap or a governance vote to change the emission schedule.
- SFI tokens must be staked before an LP can join the yield-enhancing A tranche.
- There are no fees in version 1, however, upon introduction of fees SFI staking will entitle stakers to a proportional share of fee revenue.
- Fees continue to provide incentives when SFI token generation ends.
- The Saffron team is allocated 25% of all SFI minted.
Emission schedule
SFI tokens are minted at the end of each epoch and distributed to dsec token holders and the Saffron team.
Team tokens will be used for ongoing development and providing liquidity on decentralized exchanges.
Approximately 15,000 tokens will be available to the Saffron treasury after the first six months of SFI generation. This ensures ongoing flexibility in the protocol. On-chain governance, once implemented, can decide how the remaining coins are allocated.
The SFI subsidy is split between all pools evenly, except the SFI staking pool, which is a special case. The SFI staking pool’s share of the subsidy is a fixed percentage of the total amount.
Smart contracts
The Saffron smart contracts have been deployed and their code has been verified on etherscan and added to a GitHub repository.
Saffron smart contracts have not yet been audited and users should exercise caution. Code audits and economic attack vector evaluation are included in the team’s ongoing development timeline.
That being said, the Saffron pool, adapter, strategy, and token contracts have been tested with 10,000 DAI in a beta test epoch on the Ethereum mainnet.
The Saffron pool beta contract address is:
0x7DB640b1190B192E8C977208D863e0e1E821CBdB
DAI interest, SFI mined, and principal tokens were all correctly distributed to LPs who successfully redeemed the correct amounts according to their beta dsec and principal token balances.
Join the community
Saffron is launching liquidity mining for the first epoch on Sunday, November 1st, 2020 at 2:00pm UTC (Ethereum block time: 1604239200). Subscribe to the pages below for more events, updates, and information about Saffron and its unique ecosystem of decentralized finance applications.
