Welcome to Galactic Finance
Today we are introducing Galactic Finance (“Galactic”), a decentralized, permissionless, and zero-slippage crypto synthetic asset issuance and liquidity protocol that primarily serves as a peer-to-pool based decentralized exchange (DEX) on Ethereum.
Leveraging on the permissionless and borderless characteristics of blockchain technology, Galactic is on an overarching long-term mission to:
1. Democratize global access to investment assets e.g., enabling access to US stocks for investors located in other parts of the world, especially in countries/regions where global financial access is limited due to regulatory constraints and capital controls on fiat currencies
2. Increase investment varieties for cryptocurrency holders and further break down the barriers between crypto assets and real world assets
3. Allow the permissionless creation of new synthetic asset types, facilitating the issuance of ‘User Generated Assets’
What are crypto synthetic assets?
Crypto synthetic assets are cryptocurrency-based derivatives that aim to provide its holders' exposures to an underlying asset without needing to hold the underlying asset. The underlying asset types could range from digital assets such as cryptocurrencies, to real-world assets such as fiat currencies, equities, and commodities, as well as exotic new asset types such as an index that tracks a country’s unemployment rate. The price of the synthetic asset is pegged to the underlying asset by a decentralized price oracle.
Crypto synthetic assets will play a vital role in enhancing the utilities and adoption of cryptocurrencies by leveraging on the following key benefits:
1. Access to global liquidity pools and market participation
Benefitting from the borderless nature of the Internet, crypto synthetic assets are backed by a global pool of cryptocurrencies. A cryptocurrency holder can also gain portfolio exposures to any assets in the world through blockchain.
For example, an investor will no longer need to own any fiat USD to gain asset exposures to Tesla’s stocks. Crypto assets will also no longer need to maintain a mutually exclusive relationship with real world assets — cryptocurrency holders can diversify their crypto portfolio exposures to assets in the real world while still maintaining their holdings of the cryptocurrencies.
2. Low cost and permissionless asset creation
Benefitting from the permissionless nature of blockchain technology, the creation of synthetic assets is no longer a speciality that only belongs to established financial institutions. Instead, every crypto holder will have the tools required to create synthetic assets, and the cost of creation and contract settlements will be reduced significantly.
3. Decentralized and non-custodial
There are no central authorities or intermediaries that hold on to the user’s synthetic assets on DEXs, reducing the risks of manipulation and exchange hacks.
How does Galactic facilitate zero-slippage trading?
The backbone of Galactic’s system design is its Debt Pool, which is backed by its stakers’ collateral assets. When stakers stake collateral into the system, they automatically incur a debt that is equivalent to the amount of Gala USD (gUSD) they have minted and collectively carry the burden of the Debt Pool. The Debt Pool acts as the counterparty, and therefore a collective provider of infinite liquidity for traders on the Galactic Exchange to trade against using prices provided by the price oracle.
The peer-to-pool design eliminates the need for an order book in comparison to a centralized exchange, as well as the need for a constant product formula in comparison to an AMM-based DEX. This is especially beneficial for the early adoption of crypto synthetic assets, where liquidity is limited, and large slippages can occur in the aforementioned competing models.
The Debt Pool carries an inverse relationship to the P&L of Galactic’s Global Portfolio i.e., when the total value of Galactic’s Global Portfolio increases, the total value of the Debt Pool will also increase, resulting in a proportionate increase on each staker’s debt, and vice versa. As a result, in a vanilla strategy, stakers are essentially shorting Galactic’s Global Portfolio when entering the Debt Pool.
To compensate Galactic stakers for their risk exposures to the Debt Pool, they will receive the majority of the transaction fees (0.3% of total volume traded), as well as other staking rewards.
How is Galactic different from other peer-to-pool based synthetic protocols in the market?
In contrast to other competing crypto synthetic asset protocols, Galactic’s key value proposition lies in providing a wholistic peer-to-pool total solution with the overarching goal to optimize system stability and usability, and eliminate existing system inefficiencies. Against such backdrop, the Galactic offers the following key unique features:
1. Multi-asset collateral pool
Galactic adopts a multi-asset collateral pool, in which the collateralization system is pre-equipped with ~20 isolated collateral slots, all supporting one single Debt Pool. Each slot accepts 1 cryptocurrency type as asset collateral. The slot design enables the setting of the collateralization ratios customized to each individual collateral asset e.g., BTC’s collateralization ratio can be made different to GALA’s.
The multi-asset collateral slot design enables i) a higher system inclusiveness and prevention of single-currency risk especially in a black swan event and therefore enhances system stability, ii) a deeper liquidity pool as the Debt Pool will no longer be constrained by the total amount of Gala tokens, and iii) a more granular risk management approach thanks to the individualized collateralization ratio and liquidation threshold settings.
The multi-asset collateral pool will accept BTC, ETH, BNB, and GALA (Galactic’s native token) as collateral assets at launch. Subsequent addition of collateral assets will be voted by the community-driven GalacticDAO.
2. High capital efficiencies
Galactic deploys a built-in dual-step liquidation mechanism, protecting the system’s solvency via 2 lines of defence. Through the dual-step liquidation mechanism, bad debt is first settled via the built-in gUSD reserves, and will be subsequently redistributed to the system’s stakers if the reserves become exhausted. This enables a low minimum collateralization ratio and a low liquidation threshold (currently aiming for 200% and 120% for ETH), significantly increasing stakers’ capital efficiencies.
3. Decentralized frontend access
One of the key challenges for the adoption of existing crypto synthetic assets protocols is the lack of user education, especially on the trader side. Galactic intends to outsource its front-end access to incentivized third party front-end operators via open-sourced API. As a result, users will have multiple frontend access to the system. An example of frontend operators will be traditional security brokers. This approach will have 3 key advantages:
1) Enhancing Galactic’s system’s censorship resistance
2) Leveraging on the system operator’s influence and network to drive system adoption and educate potential users.
3) Accelerating frontend design localization due to regional expertise of the frontend operators
We are planning to launch the system later this year, and we are actively looking for system frontend operators who would collaborate with us on system development. If you find our project interesting, please kindly email us at firstname.lastname@example.org.
Learn more about us!