DeFiDe: Decentralized Financial Derivatives

DeFiDe (Decentralized Financial Derivatives) is an innovative DeFi protocol that introduces a new way to create value in the Ethereum ecosystem through DeFiDeTo (Decentralized Financial Derivatives Tokens). These are ERC-20 tokens minted from a basket of underlying assets, providing a derivative value that is directly linked to the collaterals.

This project was developed as a part of EthLisbon 23’ hackathon.

Introduction

The DeFi ecosystem is an combination of open finance instruments and protocols that aim to replicate and innovate on traditional financial services. DeFiDe provides a means to mint ERC-20 derivative tokens backed by a diversified collection of assets. This mechanism introduces a scalable and flexible approach to asset-backed tokens, enabling users to create and trade complex financial instruments in a trustless environment.

Value Proposition

DeFiDe empowers users to:

• Mint DeFiDeTo Tokens: Representing a basket of underlying ERC-20 tokens held in collateral.
• Retain Value: Each DeFiDeTo token’s value is pegged to the collective value of underlying assets.
• Burn and Recover Assets: Users can burn DeFiDeTo tokens to recover the underlying assets, ensuring liquidity and ownership rights.
• Enhance Liquidity: By providing a protocol for creating derivative tokens, DeFiDe enhances the liquidity and accessibility of various ERC-20 tokens within the DeFi ecosystem.
• Create Diversified Portfolios: Users can diversify their cryptocurrency holdings by minting DeFiDeTo tokens that are backed by multiple assets.
• Hedging Against Volatility: Users can hedge against the volatility of a single cryptocurrency by holding a DeFiDeTo token that represents a basket of various tokens, thus spreading out their risk.
• Customized Index Funds: Create personalized index funds that represent a custom selection of tokens based on user's preferences or investment strategies.

How It Empowers the DeFi Ecosystem

• Innovation in Financial Products: By leveraging DeFiDe, the creation of sophisticated financial products becomes more accessible, promoting financial innovation on the blockchain.
• Decentralization and Autonomy: Operating in a permissionless and decentralized manner, DeFiDe adheres to the ethos of the DeFi movement, providing autonomy to users.
• Interoperability: The system is built on Ethereum, allowing seamless interaction with other DeFi protocols and services.
• Transparency and Security: Open-source and auditable smart contracts underpin DeFiDe, ensuring transparency and security for its users.

Contracts

DeFiDeTo

Description

The DeFiDeTo contract allows the creation of ERC-20 tokens (DeFiDeTo tokens) that are valued based on a collection of underlying tokens. These tokens can be burned, with the underlying assets returned to the token holder.

Inheritance

• ERC20Burnable: Provides functionality to burn tokens, reducing the total supply.
• Ownable: Introduces ownership over the contract, giving special privileges to the owner account.

Structs

• CollateralToken: Defines a token and its amount to be used as collateral.

Constructor

• constructor(CollateralToken[] memory tokens): Initializes the contract with a list of CollateralToken, setting up the underlying basket.

Functions

• getCollateralTokensCount(): Returns the count of collateral tokens.
• burn(uint256 amount): Burns amount of DeFiDeTo and returns the corresponding underlying tokens to the caller.
• mint(uint256 amount): Mints amount of DeFiDeTo tokens to the caller in exchange for a proportional amount of underlying tokens.

State Variables

• collateralTokens: Array of addresses representing the tokens used as collateral.
• tokenAmountMultiplier: A mapping from an address to a multiplier, used to calculate the amount of each token required for minting.
• baseToken: The token with the smallest amount among collateral tokens.

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DeFiDe

Description

The DeFiDe contract manages the creation of DeFiDeTo instances. It ensures that each unique combination of underlying tokens and proportions has a single corresponding DeFiDeTo token.

Functions

• getOrCreateDerivativeTokenForTokenAddressesAndProportions(CollateralToken[] calldata tokens): Retrieves or creates a DeFiDeTo token for a given combination of underlying tokens.
• computeIndexForUnderlyingTokens(CollateralToken[] memory tokens): Computes a unique index for a given set of underlying tokens based on their addresses and amounts.
• createDerivativeTokenForTokenAddressesAndProportions(CollateralToken[] memory tokens): Creates a DeFiDeTo instance for a specific set of tokens and proportions.

State Variables

• deployedDeFiDeToInstance: A mapping from a unique index to an address of a deployed DeFiDeTo instance.

Usage

To use the DeFiDe system:

1. Deploy the DeFiDe contract.
2. Call getOrCreateDerivativeTokenForTokenAddressesAndProportions with the desired underlying tokens to retrieve or create a DeFiDeTo instance.
3. Interact with the DeFiDeTo instance to mint or burn derivative tokens.