Wayki-X Tough Questions and Answers 03: Synth Trading
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Q1: Why do I need to trade synths? What is good about it?
A1: For a normal stock investor, the investment threshold for primary assets is so high that some cannot invest. Synth trading on Wayki-X overcomes this barrier. Assume you are bullish on Facebook stock. Normal investors outside the USA face obstacles like forex and account opening. They are unable to buy Facebook stock to sell it later and earn the spread. However, on Wayki-X, you can trade various global assets swiftly and easily without the above restrictions.
Q2: What good investment targets does Wayki-X have?
A2: Currently, Wayki-X has xBTC, xETH, MSFT, AAPL, NASDAQ Index, and other assets that fall into three types: cryptocurrency, US and HK stock indices, and US stocks. Later, it will support forex, gold, and commodities. Besides adding new asset types, delivery and options contracts will also be available for traders.
Q3: Where does the synth trading profit come from on Wayki-X?
A3: If you profit from trading synths, the debt pool created by xUSD minting will have the respective loss and its debt will increase. All debtors (those who minted xUSD) will share this added debt as per their debt ratio. Similarly, when you lose from trading synths, this loss is the profit of the debt pool. All debtors will share this debt pool profit as per their debt ratio. Thus, your profit from synth trading comes from the debt pool or, more precisely, from all xUSD debtors.
Q4: What are the risks of synth trading on Wayki-X?
A4: Like in normal trading, when traders earn spread by buying low and selling high, they have to bear the risk of price falling. For instance, you are bullish on BABA synth stock and buy it. If right after the purchase the price drops, you must bear this risk yourself. Later, we will open contract trading. Then, if you short some asset target, you will have to bear the risk of loss due to price rising. That is to say, when you trade synths you have to bear the risk of losses.
Please note that what traders buy is synthetic stocks and not the real stocks. When there are entitlement events like XR (ex-right) or XD (ex-dividend) for real stocks, the quantity of synths will not change. However, there is a risk of price falling. We advise traders to follow the stock company’s announcements on entitlement events to prepare a trading strategy in advance to avoid asset loss.
Q5: Let’s say MSFT price is USD 100. After I bought it, the price rose to USD 200. If I want to sell, how do I do it on Wayki-X? In the stock market, traders place orders to buy and sell. Who is the counterparty on Wayki-X?
A5: Similar to normal trading, when you need to sell a synth on Wayki-X, you go to the page of the synth trading pair and press Sell. If you sell USD 200 of synths, a smart contract is invoked to give you USD 200 worth of xUSD stablecoin.
On Wayki-X, all xUSD debtors are the counterparty of synth traders. That is, the profit of traders is the loss of xUSD debtors and the loss of traders is the profit of xUSD debtors.
Q6: If I pledge ROG at 800% C-Ratio, mint xUSD and then do nothing with it, will I lose money when MSFT rises from USD 100 to 200?
A6: If someone buys the MSFT synth and its price rises, the market value of the synth increases and you actually lose. See this example. You pledge ROG of USD 800 market value and mint USD 100 of xUSD stablecoin. Your debt is USD 100. When the whole trading end profits compared to the time you minted the debt, you need to pay back a higher debt, USD 110, for instance. You lose money here. Vice versa, when the whole trading end makes a loss, you need to repay a smaller debt to the system to redeem all your collateral assets, for instance, USD 90. You profit.
Q7: Why does Wayki-X debt fluctuate?
A7: The counterparty for synth traders in Wayki-X is the debt pool, therefore, when synth trading makes a profit or a loss, the debt pool changes. Other conditions being equal, when synth trading profits, the debt of the debt pool increases. Similarly, when all synth traders cumulatively make a loss, the debt of the debt pool decreases.
However, when there are enough debtors and a sufficient xUSD debt is minted, the synth value changes tend to affect a personal debt less. Besides, don’t be scared of the increased debt. The increase does not mean that you are bankrupt as a debtor. The actual loss happens only when you burn the debt and exit the market.
Q8: What are the fees in synth trading?
A8: When you trade synths, there are two fees. One is 0.3% of the transaction amount and the other is 0.001 WICC or WUSD miner fee. It’s up to you whether you pay the miner fee in WICC or WUSD.
Q9: How is the synth price set? Is it you or a third-party institution who sets it?
A9: In Wayki-X, an oracle feeds the price of synths. Currently, it uses median values. Assume BTC quote is USD 9,999 on OKEx, 10,000 on Huobi, and 10,001 on Binance. The oracle collects the data, gets its median value 10,000, and feeds it to Wayki-X where xBTC price is set as USD 10,000. You can see this is not an institution or an organization who sets the price. Off-chain data collected by an oracle forms the price for higher objectivity.
Q10: What’s the difference between a synth and the original (real) asset?
A10: A synth is an asset tethered to the price of the original asset. Their difference can be summarized to three points. 1. Creation order. A benchmark asset appears before its synthetic asset. For instance, you must have BTC first to have the xBTC synth and BABA before you have xBABA. 2. Value foundation. Original assets can have different value foundation. Stocks rely on the company’s performance, while synths in Wayki-X are backed by xUSD minted through ROG pledging, and both are affected by the value of the respective original asset. 3. Rights and interests. Original stocks are the certificate of shareholder. Their holders enjoy the voting and dividend rights. Synth stocks don’t have these rights. If you buy MSFT and Microsoft develops well this year, you will receive a USD 1 dividend per share at the end of the year. All MSFT holders will receive the dividend, while those who bought the xMSFT synth will not be entitled to the dividend.
Q11: Do synths mean that WaykiChain buys the original assets for users as an agent or it is just price mapping?
A11: A synth is derived from the original asset and tethered to its price. They are two separate asset types. When users trade synths, WaykiChain does not buy the original assets for users. They transact with Wayki-X contract and Wayki-X debt pool serves as the counterparty for traders. If a user is a buyer, then the debt pool is the seller and vice versa.
The transaction price of a synth is indeed mapped from the original asset. The oracle ensures the price of both is the same.
Q12: If a stock market is closed, can I trade the respective synth?
A12: When the market of the original asset is closed, you cannot trade the respective synth. For instance, a US stock trades from HKT 10:30 PM to 5:00 AM. Its synth stock can be traded within the same time frame only. There is no price for the benchmark asset without trading, therefore, outside its trading time it is impossible to feed the price of the synth.
Q13: Are synths the same as a cross-chain coin transfer?
A13: Cross-chain is mapping of assets of one chain to another one. For instance, WaykiChain supports mapping of cryptocurrencies from Bitcoin and Ethereum chains to mBTC and mETH tokens generated on WaykiChain. Safe reverse mapping is also possible easily. Unlike the above, all synths are on one chain. Wayki-X is WaykiChain’s decentralized synthetic asset issuance and trading protocol and all the synth financial activities happen on WaykiChain’s public chain.
What’s more, cross-chain can only generate tokens corresponding to cryptocurrencies on other chains and is thus limited to cryptocurrency, while Wayki-X can generate all and any assets with deterministic value in the world, including stocks or gold.
Q14: Why can’t I buy synths with ROG directly and need to use xUSD?
A14: ROG price is not as stable as that of xUSD. If ROG and synths both fall, a synth trader who uses ROG has to bear the double risk of asset price falling. For xUSD, synth traders only bear the risk of synth price falling. Also, due to a more stable price, xUSD is more suitable for synth settlement compared to ROG.
Q15: I heard that last year there was a regulatory check on a project that sold stocks with cryptocurrency. Is Wayki-X synth trading compliant?
A15: Wayki-X is compliant. There are no regulatory risks because: 1. A synth is not a real asset but just its simulation. When users buy stock or gold synths, they actually trade cryptocurrency. The regulations of traditional finance (e.g. securities) do not apply here. 2. No asset outflow happens in Wayki-X. CNY is not exchanged to USD or stocks. 3. Wayki-X has no fiat money deposit / withdrawal and is completely crypto-to-crypto.
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