cc_sigmadex

What is Sigmadex?

What is Sigmadex? To answer that let’s start by addressing the problem it solves. The issues with the current exchange landscape in crypto finance have been exacerbating in recent years as the space has struggled with a number of key problems. From liquidity and latency issues, increasing vulnerability to hacks and exit scams, time consuming KYC processes, limitation of an exchange’s single network, and uneconomical collateralization requirements, the space eagerly and desperately awaits a solution that addresses these issues.

The Solution

Sigmadex is a decentralized, user-friendly, multi-asset brokerage with low latency run by community governance and was built in response to the troublesome issues that are found currently in the exchange landscape. So this solution effectively combats these problems by employing a number of mechanisms that all work together to form the Sigmadex ecosystem.

Liquidity via Game Theory

When mass amounts of liquidity can add freely and subtract from the market individuals who contribute the most capital have the power to manipulate the market at will, forcing the rest to take a loss. To combat this Sigmadex users lock up liquidity for a set amount of time through a unique feature known as game theory. Penalties and rewards are set up in such a way that penalties are more severe the earlier the contract is broken and where rewards maximize at maturity. To incentivise users transaction fees distribute to liquidity providers. This also includes token inflation rewards for long-term providers enabling maximum liquidity for the community.

By using this mechanism, Sigmadex users not only earn rewards for locking up liquidity but also provide a stable foundation for other users by providing data around the locked in liquidity for the ecosystem. When users are able to see that there is an adequate lock up for liquidity of the asset they choose. So they can confidently approach the market in a way not possible on currently available solutions like Uniswap.

Polkadot, Substrate, and XCMP

Users also benefit from XCMP (cross-chain message passing) which allows the exchange of assets across multiple networks allowing for more accurate price discovery at the time when they choose to enter the market for any asset of their choosing. The platform is on the Substrate framework meaning that by default it has low latency and inherits security protocols from its original network.

Realistic and Dynamic Collateralization

Collateralization requirements are taken care of via the Sigma Risk Index which dynamically determines the collateralization needed for an asset without fear of the need to hyper collateralize like many other solutions such as Synthetix which requires a 600% collateralization ratio. All these features greatly benefit the community and allow them to fully maximize their trading experience while working in parallel with the protocol itself.

Community Governance

Sigmadex users are also able to vote on important governance processes which help regulate the operation of the protocol ensuring it meets the needs and standards of the community that uses it. The Sigmadex native token, in addition to being utilized for staking liquidity, also serves as a governance token. Users will have their say in community governance through the election of a proposal contract voters for native token holders. So this is possible by the smart contract that has been empowered by the native token voting to gain administrative access for protocol variable changes.

In terms of the governance level, the token will be able to allow:

  • Voting for important protocol changes 
  • For voting on feature implementations (SFP: Sigma Feature Proposal) 
  • Voting on variable adjustments

Bridging Synthetic Asset Classes

Synthetic assets provide exposure to various asset classes without the need of holding the underlying resource, allowing holders to gain exposure to a plethora of assets outside of the crypto world. Synthetic assets will track the price of specified underlying assets through utilizing a price pegging system that is built into all synthetic asset smart contracts and will track prices through the Sigma Risk Index algorithm and the native token. So the native token will stake as collateral at a variable ratio depending on present market conditions. This game-changer tactic also plays a critical role in reducing the counterparty risk to zero. The advantages of trading synthetic assets include:

  • Seamless on-boarding process
  • Immediate bridge to other asset classes
  • Censorship resistant
  • Reduction of process when switching between markets
  • No KYC or excessive sign up process
  • Collateralized by the community

Sigmadex Ecosystem Flow

To add initial liquidity, users will have to deposit 2 types of tokens: 

For first timers:

  1. Deposit native tokens
  2. Deposit secondary asset tokens (BTC, ETH, etc)
  3. Set initial variables (oracle gateway, price, timelock duration)
  4. Claim liquidity bits

Joining pre-existing liquidity pool additions:

  1. Set the desired time lock duration
  2. Deposit native tokens
  3. Deposit secondary asset tokens (BTC, ETH, etc)
  4. Claim liquidity bits

Adding liquidity consists of depositing an equivalent value of native tokens and the desired secondary pair tokens into the token’s contract pool.

More liquidity equals lower price volatility. All the liquidity smart contracts are programmed with automated market makers using a constant product formula. The pool contracts can also accept one token for another as long as the “constant product” formula is applicable. A simple formula expressed as x * y = z ensures that trades will follow the correct pool value (z) of the smart contract’s reserve balances (x,y) during an active trade. Furthermore the only time the z value changes are when liquidity is added or removed from the pool.

Trading Assets:

Sigmadex Native Token

The Sigmadex native token will serve multiple purposes and is necessary for closing the platform’s economic loop. The token will initially be on the Ethereum network and have an initial supply of 1,000,000,000.

 

In terms of the protocol level, the token will be able to:

  • Add sufficient liquidity to token pools
  • Collateralize assets
  • Inflation distribution

What are the risks?

To help users navigate the DeFi landscape Sigmadex has created their own proprietary Sigma Risk Index. This valuable tool ensures that the market risk and volatility assessment formulas are engineered to adjust with collateralization requirements. In order to ensure reasonable on-boarding ratios for users wanting to collateralize synthetic asset pools depending on real-time market environments. So the collateralization determines dynamically through various algorithms which consider the movement of various cryptocurrencies which include Bitcoin as changes in this cryptocurrency often result in parallel moves in other cryptos. Furthermore, by calculating the requirements of collateralization dynamically users can avoid the unrealistic burden of a fixed value for collateralization. Something which is prevalent in other solutions which often hyper collateralizes.

 

Apart from the annualized volatility, the Sigmadex protocol also uses the EMA (exponential moving average). Sigmadex takes different 3 EMA data points from average cycles to cover the entire crypto landscape. Since the average cycle duration seems to be about 3 years, the protocol uses a max point to indicate the higher-end level of risk tolerance which will carry a heavier weight impact on our risk index calculation. Sigmadex uses an EMA as it emphasizes more on recent data points. Because of this, EMA can be considered more of a weighted average calculation.

 

Note – The Sigma Risk Index will weigh every data point according to its importance. The Risk Index is not 100% error proof and risks still remain which users should understand and learn about before making financial decisions. 

More about Sigmadex

The core design of the project is built to be far more simplified in order to avoid excess computational requirements ensuring maximum efficiency.

Through the use of game theory, they’ll consider all the various scenarios and possible outcomes will in order to attain the best financial strategy. This is possible because everyone in the ecosystem will have an established common goal and set specific ways of achieving that goal. 

Sigmadex is in a class of its own and stands apart from all other traditional solutions.

The team at Sigmadex envisions Sigmadex to become a liquidity layer that will blend the computation of game theory with human psychology.

Read more about how the Sigma Risk Index works here

Check out more about Sigmadex!

Newsletter

What is Sigmadex?

What is Sigmadex? To answer that let’s start by addressing the problem it solves. The issues with the current exchange landscape in crypto finance have

Read More »