Collateral
The synthetic assets (cAssets) minted by users via the protocol are backed by stablecoins, starting with USDC. We plan to expand our collateral capabilities to include more stablecoins in the future. Collateralizing cAssets with stablecoins allows for more stability since the collateral is not subject to high volatility the protocol can require lower collateralization ratios (C-ratios) and the protocol will be more capital efficient. The C-ratio of cypher contracts will initially be set at 400% and will allow for a dip to 200% before a minter runs the possibility of being liquidated. Minters incur a debt to the market they provide liquidity to. In order to receive the collateral they initially staked, minters will need to pay back debt by burning cAssets.

Minting Collaterization Ratio

C-ratio for minters is as follows
Cmint=capital locked invalue of minted contractsC_{mint}=\frac{\textrm{capital locked in}}{\textrm{value of minted contracts}}
Currently the optimal C-ratio is 400%. To incentivize minters to maintain the optimal ratio a minter will not be able to collect their pro-rata fee portion if a minted position’s collateral falls below 400% until they add enough capital to meet the desired ratio. There will be a buffer to ensure that small fluctuations in contract value does not impact a minter’s ability to collect the fees. To adjust their ratio, a minter can add capital or burn cAssets to bring the C-ratio back up to the optimum level. A minter could also choose to withdraw capital or mint additional cAssets to bring the C-ratio down to the optimum level.