cAssets, the synthetics
cAssets are the synthetic assets that are minted via the cypher protocol. These synthetic assets allow for retail and institutional participants to gain exposure to the underlying asset without having to actually own it. cAssets provide access to opportunities that retail participants have been excluded from as well as allow for more traditional type trading strategies to be deployed in pre-IPO markets.
cAssets are expiratory token contracts which have a dynamic execution date. A token will expire and financially settle upon an execution triggering event, for these initial pre-IPO derivatives, execution happens at close of trading on listing (IPO) day. Having the execution happen upon the last tick price will allow for arbitrage opportunities to take place and enable convergence of the synthetic asset price to the market price of the stock exchange that the company listed on.
In some cases, a company on which an cAsset is based may not go public. To anticipate this, the token will be programmed with a number of alternative execution triggering events as well, such as the implied share price based on value when acquired by a strategic buyer or at the then-current price after a set number of months since contract creation.
While cAssets are denominated on a price per-share basis, they imply a valuation of the company on which they are based. This presents a challenge because the number of shares outstanding is not always publicly available prior to filing of a registration document as part of preparing to go public. As such, many cAssets will undergo a price adjustment once the actual number of shares is publicly solidified. This price adjustment will not impact the profit or loss of a participant’s positions, but will result in a new trading price so that the valuation implied by the cAssets coordinates with the public market valuation once applicable. This calculation ensures the price the oracle is pulling as the cAsset approaches settlement is apples-to-apples in terms of valuation with the price the trades had been placed at.

Calculation

Padj=Punadjβ€…SunadjSadjP_{adj}=\frac{P_{unadj}\: S_{unadj}}{S_{adj}}
Since there are no real-time price feeds for the private capital markets, cAssets will use a time weighted average price (TWAP) with respect to time TWAP of its own price in order to maintain a proper collateralization ratio. The protocol will take the max of two TWAP calculations, one with a shorter time horizon and one with a longer horizon. This implementation will help ensure safety for a more volatile market. If the market is in a downtrend, the TWAP with the longer time horizon will be utilized for setting optimal collateralization and if the market is in an uptrend the TWAP with a shorter time horizon will be utilized. This is an extension of the methodology used for collateralizing the ethereum gas future developed by uLABS.
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Time horizon for the TWAP calculation will be set at 2 and 4 hours (this will be up for governance in the future). This time frame was chosen after seeing the success of the Ethereum gas future implementation by uLabs and yam Labs.

Calculation

max(TWAP(t1long,t2long),TWAP(t1short,t2short))=βˆ‘t2t=t1Passet(t)β€…Vasset(t)βˆ‘t2t=t1Vasset(t)max(TWAP(t_{1_{long}},t_{2_{long}}),TWAP(t_{1_{short}},t_{2_{short}}))=\frac{\sum_{t_2}^{t=t_1}P_{asset}(t)\:V_{asset}(t)}{\sum_{t_2}^{t=t_1}V_{asset}(t)}
The synthetic assets tradable via the platform will be over-collateralized by minters to ensure safety, though with healthy market dynamics, traders taking short and long positions should cover each other’s positions. The protocol will only need to leverage collateral from minters as an insurance pool if the longs and shorts cannot cover each other’s positions.
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