Understanding the New Star of Synthetic Assets: Kalata in One Article

The great roc soars on the wind, rising straight up to ninety thousand miles.

Many people did not expect that after DeFi, NFTs (non-fungible tokens) would spread their wings like the great roc, experiencing explosive growth in 2021. In fact, the rapid acceptance of this new type of token by the mainstream is due to its model effectively combining with real-world examples (such as trading cards, artworks, digital content, etc.).

However, besides NFTs, there is another form of asset in the cryptocurrency world that can perfectly interact with the real world and realize "everything can be tokenized," which is: synthetic assets. Simply put, synthetic assets serve as a bridge between the real world and the crypto world, simulating a certain asset (which can be cryptocurrencies, stocks, gold, commodities, derivatives, etc.) on-chain, representing a financial instrument composed of one or more assets/derivatives. It is not the "original" asset but rather "synthetic," aimed at meeting the investment needs of those who cannot or do not wish to hold the original asset.

1. Synthetic Assets May Become the New Engine of the DeFi Bull Market

From the DeFi boom of 2019-2020 to the NFT craze of 2020-2021, the market seems to be searching for the engine that will trigger the next round of market growth. Many industry insiders, including Binance founder Zhao Changpeng and crypto venture capitalist Qiao Wang, are very optimistic about synthetic assets and believe that synthetic assets are likely to be the "spark plug" that starts this engine.

Some may think that NFTs "caught fire" overnight, but that is not the case. The concept of NFTs actually emerged as early as 2017, and it took nearly four years of dormancy to achieve the astonishing results we see today. The same goes for synthetic assets, which began with Synthetix in 2019 and have only seen rapid growth in the decentralized finance space over the past two years, now becoming a key component of the "DeFi movement." According to data from The Block, the total locked value of synthetic assets reached a historic high of $4.63 billion on February 12, 2021 (as shown in the figure below, data extracted on March 27):

As of the time of writing (March 27), the market capitalization of mainstream crypto synthetic assets is as follows:

(Data source: CoinMarketCap, a blockchain analysis website under Binance)

Data does not lie; there is no doubt that market enthusiasm for synthetic assets is heating up. If we look back to 2019, the total locked value in DeFi was only $2 million, but in just two short years, that figure surpassed $65 billion. Currently, the total locked value of synthetic assets is around $3-4 billion. If we refer to the trajectory of DeFi's explosion, the future scale of synthetic assets issued through blockchain could exceed one trillion dollars.

From this perspective, the current synthetic asset market may be at a turning point, and it is worth paying attention to who can achieve an overtaking maneuver on this track.

"New Players" Worth Watching in the Synthetic Asset Arena

According to statistics, the global unmet financial demand amounts to $5.2 trillion, while the DeFi market size only reaches the tens of billions (approximately $60 billion at the time of writing). Coupled with traditional financial shackles such as geographical barriers, high transaction costs, and liquidity constraints, it can be said that the decentralized finance market harbors enormous opportunities. Compared to native cryptocurrencies, synthetic asset tokens have greater market scale potential, and they are more easily accepted by users in traditional finance, undoubtedly attracting more new investors' attention.

As the decentralized financial market accelerates, the types and quantities of assets that can be synthesized will continue to increase, and this track is bound to witness even more astonishing growth. Currently, popular projects in the synthetic asset field include Mirror, UMA, and Synthetix, while some rising stars like Kalata and Linear have also emerged, all of which are "new players" in the synthetic asset arena.

So, what are the similarities and differences between these new and old competitors? Let’s select a few representative synthetic asset projects from this track and compare them to see who is most likely to become the next winner.

The Kalata protocol is a synthetic asset issuance protocol and the underlying network for synthetic asset trading, aiming to enable anyone, anywhere, to freely trade real financial product assets on-chain. As a DeFi protocol launched on the Binance Smart Chain, Kalata will provide an on-chain market for real assets.

Kalata's business model is somewhat similar to that of Synthetix and Mirror Protocol, transforming traditional financial products into a type of digital currency, allowing users to gain investment exposure without actually holding these traditional financial products. Kalata can support a greater number of synthetic financial products and benefits from the "backing" of the Binance Smart Chain. We know that compared to Ethereum, the Binance Smart Chain has obvious advantages in low fees and high throughput, which means that users of Kalata can more easily obtain high-yield trading of synthetic assets and a smoother user experience compared to Synthetix and UMA synthetic asset protocols still deployed on the Ethereum blockchain. Moreover, based on the Binance Smart Chain, Kalata can generate synthetic assets through BUSD and will eventually provide users with infinite depth trading services without slippage or counterparties based on a debt pool model, which is also an advantage of the Binance Smart Chain empowering Kalata on the asset side.

Why Kalata Has the Ability to Achieve an Overtaking Maneuver in the Synthetic Asset Arena

It is worth mentioning that Kalata has designed an efficient economic model based on the KALA token. For those who mint synthetic assets and provide liquidity for synthetic assets, the Kalata system will reward them with the native KALA token. This token can not only be used as a governance token in voting activities but will also be used for transaction fees of synthetic assets on the Kalata derivatives trading platform in the future. The KALA token is based on the BEP20 standard, with a total of 200 million tokens, distributed as follows:

• 40% to incentivize users to participate in synthetic asset minting
• 20% for private fundraising
• 15% allocated to the founding team and early investors
• 15% reserved for the foundation
• 5% for liquidity pools
• 5% for business development and advisors

When minting synthetic assets on Kalata, collateral must be provided, and the corresponding amount of synthetic asset tokens must be paid. The Kalata protocol uses oracles to determine the amount of collateral required for minting assets and assess whether the current collateral value is sufficient to repay the value of the synthetic asset tokens. As long as the collateral value falls below the system's preset minimum, Kalata will automatically execute liquidation to ensure that the value of synthetic assets is not compromised. When the collateral ratio drops below the system's preset minimum, Kalata introduces an auction mechanism to prevent liquidation risks in extreme situations. Users holding KALA tokens can auction at a discounted price to anyone willing to sell synthetic asset tokens, recursively proceeding until the collateral ratio reaches the liquidation specified value.

Kalata uses oracles to ensure that the price of synthetic assets matches the actual asset value:

• When the price of synthetic asset tokens is greater than the oracle price, Kalata will incentivize users to mint synthetic assets and destroy the KALA tokens that users need to pay as protocol fees.
• When the price of synthetic asset tokens is less than the oracle price, Kalata will waive the protocol usage fee and incentivize a certain amount of KALA tokens.

You will find that Kalata's economic model based on the KALA token can bring many benefits to traders and liquidity providers, ultimately achieving a win-win situation, and these advantages will help Kalata achieve an overtaking maneuver in the synthetic asset arena.

It is reported that Kalata will launch on the Binance Smart Chain network in the second quarter of this year, supporting the staking of synthetic US stock assets. Undeniably, the US stock market is indeed one of the most common application scenarios for synthetic assets at present. If successfully launched, Kalata may impact synthetic asset protocols like Mirror Protocol.

In terms of minting mechanisms, Mirror Protocol requires users to collateralize Terra stablecoin (UST) with a 150% over-collateralization ratio. If using Mirror Protocol's own synthetic asset mAsset as collateral, the over-collateralization ratio must exceed 200%. The Kalata synthetic protocol allows anyone to mint synthetic asset tokens by locking collateral, with the collateral being at least 1.5 times the value of the synthetic asset. It is currently unclear whether Kalata allows the use of its own synthetic assets as collateral.

In terms of incentives and staking, Mirror Protocol allocates MIR tokens to investors and community members participating in liquidity mining on Terraswap or Uniswap at a fixed ratio. Additionally, when users burn mAssets to reclaim the underlying collateral, MIR token holders will receive fee income, and the inflation rate of MIR tokens will decrease year by year, with no new tokens issued after the fourth year of the project's launch. On the Kalata Exchange, each transaction incurs a 0.03% fee, which will go into the collateral pool to reward KALA token holders (redeemable weekly), with the reward amount distributed based on the proportion of collateral providers to the total debt pool. Additionally, users engaging in derivatives trading can also earn KALA token rewards based on the proportion of their trading volume to the total trading volume.

According to official data, Mirror Protocol has now launched 22 synthetic assets, including Tesla, Microsoft, Twitter, Alibaba, Google, Amazon, and GameStop, with a total locked value of $1.62 billion. Once Kalata, which benchmarks against Mirror Protocol, completes its launch, it may become one of Mirror Protocol's biggest competitors. According to the development roadmap, Kalata plans to launch synthetic commodity chain assets in the third quarter and the Kalata Exchange supporting synthetic asset derivatives trading in the fourth quarter, with subsequent plans to build on the Near and Ethereum blockchains. This series of actions will inject a "shot in the arm" into the entire synthetic asset market.

Conclusion

Synthetic assets will be a major direction for the cryptocurrency market in the future, as they effectively implement "dimensional elevation" on various traditional financial products in the real world, indirectly allowing these traditional financial products to achieve asset on-chain. For the synthetic asset arena, 2021 will be a very important "key time point." As Bitcoin's market capitalization breaks the trillion-dollar mark and DeFi's total locked value surges toward hundreds of billions, the development momentum of synthetic assets will undoubtedly not weaken, and may even experience exponential growth similar to the current NFT market.

At the current stage, the number of "players" in the synthetic asset arena is still relatively small, so whoever steps onto this track first will have a greater chance of gaining a first-mover advantage, and new projects like Kalata, which are full of vitality, are worth long-term attention.