Illuminating Shadows Network: A Framework for Synthetic Assets on Substrate
Shadows Network is the first project looking to bring synthetic assets to Polkadot’s interoperable Substrate framework. Synthetics enable any real world asset to be represented and traded on-chain. This includes synthetic stablecoins (xUSD), cryptocurrency (xBTC), commodities (xGold), and stocks (xTSLA).
Recreating traditional assets on-chain provides global access to markets that would otherwise be off-limits to investors. This democratizes finance, and enables investors to gain exposure to assets that they are unwilling or unable to own.
Polkadot’s scalable and interoperable network of parachains is ideal for hosting a project of Shadows’ nature. The high throughput, low fee environment, and cross-chain compatibility are optimal for swapping synthetic assets, which are derived from multiple on- and off-chain sources. Polkadot’s sharded design enables data to be transmitted across multiple parachains and for transactions to be processed in parallel.
With more than $12.5 billion in value staked value on the Polkadot network, it is the most secure PoS platform on the market. These attributes, coupled with the well-documented scaling problems of Ethereum, make Polkadot the logical framework for Shadows Network.
How Shadows Works
In order to generate synthetic assets, there must be some form of collateral that can be used as backing. Within the Shadows ecosystem, this role will be supplied by DOWS. The native token of Shadows Network, DOWS serves as collateral against synths that are minted. In addition, transaction fees collected from trades are pooled and distributed weekly to DOWS holders who have collateralized synths on a pro-rata basis
A minimum collateral ratio of 800% is required in order to mint synthetic assets. In other words, the value of DOWS locked into the smart contract must be 8x the value of the asset being generated. This ensures that synths cannot become under-collateralized, and provides strong assurances that the value of the tradeable synth will correlate with that of the original asset against which it is paired.
Other use cases for DOWS include administering lending and staking rewards, and platform governance.
Much More Than Stocks
A number of blockchain projects currently support synthetic assets, though these are largely limited to stocks and fiat currencies. While Shadows Network will support these applications, the number and nature of synths that can be created is virtually unlimited. Any quantifiable event can be represented as a synthetic asset and traded, using oracles to feed in data pertaining to the outcome, be it based on a sports match, weather, presidential election, or company’s sales figures.
Using Shadows Network, anyone can create or trade synthetic assets of their choice. As the range of synths available on Shadows expands, the available use cases and applications will grow. As a protocol with cross-chain compatibility, Shadows will expand to support collateral such as BTC, ETH, and EOS. This will result in a blockchain-agnostic marketplace that unlocks the full potential of onchain synthetic assets.
Shadows v1 is on course to launch in Q1, 2021, with support for DOWS collateralized synths. Then, in Q2, we will participate in a Polkadot parachain auction, with the goal of supporting cross-chain synthetic asset trading. Our long-term roadmap includes a transition to DAO-based governance and the introduction of synthetic futures and leveraged trading.
We believe that the future of all financial markets lies on-chain, powered by interoperable blockchain frameworks, oracles, and synthetic assets that are accessible to a global user base with no barriers to participation. Shadows Network will be at the forefront of this movement, ushering in a fast, secure, and efficient way to swap synthetic assets of all kinds.
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