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Saffron Finance: A standard for tokenizing on-chain collateral

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Saffron Finance is a protocol that tokenizes on-chain assets and hedges investor funds against impermanent loss by providing dynamic exposure to liquidity providers. Thus it reduces the impact of extreme market volatility on crypto investments.

To achieve that, Saffron narrows the set of investment outcomes, giving liquidity providers a range of options to choose from. As a result, liquidity providers make informed decisions on the best pools and tranches to invest in. To best understand the permutations, let us analyze the functions of pools and tranches. 

Pools and tranches

Each pool has three tranches that have different sets of properties. Therefore, every liquidity providers should choose the best tranche to invest in.

A Tranche: This is one of the extreme tranches with the highest risk yet the greatest return. In particular, the invested funds generate interest, ten times more than the normal situation.

This is because the algorithm automatically multiplies the principal contribution by the tranche interest multiplier. Above this, the platform distributes 10% of the minted SFI tokens to liquidity providers. The point to note is that, although liquidity providers earn the highest level of interest, they can lose their principal contribution and the interest if there are platform risks.

AA Tranche:  The AA Tranche stands at the other end, where liquidity providers earn less interest than in the case of A Tranche, but the Saffron protocol protects them from any emerging platform risks. Therefore, platform risks do not affect their principal contribution and interest earned. Also, liquidity providers share 80% of the SFI generated during an epoch.

S Tranche: The S Tranche creates a balance between the AA tranche and the A tranche, creating an equilibrium. In the end, the multiplier operates on its intended level, maintaining its exact value. To better understand the technicalities, let us take a closer look at pools and the epochs.

Pools: Liquidity providers deposit the underlying assets into pools. Consequently, the pools distribute these base assets to different yield farming platforms. To connect with the platforms, Saffron uses adapters. For instance, the DAI/Compound adapter links the DAI pool to the Compound platform, aggregating all the liquidity providers’ funds. Thus the aggregated funds generate reasonable interest.

Staking pool: SFI holders can stake their tokens and earn additional ones in return. The amount of SFI staking rewards depends on the platform fees generated during the period.

Epochs: An epoch is a two-week period when the protocol locks the underlying assets. During this period, Saffron deploys the capital to different yield farming platforms where it earns interest. At the end of the fourteen days, the liquidity providers get their interest and a share of SFI.

Strategy: One of the most important features of the Saffron platform is the strategy that links pools and adapters. Hourly, the strategy distributes the capital to different pools.

SFI Tokens

SFI is an ERC 20 token with a MAX Supply of 100 000. The Saffron protocol mints the tokens during an epoch. As an example, the platform generated 40 000 SFI during the first epoch. However, in subsequent epochs, the platform will mint fewer tokens. In the second epoch, the protocol will release only half the quantity of the SFI mined in the first epoch. This halving process continues until the eighth epoch, after which it will release a constant quantity of 200 SFI per epoch. 

Governance

SFI holders will take part in the decision-making process after minting a sustainable quantity of SFI tokens.

Community

Saffron. Finance’s community is steadily growing. It wishes to have as many community members as possible. Therefore, you are free to join any of the following community platforms. 

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