Tectonic Crypto is an algorithm-based non-custodial decentralized money market protocol that allows users to participate as providers or borrowers of liquidity. Borrowers can get liquidity through oversecured loans, while providers provide it to the market to generate passive income. Read on to learn more about the Tectonic Crypto project and whether it is a good investment.
What is Tectonic Crypto (TONIC)?
Tectonic Crypto is a cross-chain money market to earn passive income and access instant collateral loans. Investors can deposit their crypto assets with Tectonic for dynamic yield without lockout periods, while borrowers can borrow liquidity by providing their crypto assets as collateral.
Tectonic Crypto is modeled after Compound and aims to provide seamless money market functionalities that address multiple use cases for its users:
- Investors with excess crypto capital can generate additional interest on their idle assets without actively managing them.
- Traders can borrow crypto assets and capitalize on short-term or long-term financial opportunities such as staking or yield farming.
- Users can access cryptocurrencies to participate in IDOs without liquidating their underlying collateral.
Tectonic plans to increase the number of supported tokens, focusing on assets from EVM-compatible ecosystems. In the future, the project promises to launch leveraged yield farming and a governance module for its TONIC token.
How does Tectonic Crypto (TONIC) work?
Tectonic Crypto is made up of three main modules within the protocol: an interest rate engine, a settlement module, and a community insurance module.
The interest rate mechanism adapts a variable interest rate model similar to money market protocols such as Compound. Interest rates are determined algorithmically based on the rate of utilization and supply and demand in loan portfolios. Tectonic’s team sets interest rates and other parameters at the beginning of a loan pool, with the rates being divided into two stages. Before a high utilization threshold is reached, interest rates follow a linear curve. Afterwards, rates are set according to an upward curve to reflect the increased demand for liquidity.
The settlement module settles your undersecured loan position and offers a settlement discount to settlers to encourage keeping the system stable. Before a predetermined amount of liquidators is reached, the core team will also act as one of the liquidators. Later, a governance vote will decide whether the core team will be removed from their liquidator position.
The community insurance module is scheduled to go live in the first quarter of 2022 and is expected to act as a mitigation tool in the event of a so-called shortfall event. Tectonic defines this as an event that can harm the integrity of the protocol, such as smart contract risk, settlement risk, or oracle failure risk. Users can bet their TONIC and receive stTONIC in return to protect the protocol. However, in a deficit event, your share may be reduced as funds are used to mitigate the damage done. Interested parties will also be able to lock their positions for a minimum period of 90 days and accrue a share of the protocol’s swap fees.
Asset provision for Tectonic Crypto
Users can add their crypto assets (assets) to the Tectonic Crypto platform as a liquidity provider. A fungible feature to the protocol, Tectonic Protocol aggregates each user’s supply into a pool of assets managed by smart contracts, allowing users to withdraw their supply whenever they want. Liquidity providers will receive matching tTokens (like tETH or tUSDC) in exchange for their provided assets, giving them the right to redeem those assets at a later date. The value of the tToken will continue to rise as a result of deposit interest rates, which are determined by supply and demand for the asset.
Tectonic Crypto Asset Lending
Users can borrow supported cryptocurrencies from Tectonic Crypto’s asset pools to be used for any purpose, offering their own assets as collateral. The amount that can be borrowed for each secured asset is indicated by a Collateral Factor (also known as the Loan-to-Collateral Ratio), which is carried by each asset. For example, a collateral factor of 75% means that users can only borrow up to 75% of the value of their collateralized assets.
A portion of the loan outstanding will be repaid at the current market price less a liquidation discount if the value of the secured assets decreases or the value of the borrowed assets increases. Depending on assets and market conditions, different percentages of loan assets must be liquidated. Users have two options to avoid the liquidation event: increase the collateral value (i.e. provide more assets) or pay off a portion of the loan. Each loan will have a compound interest rate and will be repaid whenever convenient.
The collateral factor of each asset is determined based on some of its inherent qualities, such as the asset’s availability in reserve and market liquidity. The Tectonic team currently determines these ratios and their parameters, but as the protocol develops and the necessary procedures are implemented, the community will be able to participate in the governance of these parameters through Tectonic’s governance process.
Liquidity Cushion
There will be a 10% buffer for secured assets to protect against unintentional or accidental liquidations. The calculation is illustrated with an example below. If the asset’s price changes, this initial index can increase until it reaches the maximum collateral factor.
TectonicCore
The risk management layer of the Tectonic protocol is the TectonicCore contract. It establishes the amount of collateral a user must keep on hand, as well as whether (and to what extent) a user can be liquidated. A transaction approval or denial request is made to TectonicCore each time a user interacts with a tToken.
To make its decisions, TectonicCore maps users’ balances to prices (via) and risk weights (calls). By calling Enter Markets and Exit Markets, users explicitly specify which assets they want to be taken into account when calculating their risk score.
Staking TONIC
With the help of Tectonic’s TONIC staking facility, TONIC holders can place their tokens into the TONIC staking module in exchange for yield rewards. The general concept is as follows: Stakeholders are rewarded, including a share of protocol revenue produced by borrower fees.
The TONIC token will become even more useful thanks to the TONIC staking, which aims to align incentives with ardent supporters of the protocol, as well as benefiting token holders. The TONIC Stake can also be used to guarantee the community in the event of a shortfall, and will eventually be used to vote on Tectonic’s governance proposals. Staking is a separate function that is not part of the TONIC money market.
Liquidity Incentive Program
A distribution of TONIC will be made to the supplier and borrower at Tectonic as part of the liquidity incentive program. Tectonic’s team will initially decide how to distribute TONIC tokens among providers and borrowers, as well as among supported tokens, considering supply and demand for each asset.
The community will be consulted before the Tectonic team decides to implement any additional incentive programs. Any future incentive programs and their relevant parameters will be subject to the nomination and voting process once Tectonic’s governance process is established.
To avoid misunderstandings, [tToken] is a token created by the Tectonic protocol for users who provide assets to the protocol, while TONIC is the main governance token for the Tectonic protocol. [tToken] gives the owner the right to exchange it for the given asset at a rate that takes into account the interest accrued during the holding period.
Token TONIC
Tectonic is powered by TONIC , its native governance and utility token. TONIC holders can stake the token to secure the protocol through its community insurance module and use it to vote on governance proposals after Tectonic transitions to a DAO model. Token holders can submit and vote on proposals or delegate votes for proposals following governance guidelines. The TONIC token has a maximum supply of 500,000,000,000,000 TONIC coins.
Conclusion
Tectonic is a decentralized aggregation protocol that allows users to participate in providing liquidity and is a cross-chain lending platform built on the Cronos ecosystem. Liquidity providers deposit tokens to earn passive income, while borrowers can borrow liquidity in a super-collateralized manner. The objective of the product is to help promote the efficient use of capital. The project was a pioneer in the application of accounting indicators to monitor and restore the balance of the system. PortalCripto hopes that the article has brought the necessary information about the Tectonic Crypto project and whether it is a good investment for you as an investor.
