Tectonic is a decentralized non-custodial algorithmic-based money market protocol that allows users to participate as liquidity suppliers or borrowers.
The crypto industry’s many protocol developers are currently staying competitive in order to make sure that their projects are sustainable in the long run. Security features are being offered left and right in increasing amounts. In addition, the teams behind these projects make sure that potential clients will benefit from trusting their work.
Table of Contents
Background
The goal of Tectonic is to completely hand over governance processes to the community and stakeholders. The fundamental choices made by the protocol, such as interest rates, the collateralization ratio, token distribution, and others, were initially centralized in the Tectonic protocol. The Tectonic team made these choices after consulting the community.
Compound, a tested and audited protocol, is referenced in the architecture and design of the Tectonic protocol. In addition, the Tectonic protocol’s native token, xTONIC, powers a compelling incentive program. The Tectonic Protocol aims to offer seamless and secure money market functionalities for cryptocurrencies, enabling a variety of use cases for its users.
What is Tectonic?
Tectonic is a decentralized non-custodial algorithmic-based money market protocol that allows users to participate as liquidity suppliers or borrowers. Borrowers can obtain liquidity through excessively collateralized borrowing, whereas suppliers provide it to the market in order to generate passive income.
Tectonic offers activities for its clients. For example, “HODLers,” can supply assets to the protocol and earn additional interest without actively managing their assets.
Certain cryptocurrencies can be borrowed by traders to fund their short-term trading strategies (like shorting) or yield-maximizing opportunities (e.g., farming). Users don’t have to sell their original assets in order to access other cryptocurrencies for a variety of uses (like participating in ICOs or bonding).
In the future, anyone holding a minimum amount of TONIC tokens will be required to first submit and then vote on proposals (Tectonic Improvement Proposals/TIP) that would influence important factors like economics, security, and protocol development.
Fundamentals
Supplying Assets to Tectonic
Users can add their cryptocurrency assets (assets) to the Tectonic platform as a liquidity provider. A fungible resource for the protocol, Tectonic Protocol aggregates the supply from each user into a pool of assets managed by smart contracts while allowing users to withdraw their supply whenever they want. Liquidity providers will receive corresponding tTokens (such as tETH or tUSDC) in exchange for their supplied assets, entitling them to later redeem those assets. The value of tToken will continue to rise as a result of the deposit interest rates, which are determined by the asset’s supply and demand.
Borrowing Assets from Tectonic
Users can borrow supported cryptocurrencies from Tectonic’s asset pools to be used for any purpose by pledging their own assets as collateral. The amount that can be borrowed for each collateralized 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 outstanding borrowing will be repaid at the current market price less a liquidation discount if the collateralized assets’ value declines or the value of the borrowed assets rises. Depending on the assets and market conditions, different percentages of the borrowing assets must be liquidated. Users have two options for preventing the liquidation event: increasing the amount of collateral (i.e., providing more assets) or paying back a portion of their loan. Each loan will have a compounded interest rate and be repayable whenever it is convenient.
Each asset’s collateral factor is determined based on a number of its inherent qualities, such as the asset’s availability in the reserve and market liquidity. The Tectonic team currently determines these ratios and their parameters, but as the protocol develops and the required procedures are put in place, the community will be allowed to participate in the governance of these parameters through the Tectonic governance process.
Liquidity Cushion
There will be a 10% buffer for collateralized assets to guard against unintentional or accidental liquidations. The calculation is illustrated with an example below. If the asset’s price changes, this initial ratio will be allowed to rise until it reaches the maximum collateral factor.
TONIC Token
The Tectonic protocol is governed by the Tectonic token, $TONIC. $TONIC has a total supply of 500,000,000,000,000 $TONIC (500 Trillion), it can be earned by participating in the Tectonic protocol activities.
$TONIC
The Tectonic protocol’s governance token is $TONIC. Users can stake $TONIC once the Community Insurance Module is operational in order to receive a share of the fees collected, and in exchange, their $TONIC will serve as insurance in the event of shortfall events.
Users can stake $TONIC to receive a share of the fees collected once the Community Insurance Module is operational. In exchange, the $TONIC contributed will be used to secure the protocol in the unfortunate event of a shortfall event.
TONIC Staking
With the help of Tectonic’s TONIC staking feature, TONIC holders can place their tokens in the TONIC staking module in exchange for yield rewards. The general concept is as follows: Stakeholders are rewarded, including a portion of protocol revenue produced by borrower fees.
The TONIC token will become even more useful thanks to TONIC staking, which aims to align incentives with the protocol’s ardent supporters while also benefiting token holders. Staked TONIC can also be used to ensure 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 a part of the TONIC money market.
Liquidity Incentives Program
A distribution of $TONIC will be made to the supplier and borrower in Tectonic as part of the liquidity incentive program. The Tectonic team will initially decide how to distribute $TONIC tokens between suppliers and borrowers as well as among supported tokens by considering the supply and demand of each asset.
The community will be consulted before Tectonic’s team decides to implement any additional incentive programs. Any upcoming incentive programs and their pertinent parameters will be subject to the proposal & voting process once Tectonic’s governance process is established.
To avoid misunderstandings, [tToken] is a token created by the Tectonic protocol for users supplying assets to the protocol, whereas $TONIC is the main governance token for the Tectonic protocol. [tToken] gives the owner the right to exchange it for the supplied asset at a rate that takes into account the interest that has accrued on it during the holding period.
TectonicCore
The risk management layer of the Tectonic protocol is the TectonicCore contract. It establishes the amount of collateral that a user must keep on hand as well as whether (and to what extent) a user may be liquidated. A request for transaction approval or denial is made to the TectonicCore each time a user interacts with a tToken.
To make its decisions, the TectonicCore maps user balances to prices (via the) and risk weights (called). By calling Enter Markets and Exit Markets, users explicitly specify which assets they want to be taken into account when calculating their risk score.
Conclusion
To ensure the harmony of the Tectonic developers and its users, the team always makes sure that they will consult the Tectonic community first. The suggestions that will eventually come from the clients could help the protocol on its way to success and longevity.
