What is the USE CASE of $ION? w/ Sunny Aggarwal

Summary

In our discussion, we delved into the transformative journey of ion from its origins as a meme coin, through a significant clawback that drastically reduced its circulating supply, to its current crossroads seeking a definitive use case. We explored the ionize proposal, which I've contributed to, proposing that ion could emulate the role of synthetics in the Terra ecosystem, akin to synthetics' function within the MakerDAO framework. We unpacked the concept of synthetic assets, explaining their nature as virtual representations of real-world or digital assets that track their value but aren't directly backed by them. This led to an examination of stablecoins as a popular form of synthetic assets, highlighting their distinct mechanisms and their evolution over time, including the innovative mint and burn model introduced by Terra. The overarching theme was the potential for ion to leverage these insights and technologies to carve out its niche, underscoring the dynamic and participatory process of determining its future direction within the community.

Key Takeaways

The 'ionize' proposal suggests transforming ion to play a role similar to that of synthetics in the terra ecosystem, aiming to create a diverse range of synthetic assets.
Synthetic assets are virtual representations of real-world or digital assets, designed to track the price movements of those assets without requiring direct ownership or collateralization by those assets themselves.
Stablecoins, a subset of synthetic assets, have demonstrated the versatility and potential of synthetics within the crypto ecosystem, with various models including collateralized and non-collateralized approaches impacting their adoption and utility.
The evolution of stablecoin designs, from collateralized debt positions (CDPs) to the mint and burn model, showcases the innovation in creating more efficient and accessible synthetic assets.
The proposal to generalize the Terra mint and burn model for a wider range of synthetic assets could significantly expand the use cases and adoption of synthetics beyond stablecoins, potentially outperforming existing synthetic asset platforms.

Detailed Analysis

The recent evolution of the $ION token, as discussed in the video, marks a fascinating turning point from its origins as a meme coin towards potentially substantive utility within the crypto ecosystem. The core of this transformation hinges on the "ionize" proposal, which ambitiously aims to position $ION in relation to Terra as Synthetix is to MakerDAO. This comparison isn't just superficial; it's a profound insight into how $ION could leverage the burgeoning field of synthetic assets to carve out a unique and valuable niche.

Synthetic assets, for the uninitiated, are virtual representations of real-world assets that track their value, without necessarily holding the underlying assets. This concept isn't just a technical curiosity; it's at the heart of one of the most significant innovations in crypto today. Stablecoins, as a subset of synthetics, have already demonstrated the power of this approach by providing a bridge between the volatile crypto markets and the stability of fiat currencies like the USD. The evolution from collateral-dependent models (like Dai's over-collateralization with ETH) to more sophisticated mechanisms (like Terra's mint and burn model) illustrates a broader trend towards creating more efficient, accessible, and flexible financial instruments within the crypto space.

The implications of successfully implementing the ionize proposal are vast. By generalizing Terra's mint and burn model to a broader range of synthetic assets, $ION could potentially unlock a new level of capital efficiency and utility in the crypto ecosystem. This isn't just about creating another platform for trading synthetic assets; it's about challenging and expanding the very notion of what's possible in decentralized finance (DeFi). The potential for a synth protocol to outperform established players by embracing this new model could significantly alter the competitive landscape.

However, it's crucial to approach these prospects with a critical eye. The success of such a transformative proposal hinges on several factors, including community acceptance, technical feasibility, and the broader regulatory environment. The reliance on the $ION community to drive this change introduces an element of uncertainty, as does the technical challenge of adapting and scaling Terra's model to suit a wider array of assets. Moreover, the evolving regulatory stance towards crypto, particularly synthetics and stablecoins, could pose unforeseen challenges down the line.

This discussion is immensely useful for anyone deeply invested in the future of DeFi, whether they're developers, investors, or just enthusiasts looking to understand the cutting edge of crypto innovation. The conversation around the ionize proposal serves as a case study in how community-driven projects can pivot towards new opportunities, the complexities of designing financial instruments in the decentralized space, and the ongoing dialogue between innovation and regulation. For those navigating this rapidly changing landscape, insights like these are not just interesting; they're essential.

Transcript

Speakers: A, B

**A** (00:09): Now it looks like there's a new era for ion from switching over from this, this meme coin that was airdropped to people. Then with the clawback on 12-15-16, 500 something ions, which is more than 80% of the of the supply, were clawed back into the osmosis community pool. And there's now only what, 6,000 circulating. 6,000 ions. So the question is now what do you do with all these funds and what is the use case for ion? And I think today we will figure this out and maybe see where, where is the direction going for ion from here on. **B** (00:49): Right. **A** (00:50): So let's start with the ionize proposal, which envisions basically my perception that ion becomes to terra what synthetics is to maker. **B** (01:02): Right. **A** (01:02): You guys also state that in, in the document. I think, Sunny, you wrote it actually. So can you maybe like on a big picture, easily explain what, what that means? Like also like just the context on synthetic assets. I think for many people that's a complete new field in crypto. **B** (01:20): Right. **A** (01:20): That people don't know. So maybe just briefly explain the idea and the goal behind this proposal before we go deeper into certain items. **B** (01:30): Yeah, sure. So, you know, one thing I just want to start off with is, you know, just remind everyone that the ionized proposal is. It's just that. Exactly. That it's a proposal. Right. Like, it's still really up to the ion community to choose what they want to do, I think. So some people are interested in ionized proposal and there's a lot of people who are also not interested in it. And so, you know, the DAO would have to decide if they want to do it. And we can talk about how the DAO will decide because that's something Jake's team is working on right now. But. Okay, but let's talk. Let's go just dive into the INI proposal. So, yeah, what are synthetics? Synthetics are basically saying that, hey, it's a virtual representation of an asset that exists somewhere that doesn't exist on chain, or it can exist on chain as well, but it's a virtualized representation of an asset that tracks the price of some external assets. So that. Or some external index. But. So yeah. So what can this be used for? Like imagine you had a synthetic Bitcoin. What would that mean? That means you have a asset that's not backed by Bitcoin, but the asset's value is tracking Bitcoin. So if Bitcoin goes up, the value of this asset goes up. If Bitcoin goes down, the value of it goes down. And the key is it's not collateralized by Bitcoin itself. It could be collateralized by something else or it could be not collateralized at all. There's different types of synthetic assets, but that's the key thing here. So you'll notice that there is actually a type of, you know. Okay, so. So the biggest synthetic platform today is called synthetics with an X at the end and synthetics basically what? Well, okay, let me go back for a second. These synthetic assets, you'll notice that there is actually a very popular type of synthetic asset that's used throughout the crypto ecosystem and that is stable coins. Stablecoins are a very specific type of synthetic asset, right? They're a USD synthetic, right? It's a you. So if you look at something like Dai, right? Dai is it's tracking the price of $1 of US$1 but. And it's not. But it's not actually backed by US dollars, right? Like USDC would be not be considered a synthetic because yes, it's tracking the price of a dollar, but it's also backed by US dollars in a bank account somewhere, right. So it's not a synthetic, but. But DAI is a synthetic. And basically this synthetics protocol with the X. I'm going to start using the word synth instead of synthetic because synthetic and synthetics hard to know that hear the difference. But yeah. So the synthetics protocol, what they realized was how maker does their stablecoin is. They came up with this concept called CDPs where you, you put in eth as collateral, over, collateralize with and then you can pull out, you know, let's say it's 150% over collateralized. You can pull out that much a die out of it. And if you want to get your eth back, you have to like give back the eth, the, the die and you can withdraw your eth. And they have like this whole liquidation system where if the value of the ETH goes below some amount then you get liquidated. And like this entire CDP concept that made it possible to mint synthetic USD via over collateralizing by eth. The synthetics protocol, what they came along and said was like wait, that's so cool. Why do we only have to mint synthetic dollars with that? So why can't we mint synthetic any asset, right? So what they did was so they could. So they did something interesting where they said instead of collateralizing with E eth, they made it so you collateralize with their own native token called snx. And you know I, I was actually a little bit skeptical of the project because of that. But you know, it turns out I'm wrong about things, you know. But so, you know, clearly they've been very successful. But yeah, so you collateralize with SNX and then you can go mint synthetic dollars. So they have a synthetic dollar called S USD but you can also go mint stuff, synthetic bitcoin, they have sbtc. You can go mint synthetic. I think they have gold, I think as well. So you can go mint SBT gold or whatever. Like no, you can mint all these different synthetic assets, but they all use the same CDP model that was invented by MakerDAO. Now what's interesting that what's happened in the last one year, one and a half years is we've just seen an explosion in the number of stablecoin designs. Right. So, you know, back, you know, in 2019 when like Maker and Synthetics were being built, like CDPs were the way to build stable coins or synthetic assets. But with, in stable coins in 2020 and 2021, you know, we saw the rise of Fay and ESD and Terra. And so in this like history and so what's happened is we, we've learned all these different ways of creating stable coins. Some of them are more successful than others. And I think what Terra did, you know, has clearly been this like runaway success, right? It is the largest, I think it has, I think it's the biggest decentralized stable coin right now in, you know, in supply and everything bigger than DAI at this point. And what they invented was this new model called the Mint and burn model where Instead of using CDPs, they do this system where you can, you know, we, you, we. I think we can go into the, into the exact mechanisms in a little bit. But they, you know, the basic is they have this thing where like, you know, you can burn Luna in order to mint USD and you can burn UST in order to mint more Luna. And so it's, it's in a way kind of backed by Luna, but not really. And so we can, we can talk about that. But you know, that what that did was it like, it helped it break out of this like capital efficiency issue that maker that CDPs have. Because with CDPs you're capped in the amount of, you know, stablecoin that can or synthetic that can be minted based off of the amount of, you know, collateral that people can put up. But because Tera's mint and burn model is a little bit, is, it's not collateralized. It's. It's more of an uncollateralized system. It allowed the number of stable coins to become much larger. And so our observation was just that, hey, if any stablecoin design can be generalized in order to make a a generalized synth design. So if synthetics generalized the Maker CDP model, someone should go and generalize the Terra Mint and Burn model. And that's sort of where the original idea behind this ionized proposal, which was just this, you know, it's not really anything special to ions itself. It's just this idea that, like, someone should go figure out how to generalize the Terra model. And you know, maybe you can build build a in the same way that the TERA has like, outperformed like maker, you can maybe have some a synth protocol that like, achieves this way bigger usage than synthetics ever did.