For there to be dToken supply in the DeFiChain ecosystem,

someone must mint the tokens for people to use them. But isn't that system flawed?

Minting a token essentially means you are going short on the stock, and as the community knows, it is not a smart idea to short things indefinitely, since stocks and cryptocurrencies like DeFiChain have intrinsic value (as I have said before) and most of the time continue to go up. So with tokens like dSPY, which have been going up pretty much since the beginning of the index creation, who would like to short them by minting them?

Then, where will the supply of dTokens come from?

One solution would be to also buy 1 share of SPY/QQQ/etc. on the market in addition to the collateral needed for each share of the dToken you mint.

Minting a token and selling it is definitely going short on the stock, but is minting a token and adding it to a liquidity pool also going short? I've only been minting tokens I add to the LP, never selling the ones I mint, and I've noticed my impermanent loss is quite negligible.

Hmm... but if everyone mints tokens and subsequently puts them into liquidity mining, there isn't actually any tradable supply.

Every token that gets added to a liquidity pool, is tradable. The way a liquidity pool works is that you deposit one asset into the pool and simultaneously remove the corresponding amount of the other asset from the pool. Going short would mean you borrow the asset and sell it hoping the price falls so you can aquire it back at a lower price than you sold to pay off the loan. As long as you stay in possession of the borrowed asset you are not necessarily short on it.

What flaw are you seeing? The tokens have to be created some how. The way that most Blockchains have been accomplishing this is by creating the assets and pegging them to the price of a stock or other investment vehicle., While this does have a use, mainly to allow investments where they typically would not be available geographically, it has fundamental flaws with the nature of decentralization. Any asset that has a "peg" is not truly decentralized as some regulation is in place to maintain the peg. So a system where minting an asset, requires a Collateral to back the value of the asset, and is not synthetically pegged or influenced and allowed to trade open freely is the epitome of a truly decentralized investment. As long as regulation doesn't get put in place to try and regulate the price of the dTokens, this is absolutely the most innovative solution to decentralized finance I have seen. ❤️

If you mint 1 dQQQ at $200 in a $400 vault (200%) and put it into LM with another 200 DUSD, but then the dQQQ becomes $400, you still will lose the dQQQ since now your vault is only 100%. It doesn't matter you put into LM, you still will get liquidated. People will be able to trade the dQQQ for a time, but as far as I know, the dQQQ burns itself after you are liquidated Then, who would want to mint any tokens? I agree with what you are saying about not having a peg, but I'm wondering how anyone will want to mint anything if they essentially go short any way they use the token? But then if they just keep the token, then it doesn't benefit them or anyone else, and they also get interest charged on them? :)

It can't burn itself some has to bid on the auction, the tokens that they place as a bid get burned. Correct you can't use the same funds as collateral and lm, that would be liquidated, but that is because you are making assumptions with flawed math, not because the system is flawed, in your example you minted more than you could collateralize. A lot of people want to mint tokens, that is how they exist on the Dex, they all had to be minted sometime. It would be a logical fallacy to believe that every person that has minted tokens is wrong and it can't be profitable, there are pros and cons to everything and in some instances minting is a great hedge, for both shorting a dToken, or going long on DFI, sometimes both. Just holding the token would be beneficial in two scenarios that I can think of, 1. if the price of the dtoken rises faster than DFI, you sell it on the Dex and let the vault liquidated 2 if the price of DFI rises faster pay back the loan and you still have your DFI Probably more... Also you can invest the borrowed tokens in LM pools, and receive rewards, as long as the rewards outpace the interest it is net positive, just don't try to mint more than you can afford, you have to calculate the amount of dUSD and the asset before creating a loan that will get liquidated. So there are ways to profit with vaults, and there are ways to profit just by buying on the Dex, the price of information that I see keep getting lost here is that everyone is held up about the difference in Dex vs oracle, when in reality as long as the percentage difference is stable, it really makes no difference... 10% gain on $100 is $10, doesn't matter what the assets cost it's still 10% of the value invested

Another broadly overlooked point is you are assuming that dQQQ rose by 100% and the price of DFI didn't move, while the market for DFI is much broader, as it is globally available, it is unlikely it would not follow the market sentiment

There is something that I just cannot understand. My argument is probably flawed, but I just can't understand why. I probably just need to let the words simmer...

Although in practice DFI might follow global market sentiment, in theory what if it doesn't? If you create a vault with the minimum 150% and collateralize 3,000% by putting 500 DFI (3 dUSDT each) and 1500 dUSDT, then take out only $100 of dSPY, you can then put your dSPY and an extra 100 DUSD you have into a liquidity pool earning 200% APY. But in theory, the dSPY could rise to $2,000 and your vault has to be liquidated. So you've lost a ton due to impermanent loss in the pool. Now someone has to bid for your vault, and they will have to bid in dSPY, so they have to make their own dSPY since the only dSPY available is your own. So they have to collateralize 150% ($3,000) to make that $2,000 to bid for your vault and have the $3,000 sent to their wallet. You get $2,000 because of the token (I am wrong, in fact). But you originally had put in $3,000, so you have still lost money. Now the other person will use $2,000 from their $3,000 to make a dSPY and profit. But you have still lost money, because you tried to mint some tokens but the token went up? Thanks for your comments, by the way.

By this assumption you should never invest in anything because "what if" the price changes. Say you don't create a vault, and dSPY drops to $50 and DFI goes to $10, you just missed a huge opportunity. This scenario is just as likely as the one you pose. So in theory every asset is worth both infinite capital and no capital simultaneously, and only when you choose to participate or not participate does it become finite and have a value. We can pass around worst case and best case scenarios, but in fact that is not conductive to a plausible situation at all, if we base are argument on history, it is true to say that the likely hood of DFI being the outlier that doesn't follow the overall market is not the most probable, and if we follow the what if logic DFI will be worth $1 million each, or $0 each, both with equal likely hood. And yes for one person to profit someone has to lose value, as no value can inherently be created out of nothing. But also if you are diligent with your investment and the risk you take there are ways to mitigate your loss, and amplify your gains. Just a note by the same logic "what if" SPY goes to 0, that doesn't mean that everyone that was invested was wrong, only that an unforeseen event happened, we have to invest with the knowledge we have not the possibility of information that doesn't yet exist. No problem for the comments, love having conversations

Always interesting hearing your perspective!

Ok. Then instead of passing scenarios around like you said, I'll look at reality. In the Great Depression the Dow bottomed at 41, 89% below its peak (which was just 392). So even through Black Monday (1987), the 99/00 .com bubble, and the Great Recession (08/09), the Dow is now in the 30,000s, which is a 100x gain from 300 in between the peak and trough of 41 and 392. So, I don't believe a decline is just as likely as a gain. The Dow and S&P 500 and Nasdaq should continue going up because of their intrinsic value. And, $1M/DFI is very unlikely compared to $0/DFI since the market cap would have to be in the hundreds of trillions.

But say that over time a stock quadruples. Then in that case you have about a 20-25% impermanent loss.

Not sure I see your point, yes markets fluctuate but the fact remains that the market as a whole moves in tandem, so if the stock market goes up it is safe to assume so will, DFI, if the stock market goes down, so will DFI. The case you postulate for vaults not having any incentive only works if they move opposite or if one stays flat, which is the most unlikely of scenarios. Also you postulation for the value of DFI is highly dependant on time frame, today $0 DFI is more likely that $1 million DFI, but to assume that this is a factual statement also assumes a stale market indefinitely, which is unlikely. To see this point ponder the following scenarios: Let's change the thresholds and say that $0 DFI is more likely that $20 DFI today, now if/when DFI hits $12 due to strong innovation, is that statement still true, or is $10 DFI more likely that $50 DFI, then at $27 DFI which is more likely. The fact remains that any asset can be worth more or less at a future time, however trying to predict short term swings is a high risk high reward game and the likely outcome changes with every new minute of information. Also the market has no intrinsic value, with out belife in the system, it is a game of fear. The shares do not have any utility other than the belief that the companies that issue them will honor what they stand for, you cannot forge a share into food, or tools, or even capital if no one wants them...

Yes and 400% gain, so once you remove the impermanent loss you are still positive. Impermanent loss is mitigated by people taking profits and rebalancing a pool to the opposite side of the rising asset. So in essence you are mitigating your risk, but also your gain. If the market quadruples after factoring in impermanent loss, you may only see about 175% of it, but it is still a gain, and in the mean time if the market under preforms your risk is much lower.

Is the point of cryptocurrencies to move in tandem with the stock market? I thought it wasn't supposed to be, or is that just for bitcoin, where it is seen as a hedge like gold? The higher the market cap goes the harder it is to continue growing exponentially as there is not an exponential increase of money being invested. Anyways, I don't think that was important to say. Trying to predict short-term changes is hard and markets are volatile. Some things do have intrinsic value. Farmland has intrinsic value, so a company holding more farmland should have a higher share value. Why does it have intrinsic value? Because as long as we have humans, people need to grow crops to make food to survive. Real estate you can also argue has intrinsic value, since people always need a place to live. Companies like Google do something, they allow us to search up things and gain knowledge and information and pool the world's data.

It's ideal when markets trade sideways or your pull out is back to same prices or it's a long period of time so you can earn rewards along the gradual rise

Agreed that the physical things and ideological things held do have value, but the stock market is a market built on trust that the shares will be honored, definitely not intrinsic, as shares can't be used to grow crops, or live in. Whether it is supposed to follow the market is irrelevant, even in Bitcoins case, they are assets, and markets flow up when people have capital and fear is low, this is true for cryptocurrency as well, so they will most likely stay in tandem. An overlooked fact of market cap is the dilution, it takes exponentially more capital to grow as the cap increases, until dilution out ways cap, and share price falls then capital inflows untill dilution is back in level, and confidence is restored then markets flow up again, it has been shown over and over.

Hmm... 100 DUSD + 1 dSPY ($200) which ends up becoming 200 DUSD + 0.5 dSPY means that you have $400 now, instead of $500. You needed $150 to mint the $100 of dSPY, and now that the dSPY is $400, you would need to put an additional $450 to have $600 in the vault. So before you had $150 in collateral + $100 and then you have the loan of the dSPY for $100. Now you have $600 (since you had to add $450) in vollateral + $200 in DUSD but you need to purchase the other half of the dSPY since you withdrew, meaning you just have the $600 in collateral. Since you have repaid back the token, you now have $600 in free capital. But you had started with $150 to mint the token + your $100 for LM, and you had to deposit an additional $450 to keep the vault alive. So once you take out the $450, you have a loss of 40% ($100). So any gain in the stock token technically should cause you to lose money, disregarding DFI price change, loan interest, and LM rewards. But if you had just held your dSPY instead of putting it into liquidity mining, what does it do? It doesn't do anything for you, and no one else could use it either. And if you sell it, you would have lost money due to dSPY going up. (now that's definitely a short.) So what is the incentive for a person to mint tokens? They have no change if they keep it, and will likely lose money if they use it in a way that brings it to the market where it actually creates supply, since they will lose due to IL or because of shorting. The market usually continues to go up, and they would have to be lucky to profit. A smart person would find that there seems to be an expected loss. If the dSPY goes up, and in any multi-decade period you would never have lost money, someone could also buy a dSPY from the market now, sell it in 20 years, and 99% they will have a profit. But someone must have lost? The person who has minted the token and put it on the open market. So, that is the problem that I am seeing with stock tokens, because no one wants to mint (and basically go short any way they use to get it on the open market) tokens like dSPY, which have, on average, going up for a century, +/-.

Again why are you assume that the price of SPY went up but not DFI, if DFI went up, would would not need to deposit extra value, to keep the vault active... So indeed your SPY went up, then DFI went up, you didn't deposit anything, pay off the loan, keep the negligible commissions, the negligible impermanent loss, that was in your favor beens the tokens rose, the rewards earned, and the increased DFI price, all gains. Yes just holding the token would have higher gains if that asset rose faster than DFI. This is always true, but you are exposed to the risk of it falling, which could be mitigated by liquidity mining. I think you don't understand impermanent loss, it is not necessarily a loss in traditional sense, it is just a rebalancing. The person who minted didn't have to loss, they could have just taken the smaller profit along the way and cashed out, as with traditional stocks, the value is built up by the multidute of small losers along the way. Again with no one wanting to mint tokens, a lot of tokens have been minted, at least 325 million dollars, that have been deposited in liquidity pools, plus what ever people are holding, as all dTokens what to be minted... Not fair to assume that everyone who minted dTokens is wrong and it's a bad idea

But you cannot always assume that DFI and SPY move in correlation. If it did you would not need to deposit, but they probably do not. Then, you should just buy stocks instead of crypto, I think. But in the impermanent "loss" you now only gain 100% instead of 125%, which makes a difference. Yes, lots of tokens have been minted. Somewhere my argument probably doesn't make sense, but I still am viewing it incorrectly, then?

By that notion you cannot always assume they DFI and SPY break correlation... And where in the stock can you collect rewards as well, and where in stocks is anyone trying to break the cycle of regulation, or bring it to people who traditionally don't have access, the value in crypto goes well beyond price... And impermanent loss can help, and hurt gains yes, they can exponentially increase losses as well yes, but they also can hedge losses, at the cost of mitigating gains. So yes it can cause you to gain less, that is by design, but a gain is a gain, and in the case your outlook is wrong it also allows you to lose less. I think your argument is taking very liberal assumptions based on the fact you are only looking for the downside instead of evaluating the positive and negative outcomes.

Yes, I am not saying that DFI and SPY are always uncorrelated. There will probably be times where they are and when they run oppositely to each other. If you have 100 DUSD and 1 dSPY (from $150 collateral) and dSPY shrinks 4x from $100 (-75%), you would have 50 DUSD and 2 dSPY instead ($100) but if you had held instead you would have $125. So once again you lost more than you would have, what do I not understand about IL? You mitigate the gains but instead of mitigating losses as well you instead exacerbate a potential loss. I am looking towards the downside since stocks tend to go up more than down, and by minting tokens long-term you seem to be screwing yourself because you are going short. Of course there is the chance that a crash happens while you minted, and you would have a profit, but profits will not be the same as losses, is what I'm saying, since the market keeps going up. So you will tend to have more losses than profit.

You are only going short if you sell said minted token with the intention of buying it back at a lower price. If you minted and held it, you would not be short, you would be long/bullish.

If you mint $100 of dSPY with $150 in collateral, and dSPY went up to $400, you would need to put an additional $450 in the vault to keep a 150% ratio in the vault. When you pay back the dSPY though, you never made any money, all the money you put in the vault just comes back out. Am I missing something? It seems like in this scenario, you are just neutral and wasting time. Also, with that approach, if it was long/bullish, there is no actual supply that other people can buy in the market, which is the problem I think would occur. Why? Because you mint a token, but then you keep that token! So if everyone does that, there is no supply. But if you liquidity mine or sell your token, you effectively go short.

The example is relatively correct but the math is off, if you pair 100 dUSD and 1 dSPY you start with $200 in value, if it dropped 75% you would have $50 if you held that total in dSPY. With Liquidity Mining, in you example, you would have 50 dUSD and 2 dSPY with $100 in value, so +$50. If you held 1 dSPY and $100 in dUSD, correct you would have $125 in value, but would also miss the opportunity for the 100 dUSD to be doing any work if you were wrong about the market falling. Also with impermanent loss you can't loss nominal amounts on both sides of a pool, so if your SPY fell by 75% your dUSD would increase by roughly 2/3 of the nominal amount. All of this is not considering the rewards for providing liquidity in the first place as well. You will not tend to have greater loss than gains, or very smart very wealthy people would not short in the first place... I agree it is a hard concept, and there are major points I am not good at explaining.

No what I meant is if you hold 100 DUSD and 1 dSPY @ $100 you will have $200, and if it drops 4x you will have 100 DUSD + 1 dSPY @ $25 which means you will have $125, but if you put it in the liquidity pool instead, you would have $100. Also if the people who mint the tokens win, and if you buy the tokens you also win, then why doesn't everyone just mint tokens and buy tokens ad infinitum? Someone has to lose, and I think it is the minters. ??

You only have to deposit such a large amount of somehow DFI stays flat. If everyone was long then yes this could be a problem, however if everyone was long, the Dex price would go up causing people to mint and sell. Liquidity Mining is not going short as you still own the token

But you lose money if the token goes up, as I tried to explain earlier.

I gave all three options as examples, and again impermanent loss is not 1 to 1. 1 reason is not understanding the vault system 2 minting tokens is only a gain if you shorted and bought back lower, or held and the price went up, or the DFI price increases. Buying on the Dex is a gain if you hold and the price goes up, you liquidity mine and the price goes up or stays flat, or moves down slightly and stays relative to DFI

I will post this on Reddit, I think it is hard to get all my thoughts out here. You are probably right, I am not correctly understanding the vault system

You don't lose money if the token goes up, unless DFI doesn't move or moves opposite, and there is nothing saying you have to pay your loan off, if there is such a large gain why pay off the vault, or up the Collateral at all. Mint 1 dSPY worth $100, with $150 in collateral, dSPY goes to $400, sell the dSPY and let the vault liquidate, no need to save it you already gained

But dSPY does not make a rise directly up to $400, so you cannot just let the vault get liquidated to take a profit. It might go from $100 to $150, then abck to $125, then to $175, then to $100 again, etc. SPY doesn't make 4x jumps in a year or sometimes a decade.

Sorry, when I mentioned holding it, I assumed you would be using it to LM, not just sitting on it. But you’re right, it’s not necessarily a bullish or bearish bet because you aren’t making any more money if the price raises or lowers. Your only real benefit is you get the token at the oracle price which is a 30-50% discount on any given day as of late. Really I think it’s a good hedge if you want to provide liquidity for dtokens but are somewhat protected from a down market. But if it turned, you would lose on the upside. But that’s just a guess from a novice point of view.

This is correct other than you wouldn't lose, you would just gain less.

It doesn't matter if you actually lose or gain money here, but in this scenario no supply gets onto the market. I still don't understand why DFI has to move close to dSPY. I'll just accept that it does, but then, what about gold, bonds, or things of the like? You can't tell me stocks, crypto, bonds, and gold move all similarly to each other.

When you liquidity mine, you are literally providing liquidity to the market.

Sorry for the mix-up. I read your thought as you just hodling the token instead of actually putting it in LM. But as I had explained before, if you use liquidity mining and the price goes up, you lose potential gains because of impermanent loss and the fact that you have to buy more of the token to pay back your loans.

You are right by this statement. So if you hold you don't give supply and stay neutral, you sell then you go short, you go liquidity mining and the further the price rises the less of the token you have and must buy back when you are finished, in addition with impermanent loss

They always have moved in correlation, I believe this is due to the fact that they use the same market making tactics, when fear is high they fall some slower than others, when fear is low, they rise, some slower than others. In this case however, DFI is required to mint tokens, so if an asset started rapidly out pacing DFI, then people would mint said asset to sell as it was appreciating quickly, if it started to fall people would start closing loans to take profits. So no they don't have to stay correlated, however all the markets are interwoven, because they all use underlying dollars to measure there value, so they all end up staying correlated. Any major deviation is arbitraged away, as the dollar is what people want to increase. Buying back tokens on the Dex due to impermanent loss is not even a consideration, between commissions, rewards, and the fact that if we are truly looking at impermanent loss, yes you token count would be lower when you withdrew but your dUSD would be greater. You can't lose on both sides.

Yes Yes And kind of, while impermanent loss means you have less tokens, if the token side goes down, then the dUSD side had to go up. Impermanent loss means value was moved from one side to the other.

Oh! I had a lightbulb moment, lol. It just made sense. I was waiting for this moment. The paragraph where you said "In this case however, DFI is required to mint tokens...if it started to fall people would start closing loans to take profits" just made it click.

Glad it helped, sorry I am not the best at explaining either. Hopefully you didn't think I was being a bully. 😂

Ha, I think that I sounded like the bully. Although your responses are a little abrasive and just hit me the wrong way sometimes. I'm not a great explainer myself though, and I totally understand that feeling. When you get it but when you try to make someone else understand it you can't do it or it sounds rude. My dad has a similar issue. As a kid if I didn't get a math problem or something he would just yell at me. It was all in good intentions though, and our relationship is still great.