Explanation of Minting, Redemption, Liquidity Pool, and Borrowing Relationships in the SFT Protocol

👋 Welcome to SFT Protocol

1. Minting and Definition of SFT

SFT, which stands for Securitized Filecoin Token, is a notarized bill that can currently be minted on both the FEVM and BSC chains. When users stake FIL on the Filecoin chain, its value includes the initial deposit and collateral rewards, following a notarization period of 540 days. Upon depositing FIL, SFT will be minted, and when the node matures, users can redeem FIL using SFT. Each SFT can be exchanged for an equivalent amount of FIL, maintaining a 1:1 exchange ratio.

2. Liquidity Mechanism in the SFT Protocol

2.1 Interaction Among the Minting Contract, Redemption Pool, Encapsulation Nodes, and Pool Liquidity Pool

• When there are no SFTs queued for redemption within the minting contract, the minting contract transfers FIL to the encapsulation nodes. Users must wait for encapsulation to be completed to receive their SFTs.
• If there are no nodes reaching their expiration date in the redemption pool, and a user chooses to queue their SFTs for redemption, the SFTs will be transferred back to the minting contract. When new FIL enters the minting contract, it will be immediately exchanged for users, maintaining a 1:1 ratio between SFT and FIL total amounts.
• When the capital utilization of the Pool Liquidity Pool falls below 95%, it acts as a temporary FIL provider to fulfill SFT redemption demands and earns the staking rewards of the pledged SFTs.
• Users can collateralize their 6-month farm-pledged SFT orders to the Pool Liquidity Pool, receiving up to 60% of the collateralized total in FIL. The Pool Liquidity Pool gains the staking rewards from the collateralized SFTs.
• When nodes reach their expiration date, the contract releases FIL into the redemption pool, satisfying users’ redemption demands. Mining rewards are automatically distributed daily to nodes based on the FIL/SFT ratio.

2.2 Pledging, Minting, and Redemption

Users who hold FIL can choose between two methods:

1. Minting SFTs with a 540-day custody period for mining. Users can also exit the mining mode prematurely during the custody period or meet temporary funding needs by using the lending and redemption features within the SFT protocol to exchange SFTs for FIL. For more details, please refer to the “SFT Redemption to FIL Liquidity Pool Mechanism Details.”
2. Providing Liquidity to the Pool, i.e., participating in the FIL Liquidity Pool under the SFT protocol. This pool is built on the Filecoin Virtual Machine (FVM), allowing FIL holders to earn stable income without a lock-up period while offering FIL liquidity loans. Users providing FIL earn returns with a compound annual percentage yield (APY) ranging from 10% to 58%. They also receive LP certificates for rSFT, which can be redeemed for FIL at a 1:1 ratio. This approach offers advantages such as stable returns, flexible exits, and automatic compounding. For more details, please refer to the “Introduction to the ‘Provide’ and ‘Redeem’ Functions in the FIL Liquidity Pool.”

2.3 Borrowing

To increase the utilization rate of the Pool Liquidity Pool, the SFT protocol introduces FIL lending. Users can borrow FIL based on the quantity of their 6-month farm-pledged SFTs, with a maximum borrowing coefficient of 60%. Users providing FIL create income while meeting the capital needs of borrowers.

For more details, please refer to the “Introduction to the ‘Borrow’ and ‘Repay’ Functions in the FIL Liquidity Pool.”

These functionalities provide users with flexibility in managing their FIL assets to meet various needs. The SFT protocol offers FIL holders multiple ways to participate in liquidity management and lending, providing more possibilities for the development of the Filecoin ecosystem.

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