Introduction

Oxygen.org is a DeFi Prime Brokerage Protocol built for the future to support 100s of millions of people. It can help you, as a holder of digital assets, generate liquidity, earn yield, borrow assets to go short, get trading leverage against portfolio of assets. It allows for a more efficient use of your assets in 3 key ways:

  1. Multiple use of the same collateral. Oxygen enables you to generate yield on your portfolio through lending out your assets and borrowing other assets at the same time.
  2. Cross-collateralisation. With Oxygen, you can utilise all of your portfolio as collateral, when you want to borrow other assets. This should mean lower margin call/liquidation risk for your portfolio.
  3. Market-based pricing. Oxygen protocol is order-book based, rather than following a pre-set market model that needs to be manually adjusted. This means you get the best/fair price for borrowing/lending every time.

Prime Brokerage is a core building block of financial markets trading business in the “real-world” investment banking. It connects various market participants - hedge funds, institutions, pension funds, insurance companies, asset managers and liquidity providers - for a more efficient market and price discovery, as well as facilitating leveraged trading.

DeFi financial infrastructure should have its own solution(s). So we’ve built our version of it leveraging decades of Wall Street, software engineering, high frequency trading and cybersecurity experience. It’s open sourced - for the community to use and improve it.

It’s 100% decentralised, 100% non-custodial, 100% on-chain. All transactions are purely peer-to-peer with no involvement from a centralised operator. Oxygen protocol never has access to your private keys at any point. All the transactions are auditable, immutable and final. Clearing price for borrowing / lending is determined by the market - through on-chain order-book matching.

A key reason why Oxygen.org is possible today is Serum Ecosystem + Solana Blockchain infrastructure. Solana is a future-proof blockchain currently supporting 50,000+ transactions per second, for less than $0.0001 each. Serum’s 100% on-chain orderbook is at the core of Oxygen protocol helping match borrowing and lending orders as well as execute risk-management through Serum’s decentralised exchange (coming soon).

How it works

Get started in 1...2…3

  1. Create a new pool.
  2. Deposits your assets.
    1. Mark which ones can be lent out and on what termsGenerate passive $$$
    2. Generate passive $$$Borrow USDc and other assets

It’s that simple.

Lending of assets

You select which assets to lend out, when you want them back and yield you want to earn (market rate or limit order).

Protocol places the assets from the portfolio into the borrowing/lending orderbook with your desired parameters. You start earning yield as soon as your order has been matched.

When you want the asset back, just change “Yield On/Off” parameter to recall the assets and you will get it back at the expiry of the existing lending contract.

Even when your assets are lent out (and generating you yield), you can use them as collateral to borrow other assets - whether borrowing to get liquidity (eg USDc) or to short.

Lending out of an asset means you are exchanging your asset today in exchange for an IOU to receive the asset tomorrow (or longer term, depending on the setting). The IOU is collateralised by other users’s assets in their respective pools in accordance with the same transparent rules / risk management set for everybody.

Borrowing of assets

Once you have assets in your pool, you can borrow other people’s assets. The amount (USDc-equivalent) you can borrow overall is equal to:

Initial Loan-To-Value for the pool (%) * Value of the pool (USDc),

where Initial Loan-To-Value is a weighted average Initial Loan-To-Value calculated on the basis of each of pool’s asset’s Initial Loan-To-Value and the weight of this asset in the pool.

Risk-management and liquidation

Safety of assets on the one hand and value-adding leverage on the other are key to any borrowing-lending protocol. There are several things which are important to get right when designing it:
  • Initial, Maintenance, Critical and Reset LTVs for a given asset in a normalised environment
  • Adjustments to Initial, Maintenance, Critical, Reset LTVs in different volatility / liquidity regimes
  • Adjustments to LTVs for asset concentration / diversification
  • Margin-call timing (how long to allow pool owner to bring pool LTV to reset LTV)
  • Liquidation strategy and models (eg liquidation discounts, auto-DEX-liquidation / its speed, delever portfolios to Reset LTV or full liquidation)
In Alpha version, we start with the following:
  • Initial/Maintenance/Critical/Reset LTVs - specific to each asset
  • Reset LTV = Initial LTV
    • Whenever LTV > Maintenance LTV, the pool LTV needs to be restored to Reset LTV through putting in more assets or selling existing ones
  • Maintenance LTV = Critical LTV
    • This means that if pool LTV > Critical/Maintenance LTV, pool can immediately go into liquidation.
    • So it’s best for pool owner to have a meaningful cushion between LTV and Critical LTV or be ready to move fast additional assets into the pool
  • Liquidation discount table specific for each asst
    • Based on size of position, estimated daily move (based on weighted average of short-term and medium-term intraday move)
  • Liquidation model
    • Liquidation Initiator changes state of pool to Liquidation State when LTV > Maintenance LTV
    • Liquidation Initiator has 1 minute exclusivity after the change of state of the pool into Liquidation State to buy pool assets (proportionately) at a discount (based on Liquidation discount table) in exchange for one or several tokens that the pool owes
    • After the first minute, any Liquidator can buy assets in the portfolio at a discount in exchange for one or several tokens that the pool owes
    • Liquidation prices for the pool assets are fixed at the time of the initiation
We expect Beta version to incorporate:
  • Maintenance LTV < Critical LTV to give pool owner time to bring margin in and avoid liquidation
  • Liquidation discounts
    • Incorporate high volatility regime adjustments
  • Liquidation strategy
    • Based on auto-liquidation through Serum DEX
    • Asset prices for liquidation to be recalculated rather than be fixed at the time of liquidation initiation

Market-data

Reliability of market-data used in the protocol is critical to the safe operation of the Oxygen protocol. Asset prices drive changes of states in the pools.

To start (Alpha version), Oxygen Protocol relies on Serum DEX prices, as observable market prices that you can trade on. Asset prices are calculated based on the average between best bid and best ask on the DEX. LTV and other important calculations are valid for [ 30 ] seconds, and then get invalidated. You need to recalculate them for any critical action to take place.

In Beta version, we expect there to be various precautionary measures to ensure the used prices correspond to tradeable market prices in the “broader market sense”, i.e. on other exchanges.

Withdrawing assets

You can choose to withdraw some or all of the assets in the pool. The amount you can withdraw is equal to:

Value of pool assets (USDc) - ( Value of liabilities (USDc) / Initial Loan-To-Value of the pool after withdrawal (%) ).

Accessibility and Composability

You can access Oxygen protocol in 3 key ways:
  • UI
  • API
  • Smart Contracts on Solana Network

Oxygen protocol is open source. Anyone can use it as is and integrate into his/her product or create their own UI/APIs. It’s been created with composability in mind, meaning you can use it as a building block of something much bigger without the need to reinvent the wheel.

Security

Security is a process, not a destination. We work with leading experts in the world to ensure your assets are safe and the protocol performs exactly as described.

First, Oxygen protocol has been reviewed by Alameda Research/Solana teams, leaders in high frequency trading, creators of FTX exchange and Serum decentralised ecosystem to ensure it’s fit to accommodate high frequency and dollar value of assets trading.

Second, we are engaging Trail of Bits and/or one other leader in cybersecurity to provide software assurance to ensure maximum safety.

Third, we are working a top-4 audit firm in the world, to review Oxygen protocol and provide IT Assurance.

Fourth, we intend to run large bounty competitions to reward people to make Oxygen protocol more secure.

Liquidity

Oxygen.org is 100% market based. Availability of borrowing/lending and pricing depend on the market at the time of the requested transaction.

Biggest players in the digital asset space and high frequency trading Alameda Research and other HFT firms are committed to developing Serum-based financial infrastructure. Liquidity on Oxygen.org can unlock leveraged trading, derivatives market-making, enhance activities of proprietary and OTC trading desks.

Protocol tokens and accounting

Protocol keeps track of everything that happens to your assets through various protocol tokens
  1. Deposit
    1. You create a new pool
    2. You deposit assets (say, 1 wBTC) into Oxygen protocol
    3. Oxygen protocol issues 1 OXY_wBTC to the new pool to signify that the protocol holds the wBTC for the benefit of the pool owner
  2. Lend out
    1. You switch “generate yield” to “on” and allow your asset to be lent out.
    2. Protocol issues your pool with 1 IOU_wBTC and sends 1 OXY_wBTC to DEX, with order to sell 1 OXY_wBTC and buy 1.0005 of wBTC_FUTURE
  3. Return of lent assets
    1. 1.0005 wBTC_FUTURE turns into 1.0005 OXY_BTC 24 hours after. You’ve got the principle 1 OXY_BTC back and 0.0005 OXY_BTC of interest. Now time to re-lend out and enjoy the power of compounding.
  4. Borrow
    1. You request to borrow 1,000 USDC
    2. Protocol issues you with ( 1,000 + Interest ) of FUTURE_USDC and ( 1,000 + Interest + Oxygen Protocol Fee) DEBT_USDC
    3. FUTURE_USDC are sent to DEX and are sold against 1,000 OXY_USDC that are settled back to the pool
    4. At or before maturity of DEBT_USDC, you repay DEBT_USDC

Protocol and network fees

Protocol charges [15]% success fee from the yield earned by the lender of the asset, and [15]% from the market clearing rate for borrowing the asset. For example, if the market-clearing rate is 5% per annum, the lender will get 4.25% per annum yield, the borrower will pay 5.75% per annum interest. 1.5% per annum would go to the Oxygen protocol and towards buy and burn of Oxygen tokens.

Ownership of Oxygen tokens reduces the protocol fees.

Solana blockchain charges $0.0001 per transaction, orders of magnitude less than Ethereum Blockchain. This and its orders of magnitude higher speeds make Oxygen protocol possible to be operated on a fully decentralized basis.

Protocol governance

Oxygen protocol governance will be driven by OXY token holders community. This will be implemented in due course following some developments on Serum/Solana side.