[History] CRAB and xRING swap conversion and liquidity #829

hackfisher · 2022-01-15T09:19:25Z

hackfisher
Jan 15, 2022
Maintainer

Moved from darwinia-network/crab-docs#78

Some users wonder whether the RING-to-CRAB exchange rate is fixed, or how the exchange rate evolves. This article will clarify some questions around this topic.

History

We reserved 40M RING in CrabBacking Account in the launch of Darwinia Network, and the corresponding mapped(wrapped) RINGs were issued and recorded in Crab Network's Issuing module on Crab network. xRING denotes mapped RING in the rest part of this article.

Before Darwinia main-net, there was a genesis cross-chain event during which uses could convert CRAB into xRING at the rate of **100 CRAB = 1 xRING ** and redeem that 1 xRING into Darwinia genesis(burned in Crab side, and unlocked from CrabBacking to user).
The CRAB used to swap for xRING is currently locked in the module account.

Rationale

The backing assets(xRING) are allocated to Crab Network to make it a canary network with real economic incentives and massive gaming theory testing other than a test-net.

Problems

Once the two networks have started evolving independently, the exchange rate of 100:1 between CRAB and RING no longer applies. There is no such pegging mechanism inherently. The evaluation of two assets(RING & CRAB) should be market-driven and relatively independent.

The total supply of CRAB would be 10,000M, which requires a liquidity pool of larger volume. The amount currently locked in the backing account is far from sufficient.

xRING was recorded in CrabIssuing pallet because sub-sub bridge is not ready and MappingTokenFactory(based on DVM) is not ready.

Proposals

We plan to migrate xRING recorded in the CrabIssuing pallet to ERC-20 mapped tokens in a reserved EVM account controlled by Crab Module Account(Treasury/Council) after a Substrate-to-Substrate bridge between Darwinia and Crab networks. All mapped tokens are managed using EVM by design, and controlled by the Issuing module and relative MappingTokenFactory.

We will use tokens from the above reserved account and the Crab Issuing Account to create a UNISW-like liquidity pool to increase the liquidity of both tokens. It is possible that that the amount of CRAB currently locked in the Crab Issuing module does match the outside price, but the shortfall or surplus can be addressed by Treasury.

Summary

CRAB and xRING no longer follow the 100:1 swap ratio, which has already happened in off-chain exchanges with most liquidation. The original backing assets(xRING) will be transferred to Crab Treasury(/Council), and Crab Treasury can use these backing assets to create a liquidity pool for the long-term running of the CRAB/xRING trade pair. These changes conform to the positioning of Crab as a Canary network of Darwinia with real economic value.