The collateral-free jFIAT minting contract and liquidity framework of Synthereum

Author: Jarvis Network

Compiled by: ChainCatcher

The Synthereum money printer contract allows for the minting of uncollateralized jFIAT to perform specific operations, such as executing arbitrage or providing liquidity in the money market. These contracts have already been used to provide liquidity for Midas Capital, Aave, and Market.

Under normal circumstances, minting jFIAT requires over-collateralization, which includes depositing collateral whose value always exceeds that of one jFIAT. This prerequisite limits the amount of jFIAT that can be minted based on the amount of collateral that can be provided, thereby restricting the total available liquidity.

However, uncollateralized jFIAT can also be minted, meaning no collateral is deposited. This minting process provides an almost unlimited source of liquidity!

Printing jFIAT may seem risky and reminds one of how central banks operate: they print money out of thin air! Of course, it’s not that simple. Central banks print money according to a specific framework to perform certain and predetermined operations. For example, quantitative easing involves printing money to purchase the government's securitized debt in the secondary market.

Similarly, minting uncollateralized jFIAT requires a strict framework to avoid putting the entire Synthereum ecosystem and its users at risk.

Without a trustless framework that sets some limits, malicious or coerced actors could mint an unlimited amount of jFIAT and exploit the protocol:

To avoid these apocalyptic scenarios, the money printer can only operate using flash loans or direct deposit module frameworks.

jFIAT is borrowed without collateral to execute arbitrage or liquidation. The loan must be repaid within the same block; otherwise, the transaction will revert; the last condition ensures that no uncollateralized jFIAT remains in circulation.

jFIAT is minted and directly deposited into approved smart contracts, such as money markets (Aave or Midas) or liquidity pools (Uniswap or Curve).

Three different multi-sigs known as the committee share the power of the module:

The direct deposit module was recently used to print 1 million jBRL and deposit it into the money market Midas Capital on the BNB chain.