> For the complete documentation index, see [llms.txt](https://abrafi.gitbook.io/abrafi-docs/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://abrafi.gitbook.io/abrafi-docs/overview/protocol-architecture.md). # Protocol Architecture ## Synthetic Asset Mechanism and Peg Stability Synthetic assets within the protocol, such as USDaf, achieve relative peg stability through delta-neutral hedging of underlying backing assets. By executing offsetting derivatives positions—primarily perpetual and deliverable futures contracts—the protocol minimizes the price exposure of its collateral. This delta-neutrality ensures that fluctuations in the spot value of assets (such as SOL, BTC, and ETH) are counterbalanced by corresponding shifts in the hedge value. Furthermore, the inclusion of liquid stablecoins like USDC and USDT enhances collateral efficiency and serves as a strategic buffer during periods of suboptimal funding rates. ## Yield Generation and Staked Counterparts The yield-bearing counterpart of a protocol asset, exemplified by sUSDaf, serves as the reward-accruing component of the architecture. Revenue is derived from several vectors: rewards from staked assets, funding and basis spreads from derivatives positions, and yield from liquid stablecoin backing. Rewards are distributed on a weekly cycle to mitigate arbitrage opportunities and ensure equitable value accrual for stakeholders. The APY reflects the daily aggregate of funding and rewards earned relative to the total backing assets. ## Oracle Integration and Off-Chain Systems The protocol employs a hybrid on-chain and off-chain model. While minting, redemption, and staking logic are executed via smart contracts on the respective supported blockchains, the management of delta-neutral positions occurs off-chain. To maintain system integrity, AbraFi consumes real-time price feeds from high-volume CeFi exchanges (e.g., Binance, Deribit) and aggregators like Coinmarketcap. This multi-source oracle strategy protects the protocol from price manipulation and ensures that minting/redemption requests are priced according to actual market liquidity. The On-chain components include the smart contracts that enable the minting, un-minting (redeeming), staking, and un-staking of USDaf and sUSDaf. The Off-chain components include services that manage the delta hedging positions with respect to deposited backing assets. ### Use of Oracles #### Overview "Oracles" typically refer to price feeds a protocol utilizes to perform key business logic and functions. AbraFi utilizes price feeds from various sources given the importance of real-time data to trading and risk workflows which exist offchain. The system is split between on-chain and off-chain components. #### Price Feeds & AbraFi's Off-chain Systems AbraFi relies on price feeds in order to price the mint and redeem USDaf requests per the available derivatives market liquidity as well as manage the risk of derivatives positions. Real-time data feeds indicate not only where the system delegates protocol assets, but the various risk profiles between the exchanges. With this in mind, it's critically important that AbraFi has access to and is constantly consuming real-time price feeds, especially from where it matters most: the exchanges where the system holds derivatives positions due to their margin requirements. AbraFi consumes real-time pricing information from these sources: * CeFi exchanges such as Binance and Deribit. * Price aggregator platforms such as Coinmarketcap. This real-time data is used extensively throughout the system to apply business logic, but also to ensure the integrity of all actions. In that way, the system relies significantly upon CeFi exchange price feeds, given the volume-weighted importance of their traded instruments, and also aggregator platforms to validate internal pricing throughout the system before every single mint and redeem USDaf request is accepted by AbraFi. This ensures thorough checks for any inconsistency and protects the protocol from manipulation that might be occurring from one or multiple sources. AbraFi is constantly working to provide the resilience and integrity of price sources and evaluating other low-latency off-chain pricing services. ## General Issuance and Redemption Eligible users can mint protocol assets, such as USDaf, by depositing approved assets into the protocol's minting contracts. Backing assets are secured through enterprise-grade Off-Exchange Settlement providers, such as Fireblocks, ensuring that collateral remains segregated from exchange-specific risks. The protocol utilizes a dynamic allocation strategy, deploying assets across yield-generating projects within those ecosystems (e.g., Kamino, Jupiter) based on prevailing market conditions to optimize the risk-adjusted return profile. ### Mechanics of Creating Protocol Assets {% stepper %} {% step %} ## A user transfers assets A user transfers assets (USDC, USDT, SOL, etc.) into a minting contract based on the supported blockchain and receives the corresponding protocol asset (e.g., USDaf) in return. {% endstep %} {% step %} ## Backing assets are received Backing assets are received via an Off-Exchange Settlement provider custody account. AbraFi works with enterprise-grade providers such as Fireblocks (one of many) to provide secure custody infrastructure. {% endstep %} {% step %} ## AbraFi deploys backing assets AbraFi deploys backing assets to the trusted ecosystems of the respective blockchains to generate yield. * For example, AbraFi can deploy backing assets to Kamino lending markets to generate initial yield safely. {% endstep %} {% step %} ## Assets are dynamically allocated Depending on the dynamic allocation of assets based on market conditions, AbraFi will deploy backing assets into risk-adjusted, higher-yield strategies that utilize delta-neutral methods to deliver higher returns while maintaining a stable peg to USD. {% endstep %} {% step %} ## Yield is issued Yield generated will be issued to yield-bearing counterparts (e.g., sUSDaf), fund the reserve fund, and pay performance fees to AbraFi. {% endstep %} {% endstepper %} --- # Agent Instructions This documentation is published with GitBook. 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