CORE Vault and Delta Financial — a perfect symbiosis

Pavel Hadzhiev
8 min readFeb 13, 2021

Introduction

Note: If you want to support my work, scroll down to my Personal Note section.

There has been a lot of mixed feelings and misunderstandings about the newly announced introduction of the DELTA token to the CORE ecosystem. The information has been already laid out for us, but it is scattered on Core and Delta Medium blogs and in various Telegram conversations. This article aims to collect everything in one place and display the vision of how the CORE and DELTA tokens are interdependent and are both required to implement coreDEX. I will split the information in three sections:

  • Why CORE needs DELTA
  • Why DELTA needs CORE
  • How CORE and DELTA compliment each other

Disclaimer 1: Before reading this article, if you haven’t done so already, familiarise yourself with what CORE and DELTA are from the official Medium blogs of the team.

Disclaimer 2: This article is factual only to the best of my own knowledge. I have based it on my personal understanding and interpretation of the information communicated by the team in the official channels.

Disclaimer 3: I’m personally invested in the project. This article should not be considered financial advice.

Why CORE needs DELTA

As it’s well known, CORE has Locked Liquidity. While this type of liquidity is very valuable, because it provides a stable and hard-to-manipulate market, it is a lot harder to incentivise liquidity providers as they cannot withdraw their capital. In other words, locked liquidity is hard to collect. CORE has brought a good amount of liquidity to the system already, but to scale that further with only locked liquidity is not optimal. Additionally, while locked liquidity is perfectly suitable for perpetuals, non-perpetual options can be implemented more efficiently on top of a vesting schedule. This is where Open Vested Liquidity (OVL) comes into play.

Open Vested Liquidity

OVL is basically about incentivising the liquidity provider to keep their liquidity for longer, while not fully preventing them from withdrawing it. Since withdrawing capital is not blocked but rather delayed, it is a lot easier to incentivise liquidity providers. Introducing a mechanism to facilitate OVL in the CORE ecosystem will significantly increase the available liquidity overall.

You can see a lot of models that achieve similarly behaving liquidity across the cryptocurrency space. Some gradually increase the rewards as you keep your liquidity longer, some take a cut if you take it out before a certain date, etc. All of these mechanics aim to stabilise the amount of available liquidity and reduce liquidity shocks. DELTA, essentially, is Tokenised Liquidity. It has OVL modelled in the token itself.

DELTA Vesting Design

When DELTA tokens are transferred, the owner has access to only 10% of the funds right away. The other 90% of it are vested on a two-week schedule. As time passes, the owner gets access to more and more of their funds, scaling linearly from 10% to 100% over the two weeks after transfer. If the tokens are moved prematurely, the vesting schedule is interrupted. Any funds that are still vested at the time of interruption directly contribute to the growth of the system (more on that later).

The vesting schedule also creates a dynamic pool of liquidity which decreases linearly with time and increases with any token velocity.

DELTA Utility

For coreDEX to support derivatives, it needs a lot of liquidity. Since the system already has the sufficient amount of locked liquidity to ensure stability and the minimum price of the its own tokens, it can afford to scale further with the less valuable but easier to collect OVL.

DELTA is a very innovative and efficient way to generate and manage such OVL. It also has additional functionality in coreDEX, like e.g. serving as the collateral for weekly options. While the CORE token is keeping its current design with fixed supply and 1% fee on transfer, the DELTA token is able to implement the necessary mechanics to facilitate derivatives trading on coreDEX. Derivatives trading, especially with leverage, can provide astronomical trading volume from which both CORE and DELTA farmers will benefit.

Why DELTA needs CORE

Something a lot of people miss, is how DELTA leverages CORE. At first glance, it may not be too obvious why Delta Financial needs CORE and its locked liquidity to function. DELTA will also have locked liquidity of (up to) 1500 ETH from the Limited Staking Window (LSW) event. So why does DELTA need CORE? The answer is: for market data.

ERC-95 Standard

CORE leverages its ERC-95 Standard to set up an environment around the token that is rich in data. The assets in the CORE markets are wrapped into ERC-95 tokens which support native market data like liquidity and volume. Native, as in that data can be queried on-chain. The tokens’ smart contracts are essentially serving as oracles. This functionality is already leveraged by the arbitrage smart contract that constantly trades between CORE’s markets. Now, it will also be used by coreDEX to settle derivatives.

Derivatives on coreDEX

So how can derivatives be settled using market data from CORE? CORE has markets against ETH, BTC and DAI. By querying the blockchain for the liquidity in these markets, you can calculate ETH/DAI, BTC/DAI and ETH/BTC prices by comparing the prices of CORE in two different markets.

For example, if the CORE/ETH pair on Uniswap has 6 000 CORE and 18 000 ETH liquidity, that sets a CORE price of 3 ETH. At the same time, the CORE/DAI pair has 400 CORE and 2 160 000 DAI liquidity. That sets a CORE price of 5400 DAI. From that, we can derive that the ETH price is 1 800 DAI. It’s a similar process to evaluate BTC/DAI and ETH/BTC. Again, of utmost importance is that this can happen fully on-chain.

Why Use CORE

As mentioned already, DELTA also has locked liquidity and can arguably be self-sufficient with regard to market data and derivatives settlement. Why is it important that DELTA uses CORE instead?

Firstly, because CORE markets are designed to be stable. They are fully made of locked liquidity which means price manipulation with liquidity shocks is absolutely eliminated. As a whole, the CORE system is designed to have very liquid markets, so one needs significant capital to move the price and thereby manipulate the price data to their benefit.

Secondly, CORE already has a diversified system, consisting of the two major cryptocurrencies and a stable coin representing the global reserve fiat currency. Leveraging this, coreDEX can already have a reliable price data source and implement derivative markets for all of the following 6 pairs: ETH/DAI, BTC/DAI, ETH/BTC, CORE/BTC, CORE/ETH, CORE/DAI

With the introduction of leveraged trading, you need a reliable price source to settle derivatives. If price data is easy to manipulate, the potential profit from trading on coreDEX with leverage can outweigh the cost of manipulating the price data. This is why it’s absolutely crucial to have a reliable data source, which is costly to manipulate.

DELTA, while indeed having locked liquidity, is rather designed to scale its OVL. While more OVL can facilitate more trading, the data source should not be based on it as it can fluctuate. CORE, on the other hand, is designed to scale its locked liquidity and provide stability. It will be a more reliable data source for coreDEX than DELTA. It will also be significantly more reliable than currently available oracle solutions, which are highly centralised.

How CORE and DELTA compliment each other

In this section, I want to bring attention to a few separate mechanics of CORE and DELTA that make one directly or indirectly beneficial to the other.

Rebalancing Liquidity Pools

In the near future, the three different LP tokens for the CORE pools will be combined into one token. This will enable, amongst other things, the automatic rebalancing of CORE’s liquidity pools. Why is that important?

Due to the explosive growth of CORE after the LGE1 event, the ETH pooled in the CORE ecosystem has ended up being significantly more valuable than the BTC and especially the DAI. This leaves the smaller markets more vulnerable to price manipulation because it requires less capital to move them. That translates to less reliable market data for coreDEX. To improve this, the new CORE LP token will rebalance the three pools by selling ETH for BTC and DAI on Uniswap. This will not be done only during migration, but will be an automated process that will ensure the value in the system remains balanced.

Having the pools balanced will eliminate any “weak links” that the system has, so that the data that is provided to coreDEX is as reliable as possible considering the overall liquidity in the system.

Arbitrage

CORE already has a functioning smart contract that arbitrages between the available CORE markets. That contract is specifically whitelisted to not have to pay the fee on transfer embedded in the CORE token, so its margin for profit is as low as 0.9% price deviation (to compensate for 3 Uniswap trades with 0.3% fee each). The contract is available for anyone to call, so once it is profitable to do so, someone will most definitely do it. Its execution can even be (and probably is) automated by bots that analyse when an arbitrage strategy is profitable to execute. So what does that have to do with DELTA?

As mentioned earlier, in order to derive the market price for any of the ETH/DAI, BTC/DAI or ETH/BTC pairs, coreDEX will need to get data for the liquidity of two of CORE’s markets. Arbitraging will help with two things:

  1. Keep the margin of error for price data really low. From a game theoretic perspective, it’s certain that the price derived from CORE markets is within 1% of the actual price for the asset. If it gets to 1%, an arbitrage transaction will rebalance the liquidity in the pools and the newly derived price will be (roughly) the same as Uniswap’s price for that market.
  2. It will fight back price manipulation. If a market manipulator significantly moves the price in one of CORE’s markets in order to profit from a leveraged coreDEX trade, the arbitrage contract will practically server as damage control by spreading that price movement over the other pools. This effectively limits the possibility of manipulating a single CORE market and makes it more costly to affect the price data with which coreDEX settles derivatives.

Sharing Revenue

As announced in this article, 20% of the DELTA tokens collected from immature vestings will be sold on the market for ETH. A 25% share of the collected ETH will be utilised to market buy CORE from the market and pay it out to CORE LP farmers. This results in 5% of the total funds from interrupted vesting directly contributing to the CORE system, benefiting everyone involved by a) increasing CORE’s price and b) increasing CORE LP’s APY.

That’s just the native DELTA tokenomics model. The fee structure for coreDEX derivatives will follow a similar path and add further revenue towards CORE. By doing that, DELTA helps to grow the CORE system. This is important for coreDEX as the CORE markets are the data source on which derivative settlements depend. Growing CORE makes the data more reliable and harder to manipulate. That helps to increase confidence in coreDEX products and brings more (and bigger) users to its derivatives products, which in turn helps DELTA itself grow.

Personal Note

Everything in this article is based on publicly available information. I’m not affiliated with the team, nor have I directly talked to any of them at the time of writing. I have just closely followed all the official materials that the team posts, as well as their engagement in their Telegram groups.

Note: If you appreciate this work, I’d be extremely grateful for any tips on 0x99d55c79783462Ba8C4f86F58C8C1951FE795755 or using my referral link for the upcoming LSW event to get 10% more rLPs!

Conclusion

The CORE ecosystem has been carefully designed from the ground up. Any decisions taken so far have their purpose in the grand scheme of things. The introduction of DELTA in the CORE ecosystem is the next building block in completing the vision of the team for coreDEX. Hopefully, I’ve helped illustrate how CORE and DELTA compliment each other and enhance each other’s growth in a circular, compounding way.

My Telegram: @phadzhiev

My Twitter: @p_hadzhiev

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