Introduction to Baki

Introduction

Baki V1 is an infinite-liquidity FX exchange offering users access to synthetic on-chain assets, called zTokens, that are pegged to African currencies. Baki will be the first on-chain implementation of African stable coins. Baki is designed to mitigate scarcity of dollars in emerging markets, whilst offering access to dollar markets with no slippage and at the most competitive rates available on the market.

As a host for users to deposit liquidity and perform swaps at central bank rates, Baki operates in a decentralized manner, designed to have minimal (to zero) downtime to ensure users always have full autonomy over their assets and swap between currencies seamlessly. A user will always be able to swap between currencies as long as they have access to the blockchain, providing a robust solution for volatile markets.

The first iteration of Baki will allow users to swap between currencies such as USD, using our zUSD token and various African currencies being Nigerian Naira (zNGN), West African CFA (zCFA) and South African Rand (zZAR). This article will provide a high-level overview of the functions, as well as the pegging mechanics, for further details we suggest reading the detailed documentation here.

Core Mechanics

Users will be able to mint zUSD by depositing USDC and minting the tokens to a minimum collateralization ratio threshold (Collateral / Debt) of 150%. (i.e. if a user deposits 150 USDC, they can mint a maximum of 100 zUSD). This ensures that every zUSD is over-collateralized and provides a buffer for any currency movements. Once a user has minted zUSD, they will now be eligible to receive a share of trading fees and will owe a share of the protocol debt, calculated as the sum of all the zTokens in circulation multiplied by the reference price of each in USD.

Once a user has a zToken, in any currency, they can be swapped seamlessly for any other zToken currency. Since the protocol checks that the collateralization ratio remains above 150%, it is agnostic as to whether that debt is denominated in USD or NGN, allowing for a single pool of debt to back multiple synthetic assets, thus allowing the swapping process to be done through a burning and minting process, ensuring infinite liquidity. This means that Baki only needs to seed liquidity between zUSD and other USD denominated stable coins on decentralized exchange as any zToken provides access to the entire Baki ecosystem.

Since the outstanding debt is tied to the distribution of zTokens across the available currencies, this means that the debt is variable and can fluctuate over time in line with FX movements. Each user will share a portion of the debt depending on the amount of zUSD they have minted, they will then have to manage their individual collateralization ratio to ensure that they remain above the minimum threshold. To increase the collateralization ratio users can burn zUSD, reducing their debt allocation, or deposit additional collateral.

In exchange for allowing their collateral to back price movements, each time there is a swap between zTokens users will earn 50% of the trading fee charged (0.80% on each zToken swap), allowing them to generate yield on their deposited collateral. Users can then use this yield to repay their debt positions and increase their collateralization ratios, or hold it in their wallet.

The other unique feature of Baki is with regards to its pricing. A price feed is required to dictate the number of zTokens that can be minted in any swap. Unlike local FX traders across Africa that quote users the parallel rate, Baki quotes the Central Bank rate, allowing users to enter and exit local currencies at the best possible rates that are often unavailable to average users.

Lastly, to ensure zUSD is consistently pegged to USD all zTokens are overcollateralized. If an individual user’s position drops below the minimum collateralization threshold, then a liquidator can provide zUSD to receive the users collateral plus a liquidation fee in exchange for securing the protocol. Moreover, if zUSD is trading below a dollar, minters are encouraged to buy back zUSD and burn it to close their positions for a profit. Similarly, if zUSD is trading above a dollar, minters are encouraged to mint more zUSD and sell it for a profit.

Testnet and Launch Details

Baki is now live on the Avalanche Fuji testnet and ready to be tested by users such as yourself. Early testers will also become eligible for future rewards once we reach mainnet in the coming months.

Come join us on Discord and Twitter to stay up to date with our latest developments as this is only the start of a beautiful adventure!