In my previous articles about X7 Finance, I discussed the tokens which comprise the X7 ecosystem. We looked at each token's unique investment opportunity and discussed which token(s) may be right for you.
We learned how every part of the ecosystem has its own vital role to play, and how interconnected they are to each other.
Today I will discuss the place where all the action happens…Xchange, as well as try to provide some insight into the ecosystem components.
In my attempt to simplify the many components of the X7 ecosystem, I find it helpful to think of them as parts of a body. Here is a quick refresher…
Xchange & Lending Pool — the Heart & Soul of X7; the vision of providing leveraged capital happens here
The Deposit Token (X7D) — this is the Life Blood; the financial capital injected into X7
X7DAO — the Brain; X7's decentralized governance model to manage operations
X7R — the Face of X7; a deflationary token designed to attract as many people as possible into the X7 ecosystem
X7100 Constellation — this is the Backbone; the collateralized reserves for the Lending Pool's X7D tokens
Xchange is a Uniswap V2 fork, so most people in crypto will already be very familiar with its operation. Its front end dapp will seamlessly connect and function with all top Uniswap Interface compliant DEX's.
There is one monumental difference though between Xchange and Uniswap.
Xchange is integrated with the Lending Pool, which provides a means of adding 10–1000x the initial liquidity to any ETH-based pair.
There are safeguards built in which will ensure that the leverage (borrowed capital) remains collateralized and can be liquidated in the event of a loan default.
How does it benefit a project to initially launch with leveraged liquidity?
When the initial trading pair is set up, the value of the ETH added (in USD) will be the same value as the total amount of the project tokens.
Say you created a pair for your new project called ART; you added $1000 worth of ETH and 1000 ART tokens. This would give you an initial price of $1/token. If you borrowed an additional $9000 worth of ETH from the lending pool and added that to the initial liquidity, you would now have $10,000 worth of ETH paired with 1000 ART tokens, which will give you an initial price per token of $10.
All projects launch with different tokenomics. In most cases, project creators will hold a portion of tokens in reserve; this could be for the team, advisors, marketing, etc.
If you launched your project with 10x the liquidity by borrowing funds from the Lending Pool, then your initial token price will be 10x the price had you not borrowed liquidity. This will give the tokens that you held in reserve a much higher initial value.
“The whole reason to build a leveraged DEX is to enable those without large capital, access to institutional scale capital”
An initial liquidity offering “lowers cost to launch a project, increase liquidity, and reduces the amount of capital locked to a pair”
When investing in a project, it is very important to be sure of the level of risk you are willing to take.
The earlier stage the project is in, the greater the risk/reward ratio. As milestones are reached, the risk/reward ratio decreases.
It is very easy to get caught up in all the hype, and throw caution to the wind. Keep this in mind as you research not only X7, but whatever else you are into.
When I first discovered X7 Finance, I knew that it was a project worthy of a deeper look. Considering the series of articles I wrote, it is obvious that I like the project; enough so, that I made a considerable investment.
Since I first learned about X7, there has been a nagging question in the back of my mind that I want to discuss with you. The question is:
How is it even possible to lend 10–1000x the initial liquidity with zero risk of the lender losing his/her principal?
In short, my answer is that I do not know.
The success of X7 is 100% dependent on a proven method of loaning capital with zero risk; there is no sugar coating this fact. The entire premise of X7 is based on this.
We are at a period in which the risk/reward ratio with X7 is high, due to its early nature and unanswered question.
My research has determined, at least for myself personally, that the very substantial, potential reward is worth the risk. Your investment decision may be different than mine, so make sure to DYOR!
It has been no easy task to try and understand how all the pieces of the X7 ecosystem fit together, but it is evidently clear to me that the team has put a lot of deep thought into this, and is building something truly amazing.
I will attempt to help you understand how all the pieces are linked together, and how they will function, in order to achieve the vision of the team.
The information presented, some of which may be saying something similar, all comes from either the website, the whitepaper, or the on-chain messages.
I will begin with the team's answer to my big question above…
In order to solve the problem of mitigating the risk of losing loaned principal,
· “X7 solves all of these difficult problems by implementing a stop to liquidity events through the Xchange and Lending Pool architecture”
· “From individuals to institutions, our platform is built with insurance for safe returns. X7 Finance's architecture does not allow for over capitalization or an under reserve”
· “The Liquidity Pair contract has added safeguards to allow it to support leveraged liquidity additions that ensure the leverage remains collateralized and can be liquidated in the event of loan default”
· “All contracts will be verified well in advance of use and audits will be paid for in advance of loan functionality going live”
· “Lest we give up first mover advantage we will not yet reveal the full details of the implementation, this ecosystem includes a psuedo-undercollatoralized loan protocol in the context of Initial Liquidity Offerings”
Summing this up, the team has created something new & unique; a potential game changer, and as the team said “Lest we give up first mover advantage we will not yet reveal the full details of the implementation”
This is understandable as first mover advantage is very important, and obviously is best for the viability of the project. There will be more information released as the project advances, which will reduce the risk/reward ratio.
“To ensure our code is trusted and that the release is flawless, X7's Leveraged DEX trading will not begin until we have published third party security audits. In the meantime, our Stochastic Topological Offensive Penetration, Probing, and Exploitation Researcher, STOPPER, has been executing millions of transactions on our private test network to ensure no edge case is missed”
“Investor deck/summary
Prettified ecosystem diagrams and explanations
Technical design document for all smart contracts
Smart contract trust diagram”
Until I see the third-party audits and the addition material listed above, I am taking a ‘leap of faith,' based on the on-chain communicated messages, the website, the whitepaper, and the great community that has been built up in this short period of time.
I believe that we will reach a point when the code is fully understood and trusted by the wider crypto community, and at that point in time, the earliest investors who took on the most risk, will reap massive rewards.
In Xchange, the lending is a fully automated process, via the interface with the Lending Pool. A borrower will choose from a variety of stand-alone contracts in which the terms of the loan are defined. The loans have an origination fee in which a portion is fed back into the Lending Pool to grow the available capital for automatic lending.
If there isn't enough liquidity in the Lending Pool to automatically fund a loan, then an NFT will be minted which grants the holder a portion of the premium returns as well as the rights to claim the initial lent principal. These NFT's can be claimed by funding the loan. “The lending pool will maintain a reserve of constellation tokens sufficient to back any externally funded lending pool liquidity”
The Constellation acts as the backstop to the Lending Pool. Tokens are burned every transaction, so it has a continually rising floor. “Collateralized reserves for Lending Pool's X7 Deposit tokens, with the functionality to accumulate token value and act as lender of last resort against X7Deposit token issuance”
The Constellation is referred to as a liquidity sink, which basically means it will be absorbing liquidity from the rest of the ecosystem. For example, 30% of fees from the X7DAO and X7R trading fees will go to the ecosystem splitter for distribution.
“Loan proceeds will flow across the X700 series, x7dao governance token, and x7m105 reward token in the form of liquidity injections and buy backs”
“The X7 protocol only permits minting of X7Deposit tokens when ON CHAIN reserves permit it”
X7 incentivizes projects to launch with leveraged liquidity, and at the same time, offers a lucrative, risk-free passive income to those who fund the loans.
“There will be a complex interplay between the transfer of funds between:
The lending pool
The staked (pegged) ETH token
The “constellation” token liquidity sink
The reward token
The dao token
At various moments money will flow between the lending pool, the constellation tokens, and the staked ETH token”
This complex interplay between the system components will have an effect such as, building up reserves, reducing token supplies, and increasing constellation floor price
Final thoughts;
I am very impressed with X7 Finance, and its game changing lending platform. Sure, the team has not revealed the ‘secret sauce' yet, however, more information & audits are forthcoming. There is much in store for X7, and I'm excited for the ride ahead. I leave you with a quote that the team posted recently; cheers!
