Hedge Pool Layer (H-Layer) / syUSD & Intrinsic Value

Synfy operates a hedging pool layer (call this h-layer). The h-layer simply defines as a model block offchain layer composed of Synfy’s capital/liquidity and Synfy’s programming (technology for linking to capital open markets). A synthetic token represents an expression of a portion of that h-layer. The h-layer layer sits in between the token and the capital markets. So, linkage driver would be user->TOKEN-sySPY <--> syUSD -> h-layer -> Synfy -> market. The h-layer can be thought of as converted and convertible syUSD (stable token).

Synfy simply hedges the underlying and provides the P&L back on chain via h-layer->syUSD->Token. Synfy is demonstrably hedging the underlying for Synfy, as Synfy has to provide the cash balance (not end user risk – via the h-layer) to incur the ongoing costs with Synfy’s counterparty.

(A simple analogy is to consider Tether USD. A user purchases Tether USD with FIAT USD. Tether the company itself then use the FIAT USD to earn interest, invest, purchase bonds etc. So technically they are exposing the user to some risk – maybe without explicitly stating that risk – Synfy here is stating the risk)

The reason to include syUSD as a layer is because if the asset market making technology within the h-layer fails – the user still has a sySPY token which can be converted to syUSD. By explicitly disclosing this above, the user knows they always hold have a token of some intrinsic value. Note the h-layer is comprised of many components (asset market making tech, FIAT USD, variable rate deposits, operators) subject to failure however the underlying USD is always held. This allows the token itself to be both defined as associated to USD and underlying – a new unique token of value in its own right – so it is more concise to say that the token represents a portion/slice of that hedge liquidity pool layer (and not the underlying).

The reason to have a h-layer itself is because it provides a clear transparent abstraction of layers and demonstrates how the system operates. By just stating the token is linked to the underlying is meaningless without some clear definitions (as it is not directly linked only to the underlying as per above).