Ongoing debtor fees (ODF in metadata)

When holding a position over time, a position incurs ongoing costs to maintain e.g. interest, hold fees. These costs are charged by counterparty.

TradFi offset this by ensuring the customer maintains a cash balance, they then debit the costs from the cash balance.

However, in Synfy’s case, there is no cash balance to refer to. The ongoing costs have to be maintained within the token itself. This presents a unique challenge!

One possible way to solve this, is to charge any upfront fees possible on position open. And then debit the maintenance costs against the position P&L itself. Assume the token issued represents a portion of the position itself.

For example, on a $1000 spot position (10 Synfy sySPY @ $100). Synfy quotes a 15 USD comm ($15), 2% currency (2 USD), 0.02 spread, 1 month custody fee 10 USD = total of 27 USD. Remember there will be a closing commission of 15 USD too total = 42 USD. This would be quoted upfront as $1042 USD.

Regarding the ongoing fees e.g. interest or holding - For example if the “ongoing debtor fee” is $20 per annum it can be charged to the value of the position (value of position is $1000). If the “ongoing debtor fee” e.g. custody fee slowly increases to say 80% value of the position i.e. $800 the position is auto liquidated. S&P 500 or asset can decline also by -Synfy% - this denotes the value of the position and if that value declines to <= ongoing debtor fee cumulative pending total then the position can be liquidated. Custody fees and interest are the main ongoing fees.

Typical example:

e.g. $100 purchased. $142 paid to cover costs. Including 1-month worth of custody fee.

· Position held for 5 months

· Ongoing holding fee of 10usd per month + financial instrument cost. Total of $40 “ongoing debtor fee (ODF)” pending.

· Position declines -40% to $60. Also, now deduct - $40 for debtor fee. Real position value is $20. Position will be closed out, as declined -80% in value including fees.

· Position liquidated, $60 returned from counterparty. Synfy consumes $40 to cover costs, and $20 returned to customer via stablecoin like (Tether, USDC, syUSD or FIAT).

Challenges for Synfy regarding ongoing debtor fees

The biggest challenge here is for Synfy itself. The counterparty requires Synfy to hold a cash balance to deduct ongoing fees. This means Synfy itself has to deploy a cash balance for the eco system to work. Synfy has to deploy a cash balance against all synthetics issued, so the counterparty can deduct these fees. Synfy also has to track the fees for each position.

One way to solve this is to limit daily liquidity. Hence the 60K daily limit on orders. This allows Synfy to manage the cash balance for the fees more easily. And grow them more manageably.

Synfy stakeholders will invest capital to provide fee coverage initially.