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DeFi TesECO is a new approach to the leveraged trading, introduction

9 min readApr 10, 2021

Abstract

TES is a group of leveraged synthetic asset pairs created and tokenized on Ethereum without the risk of liquidation. The goal of TES is to provide decentralized, trustless and non-KYC procedure leveraged assets that behave similarly to traditional leveraged ETFs. Trading using leverage is actively used and known to every trader. Relying on a fund or debt rebalancing, there is a habitual achievement of leverage. The difference is that TES assets do not require various forms of rebalancing, thus the risk of getting a margin call is limited.

The system provides unique benefits. TES assets are deployed in pairs and have several collateral sources. They are driven by the liquidity providers, ETH, which is needed to mint tokens, and directly, by the productivity of an opposite asset. As opposed to traders, crypto traders previously could not use leveraged ETFs.The system does not need a specific counterparty, since the entire capital of liquidity providers and the “LONG” token is the strongest counterparty for the “SHORT” token. TES provides a zero risk of liquidation for leveraged trading. Assets retain 100% lifetime liquidity because token pairs are isolated. Any sharp price movement in no way affects the liquidity of the entire system. The absence of restrictions on the number of created assets allows them to avoid relying on a collateral pool. Holders who stake on liquidity providers and tokens will receive a distribution of commissions from buying and selling assets. TES maintains indices, commodities and assets with public decentralized oracles.
Users are given the opportunity to provide liquidity to any pair of TesECO assets. It is important to note that there is a difference between TES staking and liquidity provision. Users provide liquidity for only one pair of assets, which means they also receive a commission from only one pair. Commissions from the entire TesECO ecosystem can only be earned when TES staking. The project will offer an opportunity to withdraw earned interest from a pair of assets at any time without canceling liquidity. Long and Short liquidity tokens have already been added to the storage contract. These tokens are burned when liquidity is removed and cannot be transferred.

TesECO — concept

TesECO — the working principle of the platform: synthetic leverage without the need to go through KYC procedure with the liquidation risk excluding. Networking is done using Chainlink oracles, which means TesECO can support leverage with any of the pairs in the Chainlink feed. The mobilized tokens were first introduced on FTX (derivatives exchange), where they gained their popularity. This allows you to distribute risks by purchasing a token that acts as a forecast, if ETH grows by 1.5%, ETHLONG will grow by 4.5% and vice versa. This concept is very popular, but the FTX Exchange requires the KYC procedure, which to some extent contradicts one of the basic foundations of cryptocurrencies — anonymity. TesECO’s task is to provide this opportunity for crypto traders without the need to go through KYC procedure.

Tokens “Long” “Short”. How does it work?

The main difference from traditional leverage is that “Long” “Short” tokens are backed by ETH.The more ETH on deposit — the more tokens with leverage. As a result, the assets always have 100% liquidity. Using this decentralized model, the actual leverage of a given token “Long” or “Short” is rarely 3x — but it will never be above 4.5x or usually below 1.5x. You can see the actual leverage in the “Statistics” section of the app. TesECO platform, by visiting our website tes-token.com, you can learn about it (currently under development) by joining the Ethereum network using MetaMask. After connecting, you can familiarize yourself in more detail with its interface, it is simple and intuitive.

It is quite easy to purchase Long and Short tokens with the TesECO interface. Just select Long or Short in the section “Trading” and then place your order. Thanks to the algorithm of the platform, you can see the Long / Short balance in real-time. If more people own Long tokens, the leverage for Short increases, and vice versa. In addition, if the equivalent for one of them becomes much larger than for the other one, penalties and bonuses are imposed so that the leverage remains within an acceptable range.

Liquidity pool

In the right corner of the application, you will see a “Liquidity” section. This is where users can provide liquidity and receive commissions on the platform. In the case of adding ETH liquidity, liquidity is provided by ETHLONG and ETHSHORT tokens through the TesECO storage contract. They also burn when the same liquidity is removed. In the future, besides Ethereum, there will be more Long and Short tokens for cryptocurrencies. It should be noted that adding liquidity to the pool only brings you profit for this particular pair of assets. Staking Tes brings you income for the entire ecosystem — for all pairs of assets. By adding liquidity, you get shares. You can see the share price and quantity with liquidity that you own in the “Pool” section of the app. If you are familiar with Uniswap pools, they work in much the same way. When adding liquidity, you will see some changes of the information in the “Statistics’’ section below. Adding liquidity will not have a major impact on TesECO’s statistics in the future, especially if liquidity reaches levels similar to those of Uniswap pairs.

Platform terminology

The value of indicators in the “Statistics” section

Contract ETH: How much ETH is in TesECO for this particular asset pair.

Liquidity: The total liquidity provided for a given pair of assets.

Long Equity: The amount of “Long” tokens currently held in ETH.

Short Equity: The amount of “Short” tokens currently held in ETH.

PRICE “Long”: The amount of “Long” which is currently traded on TesECO for this particular asset pair.

PRICE “Short”: The amount of “Short” which is currently traded on TesECO for this pair of assets.

Short leverage: potential refund of the “Long” token.

Note. Since “Long” and “Short” are fully collateralized, their total capital is equal to ETH under the contract.

Tokenomics

TES Token

The TES token acts as a share of the “TESECO” ecosystem. Users who buy and sell TES assets generate commission. Rewards are made for staking from half of these commissions. Since the management of the “TesECO” project is centralized, TES cannot be a governance token. The development fund will initially receive all generated staking fees before the stacking is publicly allowed.
In the near future, after the inclusion of staking and the launch of the main net assets, public sale of tokens will take place. The calculated percentage of tokens will be transferred to LINK holders after a manual distribution request. The maximum number of TESs is 10 million.
The lack of an initial offer and the preservation of 100% liquidity is due to the fact that all TesECO assets are minted for ETH at the current price of the synthetic token. It is from the smart storage that all tokens that are bought and sold carry a commission of 0.4%. Those TES token holders who place their tokens will be allocated all subsequent commissions.

Leverage

TesECO leverage is determined by the target leverage (L) and the actual leverage (La). Target leverage is the estimated leverage of a pair of assets, usually 3x, but this will vary depending on the pair of assets. Actual leverage (La) is the real leverage achieved and determined by the equity ratio of a pair of tokens or the equity ratio (k) given by Equations 1 and 2. At any given time, the actual leverage of an asset with 3X leverage can never be higher than 4.5X and generally does not go below 1.5X.

The equity ratio k is capped by default at an upper limit of 1.5. A loss limiter is applied to prevent the price of any asset from falling to 0, thus, in any given price cycle, the price of an asset cannot fall by more than 90%. Both the upper limit of the equity ratio k and the loss limiter can be adjusted to increase stability and ensure that the actual leverage (La) is closer to the target leverage (L).

Buying bonuses and selling penalties

While the equity ratio k is 1, the actual leverage is equal to the target leverage. Therefore, it is very important for TES resource pairs to keep the k values as close to 1 as possible. Bonuses for a purchase and penalties for a sale are introduced to encourage users to rebalance the balance of asset pairs. A sell penalty occurs when an asset is sold and burned, resulting in k greater than 1, the penalties are determined by Equation 3. All sell penalties are referred to the balance fund (Ebal), providing a balance for the bonuses for a purchase. Selling penalties vary but are severely capped at 15%.

Purchase bonuses are awarded when the asset purchase and minting of an asset result in a tendency k to 1, bonuses are determined by Equation 4. Bonuses for a purchase are based on the amount of selling penalties incurred. The more unbalanced a pair of tokens is, the more incentive users have to balance a pair of tokens through purchases. (See Table 1 below)

It is important to note that there are no purchase penalties or sales bonuses here. They will additionally encourage users to rebalance the balance of a pair of tokens. However, this will also stimulate capital outflow from the token pair in general, increasing the influence of buying and selling on the value of the asset k.

Risks

The current implementation of synthetic leverage involves several risks. First of all, the risk that the equity of an asset in a pair will reach zero, leading to a zero effective leverage for the opposite asset and zero reactivity of the price. This would lead to large purchase bonuses encouraging the minting of an asset with zero capital. Even in the unlikely event that the underlying asset completely ceases to exist, 100% of the Ethereum sent to a pair of tokens can be returned. Although TesECO is built on decentralized oracles, many aspects of TES are highly centralized. This is a deliberate choice of structure to avoid the pitfalls of DAO (Decentralized Autonomous Organizations). Ensuring simplicity of updates, allocation of funds for advertising and listing, and deliberate management of the TES project. Asset controller contracts have built-in anti-abuse measures such as a hard cap on sales fees, 72-hour delay to update the contract, etc. Currently, asset references in Oracle contracts can be replaced, eventually, they will be blocked permanently when proxy servers of Chainlink prices will be implemented.

Conclusion

TesECO’s mission is to create a unique product for the cryptocurrency market, integrating the foundations of the financial instruments of the traditional investment market. Unlike traditional traders, crypto traders previously could not use leveraged ETFs. TES’s mission in the world of cryptocurrencies is to ensure zero liquidation risk in leveraged trading.