WBTC Is Hard To Implement Contract Size 1:1 Due To The Lack Of Precision

[osp-ng]

Currently, the collateral token is the WBTC and its precision is defined by the "decimal point" in the ERC20. WBTC’s decimals = 8 (which is far away from the DAI who has decimals = 18). This feature limits the precision of the Synthetic BTC Mining Contract.

In the "mint" routine of the MARTKETProtocol, the required collateral token is calculated by:

Note:

• CTK: Collateral token. Is is the WBTC in this project so far. WTC.decimals = 8
• INDEX: The BME in this project. According to the BME84 design, (Cap - Floor) = 1.6e-5. So INDEX.decimals should be >= 6. Considering the decline in the BME caused by production reducing, the better INDEX.decimals is >= 9
• qtyMultiplier: A constant ratio
• qtyToMint: How many position pairs can we get after the "mint" routine
• The contract multiplier(also called contract size) = 1 according to the previous discussions

It is impossible to implement the protocol under the above constraints.

For example, if we have (Cap - Floor) = 1.6e-5 which means Value(1 contract) = 1.6e-5 BTC. Even if we set every factors to the minimum value (ie. INDEX.decimals = 6, qtyMultiplier = 1, qtyToMint = 1), we still have to pay 1.6e-2 BTC which is wrong.

Proposal 1: Set the contract multiplier(also called contract size)

Adopt issue #44: Value(1 contract) = Multiplier * the index value

I propose the following settings:

• INDEX.decimals = 9. It has 4 significance digits until 3 years later
• The contract multiplier in Adopt the concept of contract size from index futures #44 = 1e6, which means Value(1 contract) = 1.6e-5 * 1e6 = 16 BTC
• Note that you can buy 1e-5 contracts. So the minimum collateral could be 0.00016 WBTC
• qtyMultiplier = 1

So that 9(INDEX.decimals) - 6(contract multiplier) + 5(POSITION.decimals) = 8(WBTC.decimals).

ADVANTAGE: It uses a standard financial term.
ADVANTAGE: This is the only method to increase the significance digits of the BMC.
DISADVANTAGE: Make it harder for users to understand the meaning of the value of 1 contract.

Proposal 2: Use pBTC instead

Deploy a new contract which atomicly exchange the WBTC(decimals = 8) with pBTC(decimals = 18).

ADVANTAGE: It is a more complete implementation.
DISADVANTAGE: One more step is involved for the user.

Proposal 3: Modify the index

Modifing the index by times the BME by 1e3 and keep contract multiplier = 1.

For example: index = 1.6e-5 * 1e3 = 1.6e-2 BTC, which means Value(1 contract) = 1.6e-2 BTC

• INDEX.decimals = 3. For example, 1.6e-2 is represented by 16. There are only 2 significance digits.
• Contract multiplier in Adopt the concept of contract size from index futures #44 = 1
• qtyMultiplier = 1

So that 3(INDEX.decimals) + 5(POSITION.decimals) = 8(WBTC.decimals).

ADVANTAGE: The simplest method to make this project implemented.
DISADVANTAGE: It seems the significance digits is not enough even today. I think the issue #44 is still required.

Proposal 4: Modify the MARTKETProtocol code

The core formula in the 'mint' routine only allows multiplication. The contract multiplier(also called contract size) is a "division" function in the 'mint' routine. So adding a division function will allow INDEX.decimals > CTK.decimals.

In MarketContract.sol,
add a QTY_DENOMINATOR after the QTY_MULTIPLIER.

In MarketCollateralPool.sol,

uint neededCollateral = MathLib.multiply(qtyToMint, marketContract.COLLATERAL_PER_UNIT());

will be

uint neededCollateral = MathLib.divideFractional(qtyToMint, marketContract.COLLATERAL_PER_UNIT(), marketContract.QTY_DENOMINATOR());