Introducing ERNE Finance

10 min readOct 10, 2020

Decentralized Finance (DeFi) has been the fastest-growing sector within the cryptocurrency space, and for very good reasons — people have realized that most if not all traditional financial services can be built on blockchain infrastructures.

The main benefit of DeFi is that end-users don’t have to trust any central authority. It is the smart contract that takes care of everything. Thus, the power of banks and omnipresent financial institutions, which unfortunately are often inclined to manipulation and excessive control, is transferred to the masses.

We have seen several DeFi projects experiencing tremendous success in the past few months. Think about lending protocols e.g. Aave and Compound, synth trading platform Synthetix or decentralized token swap protocol Uniswap.

Still, the DeFi space at a nascent stage and there are many challenges to address. There is a lot of fragmentation, uncoordinated moves and narrow use cases.

Under these circumstances, we’d like to introduce ERNE, an interconnected DeFi ecosystem hosting a series of complimentary DeFi protocols within an ecosystem including decentralized automated market marking, minting stablecoins and synthetic assets, decentralized exchange (DEX) for derivatives, lending and borrowing, insurance, and non-fungible token (NFT) marketplace.

Also, unlike most DeFi projects, whose native tokens have very limited use cases, ERNE is operating an eponymous token that has multiple cases that are contributing to its value. In a nutshell, the ERNE token has the following features:

Token holders can use ERNE as collateral to mint the eUSD — the project’s native stablecoin — along with other synthetic tokens.
ERNE holders are entitled to a portion of all revenue generated on the ecosystem. The revenue is automatically routed to a treasury and then allocated to holders.
All decisions on the ERNE ecosystem, such as future projects or change in modus operandi, will be achieved through voting of ERNE holders, so it acts as a governance token.

ERNE’s Three Main Pillars

The ERNE ecosystem will include multiple DeFi products and services, though it will revolve around three main platforms:

ERNEswap

This is the decentralized exchange that will rely on the swap feature that enables users to trade ERC-20 tokens and synthetic tokens seamlessly thanks to an automated market making mechanism. All orders will be market orders, i.e. they will be carried out instantly. The platform’s main mechanism resembles atomic swaps, which are smart contracts that allow the instant conversion of one cryptocurrency for another without the involvement of centralized exchanges or through fiat operations.

Users will be able to provide liquidity for the pairs listed on ERNEswap. Liquidity providers will become eligible to receive rewards in the form of ERNE tokens for liquidity mining. Another portion of rewards will come from the transaction fees.

For the first time in the DeFi space, users will be incentivized for providing liquidity for longer-term. Here is how:

1.1x reward on liquidity provided for one week.
1.25x reward on liquidity provided for one month.
2x reward on liquidity provided for three months.

Moreover, for ERNE liquidity pools — initially, ERNE/ETH and ERNE/USDT — the reward size will be 2x. Consequently, the reward size for locking liquidity in ERNE pairs for longer-term will also double, such as 2.2x for one week, 2.5x for one month, and 4x for three months.

It’s worth mentioning that it is not mandatory to keep your liquidity locked for a predetermined period to take part in this liquidity reward scheme. You can get back your liquidity at any time, though you may not become eligible for the larger rewards. For example, if you decide to unlock your non-ERNE liquidity after 2 weeks, you get the 1.1x reward for the first week of liquidity mining, but you fail to obtain the 1.25x reward for the one-month locking.

Once ERNEswap goes live, liquidity providers will get 5x rewards for the first 200,000 blocks, 380 ERNE tokens per Ethereum block, but the time-based rewards described above won’t be applicable.

Besides the ERNE token rewards, users will be given unique NFTs based on their participation and reward level. More details will be provided in the future.

Pools

Here is the initial set of available pools on ERNEswap:

Native DeFi: ERNE-ETH, ERNE-USDT, ERNE-MATIC

Native CeFi: DRCX-ETH, DRCX-USDT

CeFi Stablecoins: USDT-ETH, USDC-ETH

DeFi Stablecoins: sUSD-ETH, DAI-ETH

Lending Protocols: COMP-ETH, LEND-ETH

Ethereum Layer2 : MATIC-USDT

Oracles: LINK-ETH, UMA-ETH

AMM: CRV-ETH, SWE-ETH

Rebase Protocol: GRAP-ETH, YAMv2-ETH, BASED-ETH, AMPL-ETH

Mining Aggregator: YFI-ETH, YFII-ETH, SUSHI-ETH

ERNE swap is launching at 8:00 AM GMT on 14.10.2020.

ERNEmint

The minting platform acts as the gateway to the ERNE ecosystem. Users will be able to use ERNE tokens as collateral to mint synthetic assets representing conventional or crypto assets. Users will be able to mint fiat currencies, non Ethereum-based cryptocurrencies, commodities like gold and oil, equities, and more.

The new tokens would accurately track the price of their underlying assets, ensure liquidity and bring convenience by avoiding price slippage. Users can then trade the newly-created synthetic assets via ERNEswap or ERNE derivative DEX.

This will open the door to many interesting exotic pairs and traditional pairs on a decentralized platform that will enable traders to speculate on price movements, trade the news, etc.

Eventually, traders will be able to create liquidity pools for the tokens they mint. There is really a lot of flexibility and creativity involved with the minting platform.

The first token available for minting is ERNE’s proprietary stablecoin — eUSD. Unlike other minting platforms in the DeFi space, which have a high collateralization ratio (C-Ratio), eUSD is soft pegged at $1 and minted for the full collateral value of 100% ERNE staked on ERNEmint.

To make sure that ERNE’s price volatility doesn’t disrupt the C-Ratio, ERNE introduced an innovative mechanism according to which the eUSD is minted or burned automatically on hourly basis.

In the future, we will gradually reduce the rebasing time. Despite a low and fair C-Ratio, ERNE doesn’t bother users by requiring them to manually mint or burn every time the price of the staked token changes.

To exemplify, if ERNE is valued at $0.1 and you have 10,000 ERNE, then you can stake it to mint 1,000 eUSD. If the price of ERNE rises to 15 cents, then the system will automatically mint 500 eUSD in your wallet. If the price of ERNE drops to let’s say $0.08, then the system will automatically burn $200 worth of eUSD from your wallet.

To cover the downside, we will require users to keep at least 25% of eUSD as margin for rebasing so that the rebasing process is not disrupted. The users with insufficient margin will be penalized and in the worst-case scenario, their collateral will be seized and auctioned.

We hope that the automated minting & burning mechanism will support the expansion of eUSD as a fair decentralized stablecoin, especially when the market is dominated by centralized alternatives like the popular USDT, which is full of controversies around their reserves.

Eventually, ERNE users will be able to access and operate the synths through a wide range of services, including trading, minting, lending/borrowing, insurance, staking, and more.

ERNElend

The lending platform will enable users to lend and borrow eUSD and other tokens in a decentralized environment.

ERNElend will incorporate two main elements: lending and borrowing. Besides these, the platform will host additional features, including flash loans, un-collateral loans, and borrowing against tokenized assets and NTFs.

With the first service, you can lend any synthetic token to the lending pool and earn passive income. Besides the interest, you can pick synthetic assets that can potentially increase in price. In this way, you can benefit both from the price appreciation and the interest from lending.

With the borrowing feature, you can use your synths as collateral to borrow stablecoins.

Besides the three platforms scheduled to be launch soon, there will be other products and services at later stages. Eventually, our goal is to enable native cross-chain swaps of all possible assets through Cosmos or Polkadot.

Here is the roadmap that can be used as a reference for future updates:

ERNE swap
ERNE mint
ERNE lend
ERNE Derivative DEX
ERNE Insurance

ERNE Token

The entire ecosystem will revolve around ERNE, the governance token that has multiple use cases. Users will be able to generate yield for providing liquidity by taking part in ERNE’s yield farming.

First and foremost, ERNE emitted from liquidity mining will act as collateral to mint eUSD and synthetic assets through ERNEmint. The newly created synthetic tokens will generate transaction fees when traded on ERNEswap, and the fees will be then distributed to locked ERNE holders as rewards for providing collateral.

Besides the mentioned use cases, ERNE holders will be able to take part in the ecosystem’s governance process by voting or submitting EIP, ERNE Improvement Proposal.

Thus, there is a great flow of real use cases and processes that will help ERNE consolidate its intrinsic value. The chronology of processes on ERNE platforms goes like this — you land on ERNEswap, start providing liquidity to get ERNE as reward. Then you can move to ERNEmint to stake your ERNE tokens to get incentives from fees and use ERNE as collateral to automatically mint eUSD, which you can take to ERNElend and lend it to generate more yield.

ERNE is an ERC20 token but the core standard is ERC1155, which allows the creation of fungible and non-fungible tokens and its smart contract can host an infinite number of tokens. The latest Ethereum standard is also great for gamifying various processes on ERNE.

Here are ERNE’s main details along with the distribution and emit process.

ERNE’s smart contract will emit tokens as per smart contracts of ERNEswap rewards schedule, staking, etc.

Here is how the emission rate is calculated:

The total number of ERNE to be distributed as rewards in ERNEswap is 425 million for a period of five years. The rewards will be calculated in tokens per block. Each year, the ledger is growing by 2,102,400 blocks assuming the block creation time of about 15 seconds. The number of reward tokens will be halving every year, so the supply of reward tokens for the subsequent year will be lower than the previous one. Thus, the supply of the reward tokens will increase as follows:

Every year, the block reward will be calculated based on the available tokens per year, as explained above.

After the fifth year, the supply will expand by a fixed rate of about 4% to further incentivize participants who provide collateral on ERNEmint or contribute in other ways on futures platforms that will be announced at a later date.

ERC1155

As explained above, ERNE ERC20 is created as a fungible token as part of ERC1155 — the state of the art token standard that enables multi-token support. ERC1155 comes with a native set of advantages like security and optimized gas consumption. It enables a single smart contract to hold multiple fungible and non-fungible tokens and enables batch sending for these assets in a single call.

This flexible smart contract system allows to gamify processes on ERNE and incentive users via customized NFT tokens.

However, a fungible token inside a ERC1155 is not compatible with the interfaces of an existing ERC20 token. The interface incompatibility constraints the token from being used in traditional centralized and decentralized exchanges and swaps. For this purpose, a wrapper contract is built to act as a bridge between legacy ERC20 applications and fungible tokens inside a ERC1155 token.

Airdrop and Token Distribution

At the launch, there will be 150 million premined ERNE, which will represent about 15% of the total supply.

75 million of ERNE tokens will be given to holders of the protocols listed below based on a snapshot taken at 8AM GMT on 05.10.2020.

Matic Network — MATIC
Uniswap — UNI
AAVE — LEND
MakerDAO — DAI
Synthetix — SNX
Compound — COMP
Curve.fi — CRV
Balancer — BAL
Sushiswap — SUSHI
RenVM — REN
Nexus Mutual — NXM
Yearn Finance — YFI

The first 150,000 wallets out of collected 600,000 token holders of the above 12 protocols can claim 500 ERNE from 8:00 AM GMT 12.10.2020 till 12:00 PM GMT on 31.10.2020.

63 million tokens will be given to DEC users based on 1:1 ratio. DEC users are the early adopters of the DARICO ecosystem — the first community-owned centralized crypto exchange.
5 million tokens for marketing activities
7 million tokens for the team with 2-year vesting

Also, the first 10,000 users to claim their token will be given a NFT token titled “ERNE Genesis” — a uniquely designed non-fungible token that demonstrates the holder is an early adopter.

Scalability and Gas fees

Ethereum suffers from scalability issues in terms of network throughput due to the underlying proof of work (PoW) consensus. The proposal to migrate the consensus to proof of stake (PoS) in Ethereum 2.0 will see massive improvements in scalability in orders of magnitude. The price of gas in the last three months have been high because of the traction DeFi-based projects are getting.

Until the full launch of Ethereum 2.0, Layer 2 solutions provide the optimal solution to improve scalability limitations and reduce higher gas costs. ERNE will operate on Matic Mainnet, an ethereum scaling solution leveraging plasma and PoS side chains.

Operating Erne on Matic offers two distinct advantages for ERNE users. No more pending transactions and fear of front running of any orders. Gas fees would be reduced by orders of magnitude.

Treasury

ERNE holders are eligible for a portion of the revenue the overall system makes. For example, on ERNEswap, out of the 0.30% transaction fees taken from traders, 0.25% is given to the liquidity provider, and 0.05% is given to the ERNE holders.

Similarly, the revenues of ERNEmint will be distributed to the users of the minting platform and ERNE holders.

Much of the distribution process will take place through our Treasury, which will store the collected fees and allocate the resources fairly to ERNE holders.