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What is the Butane Protocol?

Published 27.2.2024

The Butane Protocol has made waves in the community. The team raised nearly 50 million ADA in the public sale of BTN tokens. As pointed out by Charles Hoskinson, this impressive feat surpasses the amount Ethereum garnered during its ICO. Now, let's delve into the team's ambitious plans for this project.

What is Butane?

Butane is a synthetic protocol that allows users to create synthetic assets. These are financial instruments that simulate other instruments without the need for physical ownership.

Synthetic assets are tokens that mimic the value of another cryptocurrency, or any other real-world asset, without requiring actual ownership. For example, a synthetic version of Bitcoin on the

Cardano blockchain would mimic the price of an actual BTC, allowing you to benefit from price changes without owning the actual BTC.

The Butane Protocol allows users to deposit a variety of assets as collateral to mint synthetic assets (Butane can support any CNT as collateral). These synthetic assets can then be traded on the Cardano blockchain, providing users with exposure to a wide range of assets without needing to own them directly.

Collateralized Debt Position (CDP) in the context of the Butane Protocol is a smart contract that allows a user to deposit an asset (the collateral) and borrow synthetic assets against it. It’s like taking out a loan, where the collateral is what you offer up as security.

When you open a CDP in the Butane Protocol, you deposit an asset (like ADA) and the CDP gives you a loan in return. This loan is in the form of synthetic assets. If the value of your collateral falls too much, the CDP will be liquidated to ensure the loan can be repaid.

Remember, while synthetic assets and CDPs can offer financial opportunities, they also come with risks.

Competition

The Cardano ecosystem already has a CDP protocol called Indigo. Currently, it is the most successful DeFi project in which approximately the value of 100M USD is locked up.

Thanks to the Indigo protocol, it is possible to trade synthetic assets iBTC, iETH, and iUSD on many DEXes.

Indigo allows anyone to create synthetic assets, known as iAssets. These iAssets can be created using currencies such as stablecoins and ADA. They have the same price effect as holding the asset being replicated. This allows users to gain profit from the increase in price of an asset without owning the original asset itself.

In the crypto industry, MakerDAO stands out as one of the most successful CDP protocol. MakerDAO’s vaults have been the flagship product of the DeFi ecosystem, accounting for the majority of total value locked in DeFi protocols and platforms. MakerDAO's TVL is roughly $9B.

Users can open a vault, deposit an asset (like ETH), and generate DAI stablecoins. If the value of the collateral falls too much, the vault can be liquidated to ensure the loan can be repaid.

It is interesting that, for example, the Solana and Avalanche ecosystems do not have any successful CDP protocol.

Tokenomics

BTN, the native token of the Butane Protocol, serves multiple purposes including governance, staking, and as an option for repaying CDP interest.

In the picture, you can see a full breakdown of BTN tokenomics.

The Biggest Advantages Of The Butane Protocol

Butane Protocol stands out with its innovative features. It introduces an atomic liquidation system that operates independently, minimizing congestion and enhancing scalability. This ensures quicker and more efficient liquidation transactions.

Butane also unveils a dynamic collateralization approach, allowing users to lock multiple tokens as collateral, each with configurable weights. This promotes risk diversification and encourages user participation.

The protocol’s dynamic collateralization and accelerated liquidations lead to more reactive price adjustments, contributing to a stronger peg. The diversity, along with the ability to maintain a robust peg efficiently, instills confidence in the valuation of Butane synthetics, leading to lower user fees.

Conclusion

With a substantial budget at their disposal, the team certainly has the potential to deliver a high-quality product. The ability to trade real-world assets like stocks or even ETFs on Cardano would be a significant advantage. If the project succeeds in achieving this, it could be a tremendous success.

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