Synthetic token

Synthetic tokens are ERC20 tokens that represent 1:1 pegged underlying assets while enabling separate yield tracking through a weighted checkpoint mechanism.

Token Properties

1:1 Pegging

Each synthetic token always maintains a 1:1 relationship with its underlying asset:

• 1 sUSDC = 1 USDC (stable value)
• 1 sETH = 1 ETH (stable value)
• No appreciation or depreciation of token value

Yield-Bearing Capability

While maintaining stable value, synthetic tokens:

• Accrue yield from lending operations continuously
• Track yield separately from token balance
• Enable claimable yield at any time

Order Book Compatibility

Designed specifically for CLOB trading:

• Predictable order sizes (100 sUSDC = exactly 100 USDC value)
• Clean price discovery (no yield interference)
• Standard trading mechanics

Weighted Checkpoint System

Global Yield Counter

Tracks total yield generated per underlying asset:

mapping(address => uint256) public yieldPerToken;

User Checkpoints

Each user has individual checkpoints for fair yield tracking:

mapping(address => mapping(address => uint256)) public userYieldCheckpoints;

Yield Calculation Formula

User Yield = Token Balance × (Current Yield Per Token - User Checkpoint) ÷ PRECISION

Checkpoint Updates

On Deposits

New Checkpoint = (Old Balance × Old Checkpoint + New Deposit × Current Yield Rate) ÷ (Old Balance + New Deposit)

On Withdrawals

New Checkpoint = (Old Balance × Old Checkpoint - Withdrawal × Current Yield Rate) ÷ (Old Balance - Withdrawal)

Weighted Checkpoint Visualization

The weighted checkpoint mechanism ensures fair yield distribution for users joining at different times:

Fair Distribution Example:

Alice: 100 USDC for 60 days → 150 USDC yield (50% return)
Bob: 100 USDC for 30 days → 50 USDC yield (50% return)

Both earn the same rate (50%) proportional to their participation time!

Benefits of Weighted Checkpoints:

• Fairness: Users earn based on actual participation time
• Efficiency: Single global update serves all users
• Accuracy: Weighted averages prevent gaming the system
• Transparency: Clear mathematical formula for yield calculation

On Trading

Checkpoint updates maintain fair yield tracking during active trading through weighted averages.

Technical Implementation

ERC20 Integration

contract SyntheticToken is ERC20 {
    function mint(address to, uint256 amount) external {
        _mint(to, amount);
        updateYieldCheckpoint(to);
    }
    
    function transfer(address to, uint256 amount) public override returns (bool) {
        _transfer(_msgSender(), to, amount);
        updateYieldOnTransfer(_msgSender(), to, amount);
        return true;
    }
}

Yield Tracking

• Yield calculation occurs O(1) per user
• Global updates scale to unlimited users
• No individual account updates needed

Benefits Over Traditional Models

vs aTokens (Aave-style)

Feature	aTokens	Synthetic Tokens
Value Stability	Changes with yield	Always 1:1 stable
Order Trading	Complex (changing value)	Simple (stable value)
Price Discovery	Corrupted by yield	Pure market dynamics
Slippage Calculation	Imprecise	Accurate

System Advantages

• Order Book Isolation: Trading operations unaffected by yield calculations
• Capital Efficiency: Tokens trade freely while earning yield
• User Experience: Simple 1:1 understanding, no complexity
• Gas Optimization: Efficient yield tracking at scale

Integration with Protocol

BalanceManager Interaction

• Mints tokens on user deposits
• Tracks user checkpoints
• Coordinates yield distributions

OrderBook Integration

• Locks tokens during active orders
• Updates balances on trades
• Maintains trading functionality

LendingManager Integration

• Receives yield distributions
• Updates global counters
• Calculates user entitlements

Synthetic tokens enable the unified protocol’s core innovation: maintaining clean order book operations while generating yield on all capital states.