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/ SHADOW LINK Shadow Link: The World’s First Inversely Pegged Synthetic Asset You waited for it. It’s finally here. W HI T EPAPER V.1.1 L AST UP DATE D NOVE M BE R 19TH 2 02 0 1 / SHADOW LINK 1. ABSTRACT In recent times, synthetic assets bearing elastic supply properties have demonstrated the ability to show low correlation against other synthetics and the general blockchain market. By enforcing their own independent set of rules or pegging an asset’s value to another – these synthetic assets generate a volatility footprint, unlike no other. This paper presents Shadow, a novel synthetic commodity that is focused on providing a method to hedge against Chainlink. The Shadow protocol, detailed below, will generate an inverse-like volatility footprint on decentralized exchanges. A BS T RACT 2 / SHADOW LINK 2. INTRODUCTION SHADOW is a novel commodity with an elastic supply that aims to experiment with the first inverse peg on the ethereum blockchain. The Dex Shadow Oracle system we developed is used to calculate the inverse of any crypto-based asset. This data is then used to calculate what price our token should rebase to. Some cryptocurrencies have similarly tried to achieve a supply-adaptive monetary ecosystem. However, many of these projects have failed to provide additional value other than directly pegging to an existing asset or the project’s initial hype. I NT R ODU CT IO N 3 / SHADOW LINK 3. WHAT IS INVERSE PEGGING? Inverse Pegging is an idea of pegging to the inverse of another cryptocurrency. The math for this can be written as: 100 ~ [n] = LINK PRICE ω[n] relies on LINKPRICE (in USD) as a raw input. Below is a historical graph of LINK (black), where ω[n] was applied to the price of LINK over the course of the past few months. As LINK decreases, SHADOW (orange) increases, and vice versa. This data does not consider factors like volatility, volume, and market cap. W HAT IS INVER SE PEGGING? 4 / SHADOW LINK 4. WHY LINK? We believe that Chainlink is a perfect candidate to test this type of experiment. The volatility of LINK recently has shown that the community needs a way to hedge against the sudden drops of LINK on decentralized exchanges. As it can be seen in the chart above, ω[n] causes the price to fluctuate around a threshold value, τ[n]. By analyzing market data, we found that setting τ[n] to $10 (USD) achieves a mirror-like relationship between SHADOW and LINK. One can also observe how SHADOW has the potential to show a softer volatility pattern relative to drastic changes in LINK around the threshold value. W HY LINK? 5 / SHADOW LINK 5. WHY SHADOW LINK? A few years ago, an internet meme surfaced in the crypto community rumoring a fork of Chainlink. While this rumour never came to light, crypto- meme Youtuber ‘Bizonacci’ helped turn it into a viral sensation with a video gaining over 140,000 views. Our goal is to bring back the rumour of Shadow and conjure the hype it held back in 2017. Our team of developers has also been working on the “Shadow Ecosystem”, where other inversely pegged assets will join SHADOW. Our goal is to provide liquidity generation through this platform, where one can stake respective UNISWAP LP tokens to farm the Shadow Ecosystem’s ERC-20 token. Our goal is to use the platform to generate liquidity for assets that fall under the Shadow umbrella, so that users can expect better experiences on decentralized exchanges. This also gives our team the opportunity to experiment with new types of farms such as deflationary models. W HY S H ADOW L INK? 6 / SHADOW LINK 6. PROTOCOL Our supply-adjustment function is governed by a monetary policy contract that requests price data through an oracle provider. The idea of the rebase is that if SHADOW’s oracle rate in terms of LINK changes by a definite percentage, the supply of tokens will change by the same rate divided by a constant. This constant is the rebase lag, which effectively dampens the price change to reduce volatility and safeguard against drastic market change. For example, if the price of SHADOW changes by +/-20%, then the supply will expand or contract by a factor of (20/l ) %. Therefore, during the event of a rebase, the change in the supply of tokens is equal to: qt - q0 Dq = l q0 - p0 where qt = pt P R OTOCO L 7 / SHADOW LINK 7. STATES OF SHADOW LINK To achieve these states, one token will be changed to the ratio of: b [n] = SHADOW ' ~ [n] If β[n] is greater than 1, the protocol will undergo an expansion. The protocol will experience a contraction upon returning a value below 1. In a scenario where the prices are equal, the system will not experience any changes. If β[n] does in fact equal 1, it can ultimately be assumed that the protocol will undergo a stagnant period until a delta between 1 and β[n] is once again created. S TAT ES O F SH ADOW L INK 8 / SHADOW LINK 8. EXPANSION The expansion phase occurs when the price of one SHADOW token is higher than the price of ω[n]. During a rebase, all wallets holding SHADOW tokens will have their portion of all holdings overwritten to a larger amount, such that the market price of SHADOW on decentralized exchanges is pushed to ω[n]. price O 2.0 1+δ 1-δ t1 t2 time supply s2 O s1 t1 t2 time EX PA N SIO N 9 / SHADOW LINK 9. CONTRACTION When the price of one SHADOW token is less than ω[n], the token enters a contraction phase. This means that at the time of rebase, β[n] is less than 1, causing the total supply of tokens to decrease so the market price of SHADOW is pushed to ω[n]. price 1+δ 1-δ 0.5 O t1 t2 time supply s2 O s1 t1 t2 time C ONT RACT IO N 10 / SHADOW LINK 10. EQUILIBRIUM When the supply and price of the SHADOW token with respect to ω[n] are equal, the rebase will not occur. The algorithm only expands or contracts when it is in search of an equilibrium. As long as the price of one SHADOW token is equal to ω[n], the system will remain at rest until demand is changed once again. supply time EQ UI L IB R IU M 11 / SHADOW LINK 11. CONCLUSION The main purpose of this paper and experiment is to ask “Will SHADOW, an asset with no inherent value relative to the asset it is pegged inversely to, be a form of shorting a synthetic commodity on a decentralized exchange”? This may depend purely on speculative forces and market psychology. SHADOW will provide data to be looked at to hopefully expand upon these ideas in the DeFi space. C ONCLU SIO N 12 / SHADOW LINK 12. ROADMAP November 2020 - Release ShadowLink Token November 2020 - Marketing Push December 2020 - Aim for other compatible decentralized exchanges EARLY Q1 2021 - Release Charting DAPP LATE Q1 2021 - Release Shadow Ecosystem Q3 2021 - Release Shadow Oracle R OA D MAP 13