Is your cheap-to-use bridge still cheap if you lose all your money? 

FAssets are an overcollateralized bridging mechanism aimed at allowing cryptocurrencies that do not natively support smart contracts to be used with smart contracts. Initially, FAssets will target XRP, Doge, and BTC, later expanding to other non-smart contract currencies if demand arises.

Overcollateralization means that for every Satoshi, drop, or small boye of a currency that is bridged, a greater amount of value is securing that bridged supply. Overcollateralization is a solution to the problems presented by mechanisms which require trust:

•  Custodial solutions such as WBTC, which rely on trusted entities
• “Trustless solutions” that rely on multisig or threshold signatures still involve a level of “trust.”  This puts your assets at risks such as over-leveraging, which is when the bridged amount exceeds the threshold for a liveness or safety attack.

Overcollateralization with liquidation offers a solution to the trust problems of the most common signature schemes and the overleveraging problems of staked signature schemes.

The Songbird Test

The test on Songbird aims to enhance Flare Labs’ learnings about behaviour in the FAssets model to enable full launch on Flare. As such the test on Songbird will have the following characteristics:

• XRP will be tested first followed by either BTC or DOGE.
• Agents will be permissioned, which means agents will need to be whitelisted by Flare Labs to perform their role.
• Flare Labs will underwrite up to $300,000 of FAsset issuance. This means that in the event of  the system having any issues, Flare Labs will cover losses up to $300,000 in total.
• A cap of $2M issuance will be imposed per asset.

The aim of the test is to ensure that the system operates as intended, to identify edge cases, refine usability and automation, and incentivize whitehat security researchers to try to find code errors.

Duration of the test and launch on Flare

Each FAsset is its own set of contracts, parameters and supply and demand market, which means that FAssets cannot be thought of as a single system. Therefore, each FAsset needs to be tested on Songbird.

Once the FDC is launched on Flare and when an FAsset has been tested on Songbird for a minimum of 6 weeks, provided that issues are not found that need rectification, that FAsset will then be launched on Flare. At the point of Flare launch a 2-month wind down notice period will be given for the Songbird FAsset after which time any unredeemed Songbird FAssets will no longer be supported.

Launch of an FAsset on Flare will start with similar restrictions to Songbird and the issuance cap will be increased incrementally as the market for each asset matures.

A note about the pricing of FAssets

Due to the restricted nature of the Songbird test and the existence of incentives for testing it is unlikely that supply and demand for FAssets will balance in a way that the FAsset trades in step with the underlying currency. Once an FAsset becomes unrestricted in its size, arbitrage should provide a tight correlation between the FAsset and the underlying.

Note that tight correlation between the value of the FAsset and the value of the underlying is not being tested here.

Incentives for the Songbird Test

For Agents: The Fassets agents will be depositing their collateral to secure deposits from XRP, BTC & DOGE and will be incentivized. A program for agent incentives is in place.

The remaining incentives are drawn from the $260k in rFLR of retroactive airdrop incentive earmarked for FAsset testing.

For collateral pool participants: Pool participants are eligible to receive rFLR based on their Collateral Pool Tokens on Songbird.

To test minting and redemption flows together with dex trading, the incentives will alternate depending on collateral usage of the system:

• When the collateral utilisation of agents is below 75% minting, combined with a dex deposit of the full minted amount will be incentivised.
• When the FAsset collateral utilisation of agents is above 75%, the combined action of a dex purchase together with a redemption will be incentivised.

For clarity, anyone minting above the 75% agent collateral utilisation level will not receive incentive for that minting action and anyone redeeming below the 75% threshold will not receive incentive for that action. To get an incentive, each mint or redeem must be combined with DEX activity in a time period of 1 hour.

Lastly, there will be an incentive, in addition to the liquidation premium gained from the agent’s collateral, for the combined action of purchasing FAssets from a Dex and liquidating an agent who is in default.

Similarly, there will be an incentive for fully liquidating an agent, in case such an opportunity arises.

The detailed incentive plan will be released just prior to the launch on Songbird.

Steps to getting to the Test

FDC

The Flare Data Connector (FDC) is a protocol on Flare that allows dApps to securely access and import external events onto both Flare and Songbird.

The FDC supports various attestation types that are crucial for the FAssets system, including AddressValidity, which confirms the validity of an address format on an external chain, and Payment, which verifies a transaction on an external chain considered as payment in a native currency. Crucially, FDC is able to observe address holding the assets backing the FAssets and use the BalanceDecreasingTransaction attestation to prove any unauthorised underlying fund movement and start immediate liquidations on both Songbird and Flare (once the FAssets are launched there) if the agent misbehaves.

The STP.09 governance proposal for FDC was accepted by the community on October 31 and is currently live on the Coston network. Data providers are being assisted in starting to submit test requests by Friday, 29 November. The FDC incentives contract will also be activated by then. If the majority of providers are ready, FDC will go live on Songbird by 6 December.

For more details about the FDC protocol, you can visit dev.flare.network/fdc/guides/data-connector.

Audit

FAssets bot is undergoing an audit right now to ensure the code is thoroughly examined and aligned with industry standards. The FAssets contract code is undergoing an additional security audit. Both audits should be finished by mid December and provided no significant vulnerabilities are found enable launch immediately thereafter after.

USDX Price

In terms of collateral for FAssets, USDX requires a price feed in the Flare Time Series Oracle (FTSO) on Songbird for the launch to proceed. With Bitmart’s recent listing of USDX, the price is now available via API. A proposal to add the USDX price feed was raised in the FTSO Management Group and passed with majority votes from data providers. The price feed for USDX/USD can now be accessed on Songbird.

USDX issuance on Songbird

To ensure adequate support for FAsset issuance and potential liquidations on Songbird, a significant amount of USDX has been minted.

Agents

The onboarding process for initial agents has been progressing well. Documentation is ready for guiding interested entities in setting up essential infrastructure such as vaults and system monitors. We are nearing completion of the setup of the minimum number agents necessary for the Songbird launch.

Coston Beta Test and changes between the Beta and the Songbird version

Flare Labs has conducted rigorous beta testing for FAssets, covering all major components and key user scenarios. In the closed beta phase, we tested 12 scenarios that yielded significant findings and participation. The open beta launched on June 4, 2024, initially allowing technical operators to interact with FAssets using a command-line interface. On June 17, we opened it up to everyone, enabling users to start minting and redeeming FTestXRP on the Coston testnet.

Since launching the open beta, we have navigated challenges such as the XRP Testnet Reset and overall volatile market conditions, while extensively testing our system through a four-week quest. The results have been encouraging: we have achieved impressive totals in over 258,000 mints (FXRP, FBTC, and FDOGE), 388,000 redeems, and almost 48,000 unique participants.

We have also revamped and further improved the UI of the demo dApp to provide users with a smoother experience. This includes adding asset support for BTC and DOGE, as well as wallet compatibility for all minting, redeeming, and collateral provision processes. Support for Bifrost wallet is currently available, with MetaMask and Ledger integrations on the way.

It’s not too late to join in and test https://fasset-beta.flarelabs.org! Learn more about the Retro Airdrop.

The principal change between the Beta test and the FAsset test being released on Songbird is the introduction of an optional method for Agents to reject mint and redeem requests from addresses that fail offchain KYC. This is a necessary component to facilitate institutional participation in the FAssets.

استنتاج

We are on the cusp of unlocking DeFi opportunities for BTC, XRP, DOGE, and other tokens without smart contracts — all while adhering to the ethos of decentralization. The launch on Songbird represents a critical step toward our goal of building a future where data, oracle solutions, and interoperability are secure, decentralized, and accessible to all.

Stay tuned for further updates as we prepare for this exciting milestone in the FAssets journey!