What is Saffron Finance?
The story of Saffron Finance starts in October 2020, when pseudonymous founder "Psykeeper" came up with the idea of a customizable risk/reward exposure liquidity pool.
The protocol's main use case is to act as an intermediary between liquidity providers and lending protocols, where liquidity providers can provide liquidity to lending protocols through various SFI tranches. The protocol's native token SFI is used to gain access to specified tranches on the protocol via staking as well as to govern the protocol.
Upon its upcoming V2 release, SFI holders will also have a future entitlement to protocol fees. For now, Saffron Finance is under construction, as it appears the team is working in stealth mode.
To explain Saffron Finance protocol, it’s important to mention that its general mechanisms apply to every other dapp. Saffron Finance is made out of a collection of smart contracts governed by the community.
Smart contracts are automated pieces of code that mediate the interaction between a user and the dapp. Whenever you interact with Saffron Finance, crypto tokens always remain in your possession. In order to access the protocol, users have to manually approve the smart contracts. You can think of it as a bot that performs the action you agree with based on a strict set of rules. This is an important difference compared to traditional finance, where the money is placed with a third party.
With smart contracts, there is no risk of a person running away with users’ money, or ever worse, locking up the money for any reason. Furthermore, anyone can access Saffron Finance regardless of their geography, political views, or religion — Saffron Finance doesn’t require KYC.
Transparency and decentralization are powerful tools to enable a thriving DeFi ecosystem. With the traditional limitations out of the way, an important question arises: “How does Saffron Finance become self-sustaining?”
Saffron Finance mainly derives its value from issuing self-repaying loans. In exchange for the service provided, Saffron Finance receives a small fee that goes into maintaining the protocol. Upon consulting with the community, core developers are usually in charge of implementing the protocol upgrades. This ensures Saffron Finance stays safe from hacks and the protocol adapts to the market conditions.
As the number of transactions increase, the fees quickly add up. A portion of these fees goes into the protocol treasury, which pays for the developers, audits, and future products.
The Saffron Finance treasury is secured by a multisig that is being held by the core team and key members of the Saffron Finance DAO. The development team aims to eventually transition to on-chain governance, giving the Saffron Finance DAO complete control of protocol parameters.
The open nature of DeFi encourages protocols to cooperate and innovate. Saffron Finance is a unique protocol that has been in the making since early 2020. However, the protocol can be vulnerable to hacks and exploits. As easy as it is for developers to review each others’ code, hackers can just as easily spot a vulnerability and take advantage of it.
The code is publicly available to verify. Those who are tech savvy can audit the code for themselves and see precisely what the smart contracts do. Less technical users can indirectly assess the safety of Saffron Finance protocol based on audits and reports issued by technical community members.
How does Saffron Finance work?
Saffron Finance works as an intermediary liquidity pool that adjusts based on the risk appetite of the users. In the context of Saffron, risk appetite is defined by the willingness to stomach potential impermanent losses, or smart contract failures of DeFi protocols. Saffron interacts directly with protocols like Uniswap or Compound, and distributes the yield among the users according to their risk profile.
Saffron separately tokenizes the future earning stream and the net present value of utilized principal in each tranche. Earnings, based on tokenized holdings, are distributed accordingly across all tranches via payback waterfalls.
Liquidity pools on Saffron are separated into two main tranches: the junior tranche (low risk), and senior tranche (high risk).
The junior trance is made out of users with higher risk tolerance. Their role is to cover the senior tranche in case the underlying yield protocol experiences impermanent loss or gets hacked. Because the risk is higher, the junior tranche receives higher interest than the senior tranche.
The senior tranche is made out of users with lower risk tolerance i.e newcomers, institutions. Because it is a low risk-low reward strategy, the senior tranche receives a small, but constant stream of interest from their provided liquidity.
Yields are distributed after every epoch. On Saffron, epochs are 14 days in length. Over the duration of an epoch liquidity providers earn interest on underlying platforms and mine SFI tokens. While liquidity is locked in the pool LPs may trade their Saffron LP tokens representing proportional ownership of the pool. When an epoch ends liquidity providers are able to remove their liquidity alongside SFI mined and interest earned.
Saffron Finance SFI
SFI tokens, or Spice tokens, are the native currency of Saffron driving all of its features. The role of SFI is to mitigate the risks of the underlying yield protocol. The junior tranche (high risk) has to stake SFI in order to join the pool. Therefore, the staked SFI will be used to pay the senior tranche (low risk) in case of an impermanent loss, or hack.
"Sounds good in theory. But how do I know the SFI staked will be enough to cover my impermanent loss?" The secret spice with SFI is its capped supply. There will only be 100,000 SFI tokens in existence.
How to make money on Saffron Finance?
The main ways to make on Saffron Finance are plain and simple: LP and Staking. Both methods are for beginners and only require an Ethereum wallet like MetaMask and some ETH to pay the gas fees.
It is important to mention that Saffron is still in its early stages of development. Therefore, liquidity is low. We recommend checking in with the protocol once LP rewards start rolling in.
Saffron Finance LP
Since Saffron Finance is a relatively new project, you will notice that the protocol shows 0% APY. Keep in mind that the protocol is still under development.
Here's how to provide liquidity on Saffron Finance:
Open the Saffron Finance app
Select the pool of your choice
Click "Deposit/Withdraw"
Input the amount of SFI you want to stake
Click "Deposit"
Approve the transaction
Saffron Finance Staking
Staking can be an easy way to multiply your SFI tokens. In the context of Saffron, staking is used as a way to incentivize protocol users.
Currently, staking SFI won't be rewarded with token emissions.
Here's how to stake on Saffron Finance:
Open the Saffron Finance app
Head to the Saffron Staking tab
Click "Deposit/Withdraw"
Input the amount of SFI you want to stake
Click "Deposit"
Approve the transaction
You can withdraw your staked SFI anytime without penalty.
Price Prediction for Saffron Finance — Can it hit $1000?
Buying and hodling SFI — the native token of Saffron Finance— is one way of potentially making money on Saffron Finance.
By looking at its current price, it’s natural to think about the chance of SFI hitting $1000 per token. This can happen sooner, or way in the future, and is determined by a couple of ever changing factors.
Let’s examine the potential growth of the SFI token by analyzing its tokenomics. SFI’s current market cap sits comfortably at ${MARKET_CAP}. With {CIRCULATING_SUPPLY} SFI tokens being in circulation today, that means a price of {PRICE} per SFI.
How did we come to that calculation? It’s quite easy, the price of an SFI token is equal to its current market cap divided by the number of tokens in circulation. Dividing ${MARKET_CAP} by {CIRCULATING_SUPPLY} gives us a result of {PRICE} for each SFI coin.
By changing the order in the simple formula above we can use it to calculate other things as well. This helps us a lot because we can deduce the market cap of SFI at different token prices. Then, we can use the result to compare it to the current state of the network and see what would be required for SFI to hit that price.
At a price of $1000 per token, that means the current market cap of SFI would equal ${{CIRCULATING_SUPPLY} * 1000}. Remember that we arrived at this number by multiplying the amount of circulating tokens by $1000.
Now let’s shift our attention to the fully diluted market cap.
Some blockchains may have their tokenomics built in a way that only a small percentage of tokens are circulating at the beginning. This can be misleading because we don’t have the full picture and only take into account the current number of coins released in the market.
The fully diluted market cap represents the total value of a coin if all tokens were in circulation. SFI’s whole supply of tokens is {MAX_SUPPLY - TOTAL_SUPPLY + CIRCULATING_SUPPLY} SFI which means that no more coins above that number will ever be created.
These tokens are not created at the discretion of a specific entity. They are created automatically by the network to reward different actors that keep it secure.
How does this impact the price of SFI? Taking into account the current price of an SFI token, that would result in a fully diluted market cap of ${MAX_SUPPLY - TOTAL_SUPPLY + CIRCULATING_SUPPLY * PRICE}. SFI coins that have been burned are not taken into consideration because they have been permanently removed from circulation.
Whether it seems gigantic or not, the number we came to above only takes into account the current price of an SFI token. Doing the same calculation but with a price of $1000 gives us a result of ${{MAX_SUPPLY - TOTAL_SUPPLY + CIRCULATING_SUPPLY} * 1000} for the SFI protocol fully diluted market cap.
These are all crucial details to know when calculating if SFI can reach the price of $1000 per token. If the diluted market capitalization is way too high, the token has little room left to grow. Blockchains in general have no cap on the value they can reach, whether that number seems possible it’s totally up to you.
The future of SFI depends solely on its growth as a network used by tens and hundreds of millions of users.
If you’re looking to add some SFI to your portfolio, the most trusted places to get some are Binance and Coinbase.