Donkey Whitepaper
The Decentralized Money Market Protocol and the Oracle for Korea’s Digital Asset Market
Summary
The average daily trading volume in Korea’s digital asset market during the first four months in 2021 recorded 14.2 trillion won, almost a 9.5 times increase from 1.5 trillion won in 2019. Despite high trading volume and abundant liquidity in the Korean market, digital assets listed on the exchanges in Korea have not been able to be utilized by any global DeFi products that have grown exponentially over the past two years.
The absence of oracle contracts that feed prices of products being traded on the Korean digital asset exchanges to blockchains has been one reason global products such as Compound, AAVE, and Maker have not been able to search the types and scale of digital assets popular in Korea.
In recognition of this problem, the purpose of the project Donkey is to develop an oracle that feeds information such as the type, price, and trading volume of digital assets listed on major digital asset exchanges in Korea to blockchains, and develop and run a P2P digital asset deposit and loan protocol using this oracle.
This can raise the marketability of digital assets listed solely on the Korean digital asset exchanges and hence underutilized in the DeFi market (Donkey’s deposit/loan protocol), and swiftly facilitate global DeFi products in newly supporting digital assets that are popular in the Korean market (Donkey’s oracle contract).
In the case of digital asset price gaps between Korea and overseas market from a temporary supply and demand imbalance (referred to as Kimchi Premium or Reverse Kimchi Premium), continuous arbitrage trading enabled between Donkey -- that tracks Korea’s digital asset market prices -- and overseas DeFi products can also contribute to reduced price gap.
By reducing the wide gap existing between the Korean digital asset market, which sees active trading but is isolated from the international market described as the Galapagos Syndrome, and the global digital asset market through P2P and blockchain-based alternatives, it seeks to contribute to enhancing the presence and reputation of Korea’s digital asset market
Protocol: Main Components
Oracle for Korean digital asset market
Donkey will develop and operate an oracle contract that connects to APIs of digital asset exchanges with the highest trading volume in Korea and relays prices of KRW-based digital assets to the Ethereum blockchain. Starting with Ethereum, it plans to consecutively operate oracle contracts on Klaytn, BSC (Binance Smart Chain), Matic, and HECO Chain, and other Solidity-based public blockchains.
P2P deposit & loan protocol
Donkey plans to develop and operate a money market protocol that enables users to deposit and lend their digital assets in the form of P2P lending by utilizing the aforementioned oracle contract. Starting with Ethereum, this protocol also plans to expand to multiple Solidity-based blockchains presented in Item 1.
Governance & staking tools
Donkey plans to base all decisions required for the operation of the protocol such as the types of digital assets allowed for deposit and lending, the loan-to-value ratio of digital assets, liquidation penalty, and the DON token reward ratio for each digital asset, and so forth, on votes carried out based on decentralized governance. For this, we plan to enable users to stake DON tokens, which are Donkey’s own governance tokens, to secure voting rights proportional to the staking period and participate in the protocol’s decision-making based on this voting right.
Cross-chain vault to support different networks
As Donkey grows to support multiple networks other than Ethereum in the future, it will aim to make loans on other chains possible with assets entrusted to one chain as collateral. To do so, Cross-chain Vault needs to be implemented, and the entire process of depositing, pledging collateral, loan execution and liquidation needs to be processed in a smooth manner across the chains. High technical barriers remain in this area due to performance issues of networks. As Donkey aims to serve as a bridge between the Korean digital asset market and the global DeFi market, it plans to in the end, make it possible to receive price information of digital assets in the Korean market from anywhere without the restriction of blockchain networks, and based on these prices, enable digital assets to be deposited and utilized.
Protocol Features
Oracle that takes into account transaction amount, not just price
The Korean digital asset market oracle contract, which Donkey will be operating, plans to apply a weighted average that takes into account the transaction amount, unlike overseas oracles such as Chainlink that considers only the digital asset price. For the same digital asset, if exchange A's transaction amount is 10 billion won and that of exchange B is 1 trillion won, exchange B's transaction amount will be reflected in the calculation of the weighted average price. The purpose of this is to prevent the distortion of the average price caused by small exchanges, so that deposits and loans are based on the prices more commonly accepted in the Korean market.
Depositor protection (Pool Guard)
Donkey developed and applied a volatility protection mechanism under the premise that digital assets that saw recent high price volatility cannot be said to be reliable as collateral. This makes the protocol automatically reject the execution of new loans using the asset as collateral for a certain period if the price of the digital asset in question has risen more than a certain percentage in the recent period. This mechanism makes it difficult for mass holders of particular digital assets to manipulate the value of the collateral in an attempt to withdraw large amounts of other digital assets.
Base price protection (Oracle Guard)
Price oracle may be exposed to unexpected circumstances such as regular or emergency inspections of the referenced exchanges, disruption in the price crawling engine, various types of network failures, and cyberattacks. Due to the nature of the P2P deposit and loan service without an intermediary, digital asset price information, which is the basis for collateral value calculation and collateral liquidation, is always the most important for the stability of the protocol. In that regard, Donkey developed and applied Oracle Guard. Oracle Guard is triggered when digital asset prices are not updated for various reasons, temporarily suspending new loans and liquidations for all users. When the problem is over and the digital asset prices start to be updated normally, the oracle guard is lifted, and new loans and liquidations that have been suspended are resumed based on the updated price.
Differential Loan-to-value ratio
It only makes sense to apply different LTV ratios for Bitcoin, Ethereum, and other altcoins. The criteria should be market capitalization and trading volume (liquidity). Based on this, Donkey selected initial digital assets that can be deposited and borrowed. Several digital assets were additionally selected based on its reputation in the Korean digital asset market and the size of their community. LTV ratio, liquidation penalty, and the like were also initially set based on these criteria. Various decisions such as the continued listing of these assets, the listing of other digital assets, LTV ratio, liquidation penalty, and so forth will be subject to change through the votes of DON token holders once the governance tool is in place.
Designed to reduce token circulation
Donkey issues and offers DON tokens as a reward for depositors and lenders. It at the same time put in place an economic model that continuously burns DON tokens in the market with the proceeds of the interest paid by borrowers minus the interest received by depositors, which is designed to reduce token circulation as the protocol becomes more active. To encourage participation in governance and promotional events, tokens will also be designed to be locked and staked for a certain period of time, so that their circulation in the market can continue to decrease.
Blocking flash loans
In several DeFi lending protocols, flash loans have allowed penniless attackers to have access to vast amounts of assets in the deposit pool, undermining the stability of the protocol. A flash loan itself is one feature that the blockchain smart contract offers that can be reasonably allowed based on the market economy principle. Donkey, however, restricts deposits, collateral pledging, and loans from being executed within a single transaction, fundamentally eliminating the possibility of it being used to take out flash loans. Although this removes a feature that may be useful for the DeFi protocol, such a decision has been made to prevent drastic changes in liquidity from occurring for the convenience of few users at the expense of the majority.
Roadmap
Halla
Develop oracle contract for the Korean digital asset market Develop and release P2P digital asset deposit & loan protocol
Sokli
Develop and release governance tools Commercialize oracle contract for the Korean digital asset market
Seorak
Support multiple networks including Klaytn/BSC/Matic Support oracle contract for multiple networks
Geumgang
Link Changer’s foreign exchange stablecoin deposit and loan
Baekdu
Implement multi-chain deposit and loan protocol between different networks
Tokenomics
Ticker
DON
Total Amount
100 million (new issuance after five years to be decided through governance in the future)
Platform
Ethereum ERC-20
Distribution
75% Community (Reward Token 62%, Marketing Token 13%), 25% Team
Distribution Method
With the nature of the P2P deposit and loan protocol, DON tokens will be provided as an incentive for user participation. DON tokens can be grouped into three purposes: Reward Token, continuously provided according to a planned schedule for at least 5 years; Marketing Token, provided in a flexible manner based on governance decisions for the purpose of promoting the protocol; and Team Token, allocated to the team for development and operation.
Reward Token
Reward tokens newly issued in a day are equally divided into initially listed digital assets and then allocated 50% to depositors and 50% to borrowers. Each depositor and borrower will receive the reward in the unit of a block in proportion to their deposit or loan contribution to the corresponding digital asset. For tokens listed for the first time, reward tokens will be subject to a mandatory one-month lock-up period from the listing date.
Marketing Token
New listing bonuses and event tokens are paid in Marketing Tokens that have a one-month lock-up period. The purpose and quantity of Marketing Tokens will be decided by governance voting in the future with the goal of promoting the protocol and benefitting all token holders. As both Reward Tokens and Team Tokens will have a one-month lock-up period when Donkey is first launched, 1 million DON tokens, which accounts for 7.69% of the total Marketing Tokens, will be unlocked and used for initial Uniswap liquidity supply purposes. All profits generated as a result of liquidity supply will be used to fund protocol marketing.
Team Token
25% of the entire tokens will be allocated as Team Tokens but will be locked up and given out according to the preset schedule as below. The one-month lock-up period upon the launching of Donkey will be applied just like other tokens.
Distribution Schedule
| Y1 | Y2 | Y3 | Y4 | Y5 | Total | Ratio | |
|---|---|---|---|---|---|---|---|
Reward Token | Approx. 32M | Approx. 16M | Approx. 8M | Approx. 4M | Approx. 2M | 62M | 62% |
Marketing Token* | Approx. 6.7M | Approx. 3.3M | Approx. 1.7M | Approx. 0.9M | Approx. 0.4M | 13M | 13% |
Team Token | Approx. 13M | Approx. 6.5M | Approx. 3.3M | Approx. 1.5M | Approx. 0.7M | 25M | 25% |
* All Marketing Tokens will be used for promoting the protocol in a manner beneficial to all token holders. -To be used for Uniswap liquidity supply (total of 1 million), new listing token bonuses, partnerships with other protocols, hackathons and events, and once governance function is established, to be decided by voting.
Token Function
Incineration of tokens using remaining NIM (Net Interest Margin) profit
The difference between the loan interest paid by the borrower and the deposit interest paid to the depositor is initially set at 25% (subject to change by governance decision in the future). The profit from this difference will be used to pay for insurance policy against risks, service operation, labor cost of team members, marketing costs, and gas fees on networks such as Ethereum. The remaining proceeds will be used to burn DON tokens on a steady basis. Incineration history will be regularly reported to the community.
Incineration after collecting oracle access fees
If external parties wish to use the Korean digital asset market price oracle, Donkey plans to grant access only when they pay the access fees by purchasing and paying with DON tokens. As there is no other way to obtain the oracle of the Korean digital asset market from blockchain networks anywhere in the world other than Donkey, we anticipate multifaceted demand from both existing overseas DeFi products and future domestic and overseas DeFi products. Donkey plans to burn all of the DON tokens it has earned from oracle access fees to steadily reduce the market circulation.
Incineration after collecting liquidation fees
For a wallet subject to liquidation, Donkey enables any external parties to call the asset subject to liquidation in the wallet and participate in the liquidation with a price discount of at least 5% to as much as 45% from the market price. As digital assets can be obtained at such an attractive price, creating immediate arbitrage opportunities, it is anticipated that many will run liquidation bots. Donkey will accordingly charge these liquidation bots to pay DON tokens as liquidation fees in proportion to their expected liquidation profit. All DON tokens earned this way will be burned on the contract so that the total circulation can be steadily reduced.
Participation in Donkey’s operational governance
Various decisions have to be made for Donkey on many different topics from which digital assets will be listed for deposit and lending, what the LTV ratio will be, what the penalty rate for liquidation will be to what the reward token payment ratio will be for each digital asset, when and how many Marketing Tokens will be paid out, which blockchain network Donkey will be supporting additionally, and how to go about inflation in five years or so. Donkey will hence establish a robust governance system and make it mandatory to lock up DON tokens for a set time period in order to participate in governance. This will make a continued contribution to significantly reducing DON tokens in circulation.
Token Vision
Becoming the major K-DeFi token that connects the large but isolated Korean digital asset market with the DeFi world
Disclaimers
While the content of this white paper was formulated to provide reference to the future development direction and purpose of the protocol, the content to be developed is subject to change at any time based on governance decisions. Digital assets are not fiat currencies and the protection of the principle is not guaranteed. DON Tokens are utility tokens that facilitate the use of the Donkey Protocol and they do not represent any forms of securities. DON tokens do not grant any rights, such as ownership, voting rights, or residual claims in regards to the Donkey protocol. Voting rights for determining the development and operational direction of the protocol will be granted in proportion to the duration of DON token staking. This is not the function of the DON token itself but a separate right granted as result of staking DON tokens. Trading of DON tokens should always be performed with caution. Chain Partners Inc., do not guarantee the protection of the principal nor provide any financial guarantees or warranties. The aforementioned company will only develop the software required for the operation of the Donkey protocol and immediately upon the deployment of Donkey on the Ethereum mainnet, DAO (Decentralized Autonomous Organization), which will make decisions based on the voting rights created by DON token staking, will be responsible for the operation of Donkey. Developers of Donkey will not be responsible for any decisions that have been made based on DAO discussion and voting. Software developers, like any other token holders, can selectively exercise only the limited rights granted to the tokens. Investors are solely responsible for any consequences related to the trading of the tokens. Information used to introduce Donkey that comes from a third party such as charts, data, market size, market share, market conditions, and trading volume have been cited with the intention of providing data as objective as possible. However, it is not confirmed whether the third party of the original source has verified the accuracy of the data. A DeFi project is a digital asset-based financial service that is P2P based on smart contracts on the public blockchain. As all transactions are based on smart contracts, the stability and safety of the protocol may be affected by various factors such as instability of the blockchain network due to 51% attack or hard fork, unknown security problems related to users’ wallets, cyber hacking, cyber terrorism and other attacks, or oracle-related problems. DeFi protocol users must clearly understand that they are using this service and participating in the trading at their own risk. The developers have designed and developed the software with their utmost efforts to maximize stability, and the software has passed the external security audit carried out by SOOHO, a blockchain security company. Unknown potential security vulnerabilities nevertheless can exist at any time, and despite no issues found at present, the possibility of future updates leading to new vulnerabilities must not be ruled out. Users must be aware of the possibility that all or partial digital assets they have deposited may be lost for various unknown reasons including issues concerning smart contract, blockchain network, wallet security, and due to the users’ mistake of losing their private key. As Donkey is a loan protocol, liquidation may occur due to the drop in the value of the collateralized assets. In order to avoid the possibility of liquidation as much as possible, it is advised that users always keep their loan to deposit assets ratio low. The user is fully and solely responsible for any potential monetary loss in the process of using Donkey due to unknown potential security problems, normal liquidation process, and so forth.
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