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Autonity (ATN): Ecosystem Analysis and the Future of Autonity

Introduction

Autonity is focused on providing access to derivatives marketplaces in a way that benefits all participants in an egalitarian and community-driven manner. At present, most client-server architectures in the derivatives and clearing niches are far too centralized, meaning that most enterprises have overreaching control over profit sharing and company evolution long-term.

Autonity helps solve these issues through the creation of blockchain infrastructure that enables the operation of decentralized derivatives markets that remove market inefficiencies and friction by guaranteeing strong security and interoperable value exchange across peer-to-peer (P2P) distributed networks. The foundational paradigm conceptualized by Autonity and its parent entity Clearmatics that enables this functionality is called distributed Financial Market Infrastructure (dFMI).

Despite the fact that the Autonity protocol runs Tendermint BFT, Autonity is not a Cosmos chain per se as the platform runs its own independent implementation using a modified version of Geth (an Ethereum EVM execution client) under the hood.

This means the protocol and application development on Autonity is quite different from the normal EVM development frameworks many software engineers are used to. Remember, Autonity is built specifically for decentralized derivatives markets, dFMI, and decentralized clearing via its in-house Decentralized Clearing Contract (DCC) framework.

Also check out our intro posts Autonity (ATN): EVM Derivatives Markets and Clearing Reimagined and Autonity (ATN): Exploring the Technical Architecture of the Autonity Derivatives Platform.

Exploring the Autonity Ecosystem

Although the Autonity ecosystem seems quite small to the untrained eye because it's new and largely unknown, the project has a significant connection with some of the largest financial corporations in the world.

These partnerships have been made possible since 2015 through Autonity’s parent entity Clearmatics, and later via Fnality International which was founded in 2019. These include partnerships with Banco Santander, BNY Mellon, Barclays, BNP Paribas, CIBC, DTCC, Euroclear, Goldman Sachs, Nasdaq, State Street, UBS, and Wisdom Tree, all of which are shareholders in Fnality.

It is positive that Clearmatics and Fnality are significant players in the financial markets, cross-border settlement, and derivatives markets infrastructure fields and have forged partnerships with the Ethereum Foundation as members of the Enterprise Ethereum Alliance (EEA). As we noted previously, Fnality and Clearmatics are also responsible for the creation of the Utility Settlement Coin (USC) project in 2019.

The USC consortium builds on the foundational model that Clearmatics has been focused on since 2015, which expanded to include a blockchain protocol as a means to transfer and exchange value in multiple currencies, with the goal of eliminating fragmented liquidity in enterprise, banking, and currency exchange systems.

The Utility Settlement Coin consortium is also focused on building interoperable blockchain architecture for payment versus payment (PvP) and delivery versus payment (DVP) settlement infrastructure. Additionally, USC will be used as a digital representation of value that can be held by central banks that trust its value similarly to traditional fiat currencies.

These integrations should dramatically improve Autonity’s reputation both inside and outside of crypto with major financial players moving forward. This means that the Autonity project has a strong chance of establishing itself as a go-to solution for blockchain-based derivatives clearing and settlement, marketplace creation, and a host of related uses.

Autonity is also currently in discussion with several firms focused on the end goal of building strong foundational partnerships that will strengthen the overall Autonity ecosystem moving forward. These include several quantitative trading firms, liquidity providers, and decentralized exchange (DEX) design platforms, among others.

At this time, Autonity is also focused on building and integrating with additional partners, specifically in the derivatives markets and clearing niche. As the platform continues to expand over the next several years, it seems likely that the Autonity ecosystem will continue to increase its foundation of partners focused on the design of open public blockchain systems for Decentralized Clearing Contracts (DCCs) and related technologies. This will surely include protocols, infrastructure providers, and clients within the Cosmos and Ethereum ecosystems.

Autonity’s Testnet Infrastructure and the Piccadilly Circus Games Competition

To help ensure the successful launch of its mainnet later this year, Autonity makes use of two main testnets, Bakerloo and Piccadilly.

Bakerloo Testnet

The Bakerloo testnet is designed as a stable testing environment for the earlier version of the Autonity protocol, allowing developers to test their iterations prior to mainnet deployment. Bakerloo is meant as a testing ground for participants interested in operating node infrastructure or deploying and developing decentralized applications (dApps) for Autonity-based products and services focused on various use cases related to markets, derivatives and clearing, and settlement.

To help enhance its test environment, Bakerloo leverages the use of a newton (NTN) and auton (ATN) token faucet, providing access to test versions of both tokens (which are available via the Piccadilly Circus Games Competition (PCGC)). This will allow developers to gauge dApp performance and usability in a simulated environment when exchanging value on-chain, a process pivotal to the creation of applications that will operate on the Autonity mainnet when it goes live.

Piccadilly Testnet

On the other hand, the Piccadilly testnet is a cutting-edge platform that runs the latest deployable version of the Autonity protocol. Piccadilly is the testing environment employed for the pre-mainnet Piccadilly Circus Games Competition and will likely undergo re-genesis after each of the 6-rounds of the Circus Games are complete. Later this spring, re-genesis of Piccadilly will be initiated for the final time to launch as the new Autonity mainnet.

Apart from providing a testing ground for those who wish to take part in the Piccadilly Circus Games, the Piccadilly network is meant for several specific purposes, including as an environment used to help fix bugs and other issues, as a testing ground for validator and node infrastructure and stake delegation, as well as a means for the continued development of dApps and the use cases they provision. Unlike Bakerloo, the Piccadilly network does not run a token faucet for auton (ATN) and newton (NTN).

The Piccadilly Circus Games Competition

The Piccadilly Circus Games Competition is an initiative that allows early users to conduct  numerous tasks in exchange for incentivized rewards for their contributions to the network as it nears mainnet launch. This will allow the Autonity and Clearmatics teams to monitor how the network responds to various usage undertakings to ensure full mainnet compatibility.

The PCGC will utilize a structure of 4 streams (or testing category types) throughout 6 main testnet rounds, with each round having a specific focus for testing various on-chain functionalities.

The 4 primary streams that will be tested on Piccadilly include:

  • On-chain - will include running network validators, testing node infrastructure as well as programmatic interaction with the greater network and its users.
  • Bug bounty - offered as a community bug bounty that rewards testnet users for the discovery of software bugs and other errors.
  • Developer - furnished as a set of developer rewards that will be concentrated on tooling systems and various utilities for the creation and use of dApps.
  • Education - the education stream will consist of a set of community development awards across social media, marketing, branding, and various types of educational content.

Each steam will consist of a set of tasks, with points awarded for successful completion. Generally, the more complex tasks are, the higher the reward. Streams on Piccadilly run independently from one another and participants are able to view their overall performance through a leaderboard scoreboard that is updated daily.

50% of rewards will be handed out to participants during the first 3 rounds, while the remaining 50% will be allocated to those participating in rounds 4 through 6.

On Piccadilly, validators are also able to register to take part in the upcoming Autonity Mainnet genesis competition, allowing them to operate and earn incentivized rewards once the main network launches. If selected after their standing upon completion, they'll become Genesis Validators (GVs) upon mainnet launch.

So far, the PCGC is in its fourth round and nearing completion (of 6 total Circus competition rounds) as of January 2024. As each new round of the competition is completed and each new testnet version launches, new features will be added to Piccadilly. Rounds 1 to 3 focused mainly on node and consensus infrastructure testing, while rounds 4 to 6 will primarily focus on system economics and dApp development testing.

The primary objective of the Piccadilly Circus Games is to create a community-focused initiative that will help bring about the best version of the Autonity platform upon launch, while also rewarding community members who support the ecosystem and its underlying network long-term.

Roadmap and Future Initiatives

  • February 2015 - Clearmatics is founded
  • April 2019 - Fnality is founded and shortly thereafter receives £50 million in funding
  • January 2023 - the Piccadilly and Bakerloo testnets go live
  • March 2023 - the 1st round of the Piccadilly Circus Games Competition launches
  • March 2024 - the 6th and final round of the Piccadilly Circus Games Competition launches
  • Spring 2024 - Autonity mainnet launch

As we approach the spring of 2024, the Autonity project is primed for its upcoming mainnet launch and looks to..

Comparative Stablecoin Analysis

The value of stablecoins like Autoniy’s auton (ATN) are generally linked to an underlying asset (such as the US dollar) on a 1:1 ratio and are designed to eliminate the price volatility that many crypto assets are susceptible to.

Despite their intended design, stablecoins usually fluctuate by 1% or less (much less than traditional crypto assets that can drop 50% in a few short days). Despite this fact, stablecoins represent an advanced paradigm for value storage within the crypto sphere.

In recent years, numerous types of stablecoins have been used on a grand-scale. These include three main types that employ different collateralization mechanisms:

  • Crypto asset collateralized - stablecoins backed by underlying cryptocurrency assets like bitcoin (BTC) or ether (ETH) (or even cryptocurrency baskets with numerous currencies represented as an index).
  • Traditional asset collateralized - stablecoins backed by traditional assets that are pegged to fiat currencies or precious metals such as gold. Examples of traditional asset collateralized stablecoins include Tether’s USDT and Circle's USDC.
  • Algorithmic stablecoins that employ a specialized algorithmic model to maintain their 1:1 peg. MakerDAO’s DAI, Terra's UST, and Autonity’s ANT are examples of algorithmic stablecoins.

For the purposes of this analysis, we'll concentrate solely on algorithmic stablecoins because of the nature of auton’s algorithmic design.

Differently than stablecoins that are backed by fiat or other asset types, algorithmic stablecoins employ specialized algorithms and mathematical models to maintain their 1:1 peg. Some feel that the capacity to limit price volatility as a currency of reference (i.e., the relationship between two interconnected assets) is inversely correlated, meaning that most algorithmic stablecoin models can be quite volatile and exhibit limited stability and security.

Autonity’s algorithmic stablecoin mechanism is similar to other algorithmic stabilization designs such as DAI and Terra’s UST. Let’s examine each model:

Terra (UST)

Prior to its collapse, Terra helped ensure the equilibrium of its fiat-based stablecoin ecosystem (consisting of Terra EUR, TerraCNY, TerraGBP, Terra KRW, and others) using specialized algorithmic stablecoin usage and spending data gathered directly from the Terra blockchain.

The TerraUSD (UST) stablecoin was pegged to several in-house stablecoins, while its LUNA utility token was used as a counterweight to eliminate (or at least reduce) the volatility of UST. Essentially, the system made use of a dual-token model to balance UST as follows:

  • When transaction volumes increased across Terra’s payment service provider network, the overall demand for TerraUSD and other Terra stablecoins expanded, meaning that Terra had to automatically issue new LUNA to maintain price stability and equilibrium.
  • Conversely, when transaction volumes decreased on Terra’s payment network, the system automatically purchased more LUNA and burned the excess supply to maintain price equilibrium.

In April 2022, many in the industry speculated that the peg supporting UST was at risk of depegging. This initiated the redemption (burning) of UST in exchange for LUNA minting on numerous platforms (i.e., exchanges, wallets etc.), which would later be exacerbated when large numbers of users rushed to redeem their UST, ultimately escalating in May 2022.

This sequence of events essentially culminated in a bank run that pushed the price of both LUNA and UST down so far that they became virtually worthless (despite the project selling large amounts of bitcoin (BTC) and other assets to save its peg unsuccessfully).

Though some have speculated that Terra was taken down intentionally by larger financial players, this has never been proven. Regardless, Terra will always be remembered as the largest stablecoin to fail, representing a stark reminder of the potential catastrophic risks of algorithm stablecoins.

MakerDAO (DAI)

MakerDAO’s DAI stablecoin initially used a stabilization mechanism called Single-Collateral DAI (SCD) which used only Ethereum’s ETH token to maintain its peg using a Collateralized Debt Position (CDP) model. Some argued at the time that this design made DAI susceptible to losing its peg.

Thankfully, Maker chose to eventually modify DAI’s stabilization mechanism by launching its new stabilization model, Multi-Collateral DAI (MCD). This iteration allowed for the use of several Ethereum ERC-20 assets including ETH, centralized stablecoins (especially USDC), and numerous real-world assets (RWAs) such as US treasury bills as backing.

As the centerpiece of the MakerDAO DeFi platform, DAI maintains its backing via an over-collateralized CDP-focused algorithm where users must deposit (in the from of USDC, ether (ETH), and others) collateralized tokens in exchange for DAI totaling at least 150% of the value of their loan. Like all similar models, once the CDP loan is repaid, liquidity providers (LPs) are able to remove their initial collateral deposit.

To keep the value of DAI correctly pegged to the US dollar, CDPs opened and closed on the platform influence an algorithm called the stability fee that automatically adjusts the interest rate of DAI loans based on supply and demand.

If the supply is too high relative to demand, the stability fee increases, meaning it is temporarily more expensive to create new DAI, which in turn reduces the supply. Whereas if the supply of DAI is too low relative to demand, the stability fee decreases, meaning it is temporarily cheaper to create new DAI, ultimately resulting in its increased supply. The result is a balanced system that maintains DAI’s peg.

It should be noted that DAI is not explicitly an algorithmic stablecoin because it also makes use of a traditional collateralized and crypto collateralized backing to compliment its CDP-enabled design.

Autonity (ATN)

Like MakerDAO’s DAI, the auton (ATN) stablecoin makes use of a CDP-focused algorithm where the stable value of auton is realized through the minting (creating) and burning (destroying) of auton via newly opened and closed CDPs. Similarly to the model used with DAI, the lending rate dynamically changes depending on how much auton is being created or destroyed at a particular time, keeping the price of the asset stabilized as required.

One of the main differences between the stabilization mechanism of ATN and some of its competing protocols, is the fact that its CDP design employs both the use of liquid staking assets (i.e., liquid newton (LNTN)) and its traditional governance token, newton (NTN). This gives users the option to deposit either NTN or LNTN, depending on their intended use.

Differently from DAI, auton makes use of an algorithmic system that is tied directly to the average price of seven free-floating fiat currencies. The 7-currency strong basket is weighted in proportion to the volatility of each currency to minimize the volatility of the overall basket, while real-time oracle data is used to determine the basket’s continuous value.

Conversely, with DAI, the platform uses several different types of assets, including ETH, USDC, and other stablecoins, as well as a host of traditional asset types. Furthermore, the auton stablecoin collateralization ratio is 1:1, meaning that if a user borrows $100, they are only required to pay back $100. On the other hand, with DAI, this collateralization ratio is set at 150%, meaning that if a user borrows $100 dollars, they must initially deposit $150 to obtain the same loan. This ultimately represents a disadvantage for users when you extrapolate this out to large sums of money (e.g., 15 million in collateral is required to borrow 10 million).

Though not necessarily a disadvantage, ATN’s Autonity ecosystem is much smaller than the ecosystems that Terra and MakerDAO built, and it will be interesting to see how the project evolves over time as it matures.

Terra and UST seemed to be barking up the wrong tree when they began to challenge the heavyweights of the stablecoin issuance arena after their platform grew too large so quickly. These competitors included the largest two stablecoins of all, tether (USDT) and USD coin (USDC), not to mention the US government, an entity that is hoping to uphold the strength of the US dollar as the world’s reserve currency for the foreseeable future.

Analyzing Autonity’s Potential Moving Forward

The Autonity platform represents a truly innovative framework for equitable derivatives market creation and clearing and settlement. Its developers are strong proponents of the free software and open source movements that will continue to foster innovation that benefits all users in a democratized manner.

Peer-to-peer networks like Autonity enable the transfer of economic value and the automation of contractual and fiduciary operations without depending on third parties. DeFi markets built using this structure are able to interact with one another in an interconnected manner across various blockchain ecosystems.

Autonity has chosen to become a settlement chain that makes use of their stablecoin as a foundational aspect of their trading, settlement, derivatives clearing, and market creation model. This approach is in contrast to many other projects focused on replicating other DeFi initiatives.

In terms of adoption, Autonity seems to have positioned itself well moving forward. That said, like most recently launched blockchains, it could take some time for true user growth and value accrual to be realized on the platform.

The relationships Autonity, Clearmatics, and Fnality boast with the Ethereum Foundation and the Ethereum Enterprise Alliance (EEA), as well as those with numerous banking giants such as BNY Mellon, Barclays, BNP Paribas, DTCC, Goldman Sachs, Nasdaq, UBS, and Wisdom Tree, speaks strongly to the long-term potential of the project moving forward.

In terms of its stablecoin stabilization mechanism, the design Autonity leverages to maintain auton’s peg is quite robust and could represent a potential long-term solution to past algorithm stablecoin failures such as Terra’s UST.

Despite its challenges, the Autonity project represents a strong model of unique service and product offerings within the current marketplace and has an excellent chance of succeeding long-term. Whether Autonity achieves the heights of major projects that truly redefine the industry, is another thing altogether.

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