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A Normalized Token is a unified representation of multiple assets pooled together within FRAG-22. Instead of managing multiple assets separately, yield sources hold normalized tokens, which dynamically adjust their value according to the real-time valuations of the underlying assets. Normalized tokens are exclusively managed by yield source adapters or special authorized entities (e.g., slashers), maintaining controlled, secure operations.

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Key Features of Normalized Tokens

  • Dynamic Valuation: Continuously reflects changes in underlying asset values.
  • Simplified Asset Handling: Yield sources interact only with normalized tokens, reducing complexity.
  • Controlled Access: Exclusively accessible to authorized entities (yield sources, slashing modules).
  • Proportional Redemption: Redeemable into underlying assets proportionally, ensuring fairness.

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User Actions & Token Lifecycle

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Asset Allocation & Normalized Token Minting

User deposits assets → FRAG-22 allocates to Yield Sources → Mint normalized tokens.

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Process :

  • Users deposit underlying assets into the Fund Reserve.
  • The reserve allocates these assets to selected yield sources.
  • The system calculates the minting amount based on current asset valuations (maintaining 1:1 value at the initial minting, dynamically adjusted later).
  • Corresponding normalized tokens are minted and issued to yield source adapters.

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Yield Source Interaction & Yield Management

Yield Sources manage normalized tokens → Generate yield → Harvest & return rewards

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Process :

  • Yield sources hold normalized tokens representing pooled assets.
  • Assets generate yield through external DeFi protocols.
  • Yield sources harvest the accumulated yield regularly.
  • Harvested yields are transferred back to the Fund Reward Account, contributing to the overall reward pool.

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Redemption & Withdrawal of Underlying Assets

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User-Initiated Withdrawal (Standard Case)

User requests withdrawal → Burn normalized tokens → Underlying assets returned

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Process :

  • Users initiate withdrawal requests.
  • The system validates the request and determines how many normalized tokens must be burned based on current valuations.
  • Corresponding underlying assets are proportionally redeemed and returned to the Fund Reserve.
  • The user receives the redeemed underlying assets.

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Special Authorized Redemption (e.g., Slashing)

Authorized entity holds normalized tokens → Redeem underlying assets

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Process :

  • Special entities (such as slashers) holding normalized tokens can redeem underlying assets.
  • Authorization and token ownership are validated.
  • The normalized tokens are burned, and underlying assets proportionally redeemed.
  • Assets are immediately released, ensuring rapid, secure operations.

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Exchange Ratios & Pricing Mechanism

Normalized token exchange ratios dynamically depend on:
  • Total Normalized Token Supply: Reflects collective user positions in the pool.
  • Underlying Assets Value: Determined by real-time asset valuations using integrated pricing sources.
  • Proportional Distribution: Underlying assets are redeemed proportionally based on current locked asset valuations within the pool, maintaining fairness and transparency.

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Normalized Token Pool Structure Diagram

  • Normalized Token Mint: Manages the minting and burning processes.
  • Token Reserve Accounts: Store underlying assets individually.
  • Asset Valuation Service: Provides dynamic pricing to ensure accurate valuation of underlying assets.

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Importance of Normalized Tokens

  • Unified Representation: Enables simplified management of multiple diverse assets through a single token interface.
  • Accurate Valuation: Continuously ensures fairness by reflecting real-time asset values.
  • Efficiency & Scalability: Reduces operational overhead and facilitates scalable yield management.
  • Security & Control: Restricts access to yield sources or authorized entities, ensuring the system’s security and integrity.