Collaterals

Cygnus introduces the concept of collateral to enhance capital efficiency and scalability by allowing assets used to secure Cygnus networks to be held outside the protocol, such as in DeFi positions on different networks.

How It Works:

1. Separation of Slashing Ability: Cygnus decouples the ability to slash assets from the underlying asset itself. This is akin to how liquid staking tokens create tokenized representations of staked assets. In this system, the underlying asset can remain in other DeFi positions while still serving as collateral in Cygnus.

2. Collateral as Omni-chain Tokens: In Cygnus, collateral positions are represented by Omni-chain tokens with extended functionality to handle potential slashing incidents. This means if the collateral is subject to slashing, there needs to be a mechanism, such as a "Burner" contract, to properly burn the asset.

Examples:

1. LSTs: If LSTs are being used as collateral, a Burner contract could be created to withdraw the origin tokens and burn the LSTs if slashing is required.

2. Native Governance Tokens: These can also serve as collateral if a Burner contract or address (often a "black-hole" address where tokens are irretrievably sent) is used to implement the necessary slashing mechanics.

This approach allows Cygnus to leverage existing DeFi infrastructure for collateral management while maintaining the necessary security measures to enforce slashing when needed.