Cogito in a nutshell

Core concepts of the Cogito's design

Pegged to overall human development

Cogito is introducing the first algorithmic digital assets designed to achieve relative stability without introducing direct dependence on fiat currencies, commodities, or other traditional financial instruments. Rather, they are designed to increase in value smoothly and steadily with the progress of humanity, by soft-pegging to synthetic indices that quantify aspects of global human development, such as social advance, environmental progress, and technological growth.

This approach to managing the stability/volatility tradeoff without explicit reference to fiat currencies allows some of the long-term goals of crypto-finance to be achieved far easier than before. Cogito’s mechanisms solve the problem of creating tokens providing long-term value-storage with manageable volatility, as well as the problem of providing a steady and reliable payment token for both micropayments and larger transactions.

Algorithmic stabilization backed by AI

Each Cogito asset is fractionally backed by a reserve comprising a variety of assets appropriate to the synthetic index to which the asset is soft-pegged. Additional stabilization is provided by algorithmically driven methods, including traditional techniques familiar from fiat-based stablecoins, and more innovative variations that incorporate AI predictive analytics and reinforcement learning.

Two phases

Cogito’s algorithmic protocol ensures that its tokens can be continuously traded within specified trading boundaries and that they can always be minted or redeemed from the protocol for a target value. These properties allow arbitrageurs to balance the demand and supply of tokens and let the price dynamically reach an equilibrium.

The assets contributed by users are managed judiciously as two components: liquid and illiquid assets. Liquid assets are primarily fiat-pegged stablecoins such as USDC or DAI, and illiquid assets are investments that are less readily available to depositors in case of liquidation. These components represent the primary sources of the protocol's liquidity.

For a period immediately after launch (Phase 1), this reserve will consist of a basket of stablecoins; then, when the initial full backing is weakened into a fractional reserve, more volatile assets will slowly be introduced (Phase 2).

Phase 1

At inception, minted tracercoins are secured by the reserve at a 100% collateral ratio. The two components of the reserve will ensure that the tracercoins are always traded at the fair value corresponding to the reserve in value (eg. USDC).

Phase 2

Shortly thereafter, the protocol will then transition into a fractional phase. Every time users deposit into the protocol and mint new tracercoins, the protocol updates the Capital Adequacy Ratio (CAR) accordingly. The collateral is dynamically rebalanced according to the market price of the tracercoins that fluctuate within a continuous price spectrum. If the price of the tracercoins is above the target price but within the trading boundaries, the CAR decreases; on the other hand, if the price is below the target, it increases.

AMM

The protocol will initially adopt Uniswap v2's Automated Market Maker (AMM) that is widely used by many decentralized exchanges (DEXs) in DeFi. This makes liquidity available at all times and enables ASFs to dynamically adjust liquidity and bring the market price back within the desired bounds. Holders are able to sell back tracercoins to the protocol at any time.

Cogito tracercoins can be used for a variety of derivative financial instruments. For instance, users will also be able to obtain a variable savings rate by depositing into the protocol. This rate will be determined by market conditions and the tenor of the deposit.

Fees

The protocol charges two different fees, which together comprise the core mechanism providing revenues to ongoing fund improvements and evolutions of the protocol. The first fee derives from the minting of tracercoins (origination transaction costs), which is a fixed percentage of the minting amount. The second is the redemption of the tokens (redemption fee) in the form of slippage from the AMM price curve.