The Power of the InkEnvelope

Use cases that demonstrate the capabilities of the INK Products Module.

3 min readDec 6, 2021

The key to INK’s customizability and flexibility is its ability to wrap any bundle of assets or financial products, and any information regarding them, into one token. This token can then be used as collateral or as a component of a fund portfolio, gaining the benefit of uniformity and liquidity on any host blockchain.

The key construct that makes this abstraction possible is the InkEnvelope, which removes the complexity of bundling any variety of assets, while preserving their descriptive information and adding a novel layer of programmability that seamlessly plugs into the world of DeFi applications.

With the INK Products Module, the complicated features of bespoke assets and financial products are made easy to process and understand. INK doesn’t just set up a DAO — it also gives the DAO all the tools to do its financial job.

The following are several use cases that demonstrate the capabilities of the INK Products Module.

A Singleton Product of Equity, Property, or Rights

The simplest security in the real world is an equity stock, yet the complexity of issuing such a simple instrument is greatly underappreciated.

While minting a fungible token on a blockchain to represent ownership of equity or property is intuitive, it lacks a tangible connection to what is being represented. It is critical for serious investment decisions on blockchains to be based on the real meaning carried by digitally transferrable tokens.

Ink Finance solves this problem by encompassing such critical information in a high-level construct, the InkEnvelope, and providing tools to handle, process, and interpret these envelopes. A singleton product (or security) can now have the necessary information associated with it, provided that it is issued with tools from INK’s Products Module.

Fixed Income Products with Option-like Risk Control

The unique risk management tool offered by the INK Products Module is likely the most innovative risk management scheme in the DeFi domain.

Every original pledger is stressed when the price of their collateral drops sharply, and the tendency is to default on the obligation of making up the shortfall. The goal of INK’s shortfall auction mechanism, part of the Products Module, is to encourage others to fulfill the obligation with a significant potential reward, by activating a collateral shortfall auction before triggering the liquidation process. This avoids delinquency instead of forcing one, which liquidations tend to do.

The winner of such auctions shall deposit enough collateral to make up for the shortfall to restore the original pledge ratio. The winner is then granted the right of control of the collateral vault. When the collateral price recovers enough to make a risk-free profit, the winner can buy back the outstanding debt with interest and take possession of the original collateral plus their own shortfall maintenance collateral.

This auction is similar to the bidding of a call option on the collateral, except in INK’s mechanism the premium is not spent when the option is exercised because the collateral vault includes it.

In addition to this dynamic credit enhancement scheme, INK also introduces a game-like tranching mechanism to provide market-driven risk and reward distribution at the initial placement auction. Any investor can choose to take a senior or junior position in the debt financing deal, and INK’s formula automatically adjusts the risk and reward of the two different positions as they are being formed by different investors, allowing them to express their different levels of risk tolerance.

More use cases that demonstrate the power of the INKenvelope to come…

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