The rise of DEXs (decentralized exchanges) brought forth new possibilities of earning from liquidity mining and staking. These new finance mechanisms garnered massive attention and contributed to the rise of the DeFi ecosystem. Following this, DeFi projects started incorporating proof-of-stake and proof-of-liquidity mechanisms into their networks as a popular way of creating a trustless economy.
But, the staking culture and ethics of today, although widely successful, have some fundamental flaws. The fact that stakers can unstake at any time causes disturbances and contributes to the volatility of the market. To change this, the SYNC network has come up with a fool-proof way to incentivize long-term liquidity providers and ultimately create stability in the marketplace.
Introducing the New Asset Class
SYNC Network is an Ethereum-based platform that consists of mainly two smart contracts. Firstly, there’s the SYNC ERC-20 contract and then we have an ERC-721 contract that introduces a brand new asset class called CryptoBonds to the DeFi ecosystem.
CryptoBonds are tradeable, reward-generating, time-locked NFTs with collectible attributes and accruing interest rates. These CryptoBonds form the building blocks of the SYNC network. A CryptoBond essentially consists of two halves — the first comprises the liquidity pair that the user is providing on Uniswap and the second comprises the equivalent value in SYNC tokens.
So, instead of staking just the liquidity pair, users stake a CryptoBond for a fixed period of time to earn rewards. Users can choose a time frame that lasts anywhere between 90 days to three years. When the bond matures, users receive their staked liquidity pair and SYNC tokens along with the interest procured over that time. With this newly designed process, the mined rewards fluctuate based on supply and demand of CryptoBonds and are currently yielding over 100%/year.
The platform also allows users to choose between simple and periodic CryptoBonds, where simple CryptoBonds release rewards at the end of the staking period while periodic CryptoBonds allow a timely withdrawal of rewards.
At their core, however, CryptoBonds are still NFTs and they are therefore tradable on NFT marketplaces. Users who want to exit their staking position before the stipulated time frame can simply trade their bond, all while liquidity is still locked in the pool.
The introduction of this new asset class into the DeFi sphere opens doors to a world of new use-cases including 100% secure P2P lending. Users of SYNC can utilize this to lend and borrow loans against CryptoBonds in a trustless manner. Once a loan is created, the collateral i.e; the CryptoBond is stored in ESCROW for the duration of the loan. If the borrower fails to pay the loan, the lender becomes the new owner of the said CryptoBond, protecting the lender from financial risk and creating a safe space for both borrowers and lenders.
A Token Both Inflationary and Deflationary
The rewards rates received upon maturation vary depending on the time frame and the total supply of SYNC tokens. And these tokens have both inflationary and deflationary properties. When a CryptoBond is created, the SYNC tokens in the bond are burnt, reducing the total supply and the reward rates. Contrarily, when a CryptoBond matures, the locked SYNC tokens along with the newly minted tokens reenter the market, increasing the total supply and the reward rates.
What Does It Mean for the DeFi Ecosystem?
This concept of time-locked staking where users cannot unstake at will could significantly impact the stability of the DeFi ecosystem at large. The usual trend that is seen in the DeFi space is that when an exciting new project is launched, early users jump at the opportunity to stake tokens, leading to a rise in the value of the token. This is usually followed by an episode of mass unstaking that eventually causes even promising projects to collapse.
The introduction of time-bound staking in the form of CryptoBonds can stabilize the value of tokens of DeFi projects and provide long-term liquidity to the marketplace. Along with this, CryptoBonds provide a way for founders to show long-term commitment. By providing a long-term lockup of assets through CryptoBonds, founders can increase build more trust in their project.
Finally, with SYNC’s CryptoBonds in action, we can avoid the pump-and-dump scenario where users hype up a project by creating large liquidity pools and then draining the pools.
CryptoBonds – The Stability Standard for DeFi?
By incentivizing users to stake for fixed, long periods of time, the SYNC network solves few of the fundamental flaws in DeFi space. CryptoBonds strengthen liquidity pools and provide some much-needed stability and market certainty to investors. By mitigating risk and guaranteeing a hold on liquidity pairs, CryptoBonds can become the stability standard for the DeFi space, contributing to the growth of a trustless, robust economy.