CryptoBonds Explained
Learn all the details about CryptoBonds.
Last updated
Learn all the details about CryptoBonds.
Last updated
A CryptoBond is a Fully tradeable Financial NFT ERC-721 smart contract that locks liquidity on Uniswap. The Network is composed of two main smart contracts: the SYNC ERC-20 contract, and the CryptoBond ERC-721 (NFT) contract. This is done by bonding (creating a CryptoBond) liquidity pair tokens with the corresponding dollar value of SYNC tokens at the current offered SYNC mining reward rate. They are called ‘bonds’ because they are minted by ‘bonding’ tokens representing the creators share of a decentralized liquidity pool (e.g., Uniswap ‘liquidity-tokens’) with an equally valued amount of SYNC until a specific pre-committed period of time (ranging from 90-days to 3-years) has lapsed (i.e., until it reaches ‘maturity’).
Building a CryptoBond takes equal value amounts of Uniswap Liquidity Provider Tokens (LPTs) from one of our whitelisted pairs and combines them (50/50 in value) with SYNC tokens, and lock them virtually into a tradeable ERC-721 Non-Fungible Token (NFT).
CryptoBonds are created by using a Web3 wallet like MetaMask via our Bond Builder. Our builder allows you to pair with SYNC tokens, choose your bond maturity (90/180/360/720/1060 days) and create your bond easily in our dApp. Click here for an advanced guide on how to create a CryptoBond with Bond Builder.
Simple CryptoBonds: are offered at 90-day; 180-day; 1; 2; and 3-year time duration's. Periodic CryptoBonds: Quarterly CryptoBonds that are only available for 1-, 2-, and 3- year bond lengths, and that are subject to a different reward rate because of their periodic behaviour. (More details provided in white paper here).
Automated Market Makers (AMMs) like Uniswap can only function when crypto liquidity providers lend out their digital assets (like Ethereum and other ERC-20 tokens) into liquidity pools.
Once these coins are deposited into Uniswap’s LPs, something called Liquidity Provider Tokens (LPTs) are automatically generated (minted) and given to the depositors/stakers. The LPTs represent LPs redeemable share of the liquidity pool trading fees.
When adding liquidity to the Uniswap exchange, you are required to add equal value to both tokens in the pair. In return for doing so, you receive a LPT. Transaction fees from the trading of that pair are then paid as dividends to LPs.
In the event of a liquidity migration caused by a Version 3 of Uniswap, or a general migration to another AMM or PMM, the liquidity locked in the CryptoBond will stay on Uniswap to maintain its relevance. Even if bonded liquidity only remains, the CryptoBonds still retain their locked value.
However, if this sort of event does happen in the future, SYNC Network governance can hold a vote to be approved by SYNC holders for an approval to make code alterations to the oracle contract. Henceforth, leading the way for all future CryptoBonds to use other AMM/PMM LPTs, and other relevant platform/s.
To understand impermanent loss, it is essentially the difference in price fluctuations of your locked/staked tokens, e.g., 1 ETH may be worth less than when you first staked it to Uniswap. For example, 1 token might be worth $500 when you staked your coins, but once you withdraw it might only be worth $350.
Luckily, there’s incentive to stake your tokens inside LPs like Uniswap. By staking your tokens you are rewarded with a share of trading fees collected and shared with the entire pool, i.e., earning interest on your staked coins to offset impermanent loss. Learn more about impermanent loss here.
LPTs represent a needed and utilized financial service that promotes fair, liquid, and decentralized finance (DeFi) markets. While single token lock-ups are good from a scarcity perspective, they provide little, to no financial support or services.
By basing our liquidity mining rates on supply and demand of CryptoBonded LPTs, it provides an incentive to lock liquidity for investors. With our single asset, 1-click liquidity feature, anyone can take their ETH, and with just one click can instantly receive USDC/WBTC LPTs back.
By taking this action it would place direct buying pressure on WBTC. And by creating a WBTC/USDC CryptoBond with these LPTs, you are guaranteeing these coins will not be removed from the pool until the CryptoBond is matured, thus, in theory, creating less selling pressure.
SYNC network balances itself through daily, self-correcting liquidity mining rates. Although CryptoBond mining rates change daily, a bonds reward rate is fixed and locked in when it is created.
There are 3 factors that affect the liquidity mining rates, including:
Total supply of SYNC in the market
Duration of the CryptoBond
Total bonded amount of LPT
BASE REWARD RATE: This is the main driver of equilibrium that keeps SYNC going up and down, both inflating and deflating the currency.
DURATION: For the success of a stable SYNC, it is most desirable to lock up for longer periods of time, and also important to make sure compounding shorter-term CryptoBonds does not outperform bonds with longer duration's.
We define the following equation where:
LIQUIDITY PAIR INCENTIVE RATE: In order to bring incentives to investors who create CryptoBonds with token pairs that are decreasing in bonded volume, an interest rate multiplier is performed.
As more money is liquidated from a certain liquidity pair, we will attract users with bonus rates to reinvest into bonds with that liquidity pair.
Quarterly Returning CryptoBonds reward SYNC tokens every 90 days.
Simple CryptoBonds lock the mining rewards for the duration of the CryptoBond.
