Following the launch of ETH2 Internet Bonds a few months ago, StakeFi, Ankr’s Internet Bond launchpad, has announced the launch of the Avalanche Bond (aAVAXb), wrapped under an ERC-20 token.
StakeFi will enable any user holding AVAX tokens on the Avalanche network to stake and receive the AVAX Internet Bond (aAVAXb) in exchange, either on the Ethereum network or on Binance Smart Chain.
Avalanche AVAX staking mechanism
Currently, Avalanche staking generates 5.11% in staking rewards. At the start, Ankr will run two validator nodes with an unlock period of 1 month with a 2-week deferred starting point to make sure that there is a window to repay users willing to redeem their aAVAXb into AVAX 1:1 every two weeks before starting a new 1-month staking period.
StakeFi users will allocate AVAX to StakeFi, which will stake AVAX in Avalanche validator nodes hosted by Ankr. Ankr will charge a 2% service fee on the staking rewards, which is the minimum delegator fee applicable on Avalanche staking.
Avalanche Bond Launchpad functionalities during the initial phase
The Avalanche bonds will share similar functionalities to ETH2 bonds (aETHc and aETHb), which is providing liquidity to stakers and connects staking rewards to DeFi.
Similar to aETHb, aAVAXb will be a reward-earning bond, meaning that rewards from Avalanche staking will be distributed daily through positive rebase. In other words, users’ aAVAXb balances will increase daily in every holder’s wallet. aAVAXb will use the same reward distribution through rebase as aETHb.
One additional immediate benefit of aAVAXb is that it enables DEX users to invest in aAVAXb through DeFi on the Ethereum network or Binance Smart Chain, where most of the DeFi liquidity is present.
Currently, it is necessary to interact with the Avalanche network to get exposure to the Avalanche (AVAX) token, and the AVAX liquidity on Binance Smart Chain DEXs is still limited. Ankr expects the AVAX token liquidity to increase on Binance Smart Chain in the weeks after the aAVAXb launch.
Another new feature of the StakeFi Internet Bond launchpad is the possibility to unstake/redeem aAVAXb and wait for up to 14 days to redeem aAVAXb for AVAX on a 1:1 ratio. During the up to 14 days redemption period, staking rewards will no longer be distributed.
Decentralized Exchange (DEX) Liquidity
Ankr is in discussion with Avalanche token holders and entities to ensure liquidity for aAVAXb/ETH on Uniswap v3, to begin with, and Ankr also expects that aAVAXb will be traded on multiple DEXs on both the Ethereum network and Binance Smart Chain soon after launch.
The Ankr team especially likes the potential of seeing an aAVAXb/AVAX Liquidity Pool (LP) on the Binance Smart Chain in the future, which would be the easiest way for DeFI users to make sure that aAVAXb is traded at its fair value. Furthermore, an aAVAXb/AVAX LP would also display very low to no impermanent loss, which is a very attractive benefit for liquidity providers.
New features coming to Avalanche Bond Launchpad soon
- The first option to unstake/redeem aAVAXb against the fair value (1 AVAX = 1 aAVAXb) will be to redeem aAVAXb and wait up to 14 days as previously mentioned.
- The second upcoming function that will be activated a few weeks after the launch of aAVAXb will be the instant liquidity pool. When this new functionality will start, 3% of the allocated AVAX tokens to StakeFi will not be staked and will stay un-staked in the instant liquidity pool. As such, aAVAXb holders will indirectly bear the cost of the instant liquidity pool, which will represent 3% of the staking rewards due to the missed opportunity to stake AVAX.cTherefore, the total cost for aAVAXb holders will be a 2% service fee, plus a 3% missed opportunity to stake AVAX, which results in 4.94% (no service fee applied to a 3% instant liquidity pool). As the instant liquidity pool will be limited in size and will provide trading arbitrage opportunities (buying aAVAXb at a discount on a DEX and redeem at fair value instantaneous through the instant liquidity pool), this option will be reserved to ANKR token holders with a specific amount of ANKR tokens (that will be defined in the next following weeks).
- The third function to be enabled in a few weeks will be the ability to redeem aAVAXb and claim Avalanche futures (aAVAXf). aAVAXf will have an expiry date matching the closest date of the end staking period of the StakeFi validator node on the Avalanche network, which is a maximum of 14 days.
aAVAXf will be released in the form of Non-Fungible Tokens (NFT) and will include a 0.25% royalty fee to aAVAXf sellers in case the Avalanche future is sold on the Bounce Finance platform, which will open an NFT futures marketplace.
aAVAXf buyers will have the possibility to buy aAVAXf, very likely at a small discount, and be able to claim the aAVAXf fair value at expiry on StakeFi (1 aAVAXf = 1 AVAX). Bounce Finance will apply a 0.25% trading fee to aAVAXf buyers. aAVAXf sellers will benefit from short-term liquidity to receive AVAX tokens.
aAVAXf buyers will likely be able to buy aAVAXf at a discount and if annualized, can result in a stream of income superior to staking rewards (e.g. buying 1 aAVAXf at 0.5% discount net of fees every 2 weeks would result in a compound APY of 12.7% ).
As such, investing in aAVAXf can be perceived as investing in a zero-coupon bond, which is a type of bond that does not distribute rewards, but can be bought at a discount and redeemed at a specific amount above the discount level.