Staking as a Derivative: Using rToken for Lending, Trading, and Collateral for Margin Trading
A derivative is a contract between two or more entities that derives its value from an underlying asset’s performance; such as currency, bond, precious metals, stocks, commodities, etc.
Two primary purposes of using a derivative include:
● Initiating a contract to purchase an asset at a fixed sum to cover oneself from possible price volatility.
● To profit by speculating on the future price of an asset.
Staking as a Derivative
Some blockchain networks reward participants for their contributions to the network. Staking is one of the means of earning rewards on a blockchain network.
Staking is the process of participating actively in the validation of transactions on a blockchain that runs a Proof-of-Stake (PoS) mechanism. Any participant with the required balance of a particular cryptocurrency on these blockchains can validate transactions and receive staking rewards.
There are several disadvantages that come with staking tokens in a Proof-of-Stake blockchain; it can lead to a lack of liquidity for the token and fluctuation prices of the token might negatively affect the value of one’s staked tokens. These disadvantages led to the invention of shadow tokens, also known as alternative tokens. These tokens help participants continue transactions on a blockchain network while their staked tokens remain intact.
Staking derivatives are products tied to the amount of staking rewards provided by the network to validators or users. Take rTokens of the StaFi protocol for example. These Tokens are staking derivatives and alternatives to Proof-of-Stake tokens. It has three major advantages:
● One is that participants will benefit not only from staking but also from the liquidity of assets staked.
● Secondly, rToken has eliminated the rivalry between Staking and DeFi; participants can now enjoy staking benefits whilst engaging in DeFi projects for extra gains; for example, lending, with rToken used as collateral.
● Thirdly, high-quality assets are found in the DeFi space because of rTokens. This has helped alleviate the lack of asset type and value for DeFi.
rToken is a redeemable token issued by StaFi for staked assets that can be exchanged, lent, or borrowed in various networks.
If a user stakes a native token through the Staking Contract, a particular amount of rTokens is given in consideration of the number of native tokens staked in the Staking Contract and the current exchange rate. For example, if a user stakes XTZ, he will get rXTZ. This helps them to access the liquidity of a user’s staked assets while also earning staking rewards. You may also redeem the equivalent number of staked tokens at any time.
When staking rewards for the native token accumulate, the exchange rate of the rToken is also increasing, and as well the number of native tokens that can be redeemed.
The DeFi communities would undoubtedly benefit from the launch of these new assets (rTokens). Getting rTokens as leverage on a particular network would continue to unlock the true potential of staked derivatives assets in the money markets.
rToken for Trading
To increase the circulation and liquidity of rTokens, StaFi will collaborate with centralized and decentralized exchanges to list rTokens with different pairs.
BitMax is one of the user-favorites of centralized exchanges which listed rTokens, and StaFi will continue to collaborate with more partners and liquidity providers to extend their services, including exclusive liquidity programs for users.
In addition to redeeming StaFi Staking Contract native tokens, rToken holders can also sell rToken on a range of exchanges with different pairs (rToken/USDT).
On decentralized exchanges, StaFi will provide liquidity incentive initiatives to foster liquidity for rTokens.
StaFi and Dexe, for example, have established strategic collaboration so that traders and users are able to make much more gains from their assets.
rToken Lending Protocol
StaFi will collaborate with decentralized lending protocols to provide rToken holders with lending services. If a holder of rToken does not want to sell his or her tokens but still wants liquidity, he can use lending platforms collaborated with StaFi by depositing rTokens on these platforms and borrowing ETH or USDT in return.
Collateral for Margin Trading
rTokens can be used as collateral for margin trading.
Margin trading enables traders to take on larger trade positions with funds borrowed from a third party. This not only helps skilled traders to boost their trading gains but also encourages retail traders to hold more positions than usual with only a minimal amount of actual capital.
Basically, it’s relatively simple; a trader must make a deposit in order to open a spot for trading. In order to retain the position, the dealer must keep some amount of capital on his account. The sum of money the trader deposits in an exchange or lending platform will be kept as collateral by the platform. In this case, rTokens will be deposited to any of these platforms and they will be used as collateral for margin trading. The amount that you can leverage for margin trading varies according to the laws of your trading platform and the deposited capital.
Cryptocurrency margin trading poses a greater risk than normal trading due to the high level of volatility involved.
Crypto margin traders, especially new traders or cryptocurrencies should be more careful. If you already know the hedging and risk management techniques, you might go through it faster and safer. Even if you are knowledgeable of market charts and trends, you are still not exempted from the risks of margin trading by understanding the entry and exit points. All the same, margin trading provides traders with new, exclusive opportunities, and rTokens make sure these opportunities are embraced.
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