The Complete Benefits of ERD Solution in the StaFi Ecosystem
Staking typically necessitates an unbonding period, which is the amount of time you must retain staked assets before selling or transferring them. This can take anywhere from three to four to as long as sixteen weeks. This period is called the unbonding duration on all networks. You will not be able to transfer your tokens before the end of this period.
That said, StaFi solves this by unlocking the liquidity of staked assets and also initiates the minting of rToken that users can trade with while enjoying staking rewards. But what happens when a user who owns rToken wishes to redeem it for a native Token using the StaFi rToken contract? They face the dilemma of staking unbonding period associated with the network of the native token. For example, the COSMOS Staking Unbonding period is 21 days, as such, a user with rATOM who wants to redeem it for ATOM will have to wait until the period elapses to get his ATOM.
Although users can certainly swap rToken for NativeToken using any rToken-supported DEX; however, the problem with the methods is that: first, because the liquidity of the DEXes that support rToken is limited, the exchange ratio will be substantially lower. Second, since rToken’s issuance format is StaFi Chain Standard, users will have to cross-chain to the NativeToken’s Original chain to use a rToken-supported DEX, which could result in very large gas fees and may impede minor exchanges from participating.
The question remains, what can a user do if he wants to redeem his rToken for a NativeToken immediately?
In response to this dilemma, StaFi introduces an ERD solution to boost rToken’s liquidity. This will allow users to instantly redeem NativeToken. The idea was drawn from the traditional financial idea of Bill Discounting. This connotes that, the rToken is regarded as a Bill issued by StaFi Protocol that enshrines the user’s right to get a specific amount of Native Token within a specific time frame (similar to the Unbonding Period of the original chain).
A basic Bill Discounting Flow idea is depicted as follows: The Bill Issuer sends the Bill Holder a 45-day acceptance bill. Instead of waiting 45 days, the Bill Holder wishes to receive the token as soon as feasible. As a result, he decides to use a Finance Provider to execute Bill Discounting. The Finance Provider pays the Bill Holder cash at a 90% discount, then receives Bill’s exercise. The Bill Issuer will pay the Finance Provider the full amount of the bill after 45 days.
StaFi is the first DeFi system to allow staked assets to be liquidated. StaFi allows users to stake PoS tokens and obtain rTokens in exchange, which may be traded while still receiving staking rewards. When users stake PoS tokens through the StaFi rToken App, they receive rToken, a synthetic staking derivative produced by StaFi. Users’ staked PoS tokens and the related staking incentives are used to anchor rTokens. At any time, rTokens can be transferred and traded.
The ERD solution’s business logic
For better comprehension, rATOM will be used as a case study for all rToken Bills.
For a user to effortlessly swap the rToken Bill for Native Token right away, he or she can find a third-party Finance Provider who is prepared to acquire rToken from him at a discount, just like in Bill Discounting. This solution is crucial in that the user receives the Native Token right away and the Finance Provider also receives a discount on rToken. Hence, this logic depicts that:
i. A user bets ATOM through StaFi and receives one hundred rATOM tokens, resulting in an annual staking APY of 12%~9%.
ii. The exchange rate of rATOM/ATOM hits 1.04 after three months, implying that the user may redeem roughly 100*1.04=104 ATOMs.
iii. Now, due to price swings in the secondary market or portfolio management, the user wishes to use rATOMs to redeem ATOMs promptly. However, using the StaFi rToken App to achieve this will take 22 days to redeem. Not to forget the liquidity or exchange rate on DEXes is not favorable.
iv. The user could use the StaFi ERD solution at a discount to sell his/her rATOM tokens to the financial providers directly at 90% of the exchange rate. Instead of the user getting 104 ATOMs as calculated earlier, he will receive around 104 * 90% = 93.6 Native ATOMs, directly to his Cosmos wallet address immediately.
The Benefits of using the ERD Solution
As a platform committed to providing its community with solutions bothering on rToken app utility, the ERD solution is beneficial in that:
- It brings about a third-Party DEX similar to bill discounting business logic. As a result, where liquidity is sufficient, this can assure 90% of transactions. However, when liquidity is limited, rToken is untradable. Also, this exchange system encourages mobile trading platforms including Unsiwap, Curve, Pancake, and others, which have already been linked to StaFi.
- It encourages lending protocols. To meet liquidity demands, lending platforms like Liqee, connected to StaFi, allow rToken users to mortgage loans.
- ERD Remedy. In an extreme situation, the ERD solution can assist rToken users in exchanging liquidity at an acceptable exchange rate and provides robust support for the rToken exchange rate on Third-Party DEXes.
ERD solution is a win-win situation for both users who wish to redeem native tokens with rTokens and boycott the waiting period and the financial providers buying at a discount rate. With a 22-day unbonding period, financial providers can exchange their rTokens for NativeTokens on the StaFi chain. Make no mistake, ERD’s transaction logic differs from that of Unsiwap’s DEX. The ERD strategy offers rToken users a realistic liquidity channel under critical circumstances, at the cost of some principal losses. For Financial Providers on the StaFi ERD solution, the exchange rate discount can be viewed as compensation for price variations during the redemption term.
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