Leveraged Staking Strategies for sAVAX
The AVAX/sAVAX leveraged staking strategy enables users to safely leverage sAVAX’s staking rewards & supply APY. This strategy is powered by CIAN, an automation platform for web3, which primarily focuses on staking derivatives and protection/optimization tooling. BENQI and CIAN have recently established a strategic partnership aiming to accelerate the evolvement of the sAVAX ecosystem.
What are the benefits of sAVAX in DeFi?
sAVAX is the AVAX’s staking derivative provided by BENQI, the largest liquid staking protocol, as well as the leading lending protocol on Avalanche. The relation between sAVAX and AVAX is analogous to that between stETH and ETH.
On POS networks like Avalanche, users can stake native tokens (AVAX) to increase the network security in exchange for a staking reward. The rise of liquid staking on BENQI (BLS) now allows users to stake native tokens through them to the network for extra benefits: no constraints in the number of tokens & hardware, most notably, receiving staked assets (sAVAX) for increased flexibility and extra yield.
What are the steps involved in leveraged staking?
This strategy support two lending platforms, AAVE and BENQI. We will take AAVE as an example in this article due to the higher LTV, 92.5%.
When applying CIAN’s leveraged staking strategy, the following steps will be executed simultaneously within one transaction:
For this example, let’s assume that we have 100 AVAX and that the exchange rate between sAVAX and AVAX is of 1.
The max LTV is 0.95*0.97*liquidation threshold = 87.54%
- Stake 100 AVAX in BENQI (BLS) to receive 100 sAVAX & staking yield;
- Deposit sAVAX in AAVE V3 lending market for supply yield (E-mode enabled);
- Flashloan 702.56 AVAX from Trader Joe (leveraged 7.02X);
- Stake the flashloaned 702.56 AVAX in BLS for extra staking yield;
- Deposit the extra 702.56 sAVAX in AAVE V3 lending market for extra supply APY;
- Using 802.56 sAVAX as collateral, borrow 703.2 AVAX to repay the flashloan.
Leveraged staking supports both sAVAX & AVAX as principal. If users choose sAVAX, the system will automatically skip the first step listed above.
How to calculate the leveraged staking strategy’s APY?
The positive return rate comes from the supply APY (AAVE) + staking rewards (BENQI). The negative return rate comes from the AVAX’s borrow interest on AAVE. Here is the formula:
Assuming that the:
- Principal is AVAX;
- Exchange rate AVAX/sAVAX: R;
- Collateral Ratio: 87.54% (leveraged 7.025x);
What are the different costs related to leveraged staking?
- CIAN will charge no fee during the promotional period (3 months);
- When executing a leveraged staking strategy, 0.09% of the total AVAX flashloaned will be charged (AAVE);
- Normal gas fees incurred by each transaction on AAVE and BENQI;
- AVAX borrow interest rate on AAVE;
- When closing a leveraged staking position, users will need to pay flashloan fees, exchange fees, and sAVAX/AVAX exchange ratio on DEXes (variable).
How to use leveraged staking on CIAN?
Each smart wallet can support a maximum of 1 automated position (strategy/position building). If users try to create a new strategy on an active smart wallet, CIAN will automatically invite them to create a new smart wallet solely dedicated to this new strategy. This is imperative to ensure the proper functioning of automation primitives such as Auto-Repay & Flash-Repay.
- Go to https://dapp.cian.app/dashboard and select “Leveraged Staking — AAVE”.
2. A) Select the principal: AVAX or sAVAX. Select the source: MetaMask Wallet or Smart Wallet. Finally, enter the amount.
B) Deposit AVAX (location: “gas contract”) to cover all automation-incurred gas fees (minimum deposit of 1 AVAX). We recommend keeping at least 2 AVAX in your “Gas Contract” for security purposes.
C) Click on execute.
3. If you want to receive notifications concerning your strategy (e.g. changes in APY, gas fees warning, strategy updates, etc.) you may enter your E-mail address and enable the option. (Optional)
4. Go to “My Strategies” to check your position status.
5. To permanently close your position, you can, at all times, click on “Withdraw”. Your principal and earned yield would then be redirected to your Smart Wallet. Please be aware that some external costs will apply: flashloan fees, exchange fees, and sAVAX/AVAX exchange ratio on DEXes (variable).
What are the risks related to leveraged staking, and how to mitigate them?
1. Increase of AVAX’s borrow rate
If the demand for AVAX in AAVE or BENQI increases, the borrow rate might also increase. Assuming that the borrow rate was to drastically surpass the supply rate, users may suffer losses over time.
Solution: If users notice that the leveraged staking strategy’s APY is slowly approaching zero, they may choose to close their position. (CIAN’s notification system can help prevent this event)
As the price of sAVAX on AAVE and BENQI is determined by the exchange rate on BENQI Liquid Staking, liquidation is unlikely to happen. However, if the loan interest increases as time goes by, we could see the LTV rising which may ultimately cause a liquidation.
Solution: Cian’s automation primitive — Flash Repay (this feature will be implemented to strategies in August).
Assuming that the interest rate was to rapidly rise, thus slowly increasing the LTV close to the liquidation limit, Flash Repay would automatically return the LTV to the preset collateral ratio via a flashloan, thus avoiding liquidation.
Built on Avalanche’s highly scalable network, BENQI’s vision of bridging decentralized finance (DeFi) and institutional networks starts by launching BENQI on the Avalanche C-Chain. BENQI’s suite of yield-generating DeFi products consists of BENQI Liquidity Markets and BENQI Liquid Staking.
BENQI’s Liquidity Markets allows users to earn interest on their supplied assets, and borrow any available asset from the platform in an overcollateralized manner.
BENQI’s Liquid Staking protocol is a liquid staking solution that tokenizes staked AVAX to grant users the ability to utilize the yield-bearing asset within Decentralized Finance applications.
CIAN is a decentralized automation tooling/utility platform. Through large-scale integration of blockchains/protocols and advanced automation, CIAN is defining a set of automated primitives that turn complex manual execution of typical onchain tasks/strategies into a simple 3-step task definition process for no-code users. CIAN’s objective — 80% reduction in operational complexity, and up to 60% increase in capital efficiency.
When a user is running CIAN’s automation tools, his funds always remain under his full control in his smart wallet and selected protocol(s).
Special efforts are devoted to CIAN’s strategic focus — Staked Assets (e.g. sAVAX). CIAN will keep designing profitable yield strategies and automation tools to ensure the intrinsic growth of sAVAX.