Mechanism and Use Cases of sAVAX
What is sAVAX?
sAVAX is an AVAX staking derivative provided by BENQI, the largest liquid staking protocol and also leading lending protocol on Avalanche network. The relation between sAVAX and AVAX is analogous to that between stETH and ETH. On POS networks (eg. Avalanche, ETH2.0), users can stake native tokens (eg. AVAX, ETH) to secure the POS network and receive staking rewards from the network in return for their investment. With the rise of decentralized liquid staking protocols, now users have the choice to stake tokens through them to the network for extra benefits: no constraints in amount of tokens & hardware, and most notably, receiving staked assets (eg. sAVAX, stETH) for increased flexibility and extra yields.
- Value of sAVAX
sAVAX is transferable and, different than stETH, accrues the staking rewards automatically: claimable AVAX per sAVAX = (total AVAX staked + total staking rewards generated) / total sAVAX minted. Therefore, the amount of AVAX that could be unstaked from each sAVAX keeps growing continuously, regardless of where users’ sAVAX tokens were acquired, via BENQI through staking, via Trader Joe through swapping, or just via another address through simple transfer.
- Flexibility brought by sAVAX
A normal AVAX stakers sacrifice their exit opportunities due to the immobility of staked AVAXs. When staking through BENQI, sAVAX holders regain their exit flexibility through trading sAVAX at his/her own discretion. Right now, protocols like Trader Joe and Platypus provide sAVAX trading pools with decent liquidity.
- Earning extra yield with sAVAX:
One of the most attractive features that sAVAX brings about is its composability — sAVAX is being included by an increasing number of protocols as collateral & liquidity assets for a growing amount of application scenarios, which provide sAVAX holders versatile sAVAX based yield opportunities. In other words, users who stake AVAX through BENQI earn 2 types of yield, which can easily add up to over 20% APR:
- AVAX staking rewards from Avalanche network (~7.2% at time of writing);
- Earnings from single sAVAX yield strategies (from 2% to 18% depending on the strategy);
- Earning from sAVAX-StableCoins yield strategies (from 12% to 60% depending on the strategy) *risk of impermanent loss*
sAVAX Yield Strategies: Expectation
Staked assets are on the way to disrupt the entire DeFi stack. Expected by a number of leading crypto institutions (eg. Paradigm’s analysis), Ethereum staked assets (stETH) will likely exceed ETH in circulating volume in years to come. No exception is anticipated for sAVAX on Avalanche. This indicates that the ecosystem around AVAX is likely to replicate and expand around sAVAX, leading to the rise in sAVAX use cases and sAVAX yield strategies. However, with great diversity comes higher complexity.
Some of the high yield strategies might not be easily accessible to users without a strong blockchain coding competence nor powerful blockchain toolings. This problem is greatly alleviated by CIAN, a decentralized automation tooling platform that recently landed on Avalanche. On CIAN, a growing set of automation primitives are provided to reduce users’ operational complexity, minimize capital risks, and increase users’ capital efficiency. For sAVAX, CIAN has entered in cooperation with BENQI in order to devise a set of automated yield strategies which, without any additional cost, considerably reduce users’ effort with the help of CIAN’s decentralized automation primitives. More about CIAN can be found at the bottom of the article.
sAVAX Use Cases
- Decentralized Exchanges
Trader Joe is a prominent DEX on Avalanche. sAVAX’s holders can provide liquidity in the sAVAX-AVAX pool on Trader Joe to earn some swap fees and token rewards. Impermanent loss is ignorable owing to the price synchronization of this particular token pair. Decent liquidity is seen in this pool as shown in the following picture, considering the total amount of sAVAX minted so far.
Other sAVAX liquidity pools can be found in Platypus and Pangolin.
Lending protocols allow users to deposit sAVAX tokens as collateral to borrow other crypto assets. This gives users access to new yield strategies, while conserving their staking rewards. Users can borrow various assets using sAVAX as collateral on BENQI, and then utilize these assets to farm extra yields on other protocols.
That said, monitoring and frequent adjustments of the collateral ratio are required in lending-related strategies to decrease the liquidation risk, and maximize the capital utilization. Users can resort to CIAN’s ready-made automation tools to alleviate these risks/complexities.
Derivatives are an important extension of mature assets. Ribbon Finance is offering a significant APY (due to higher risk) for sAVAX holders based on decentralized option vaults. Users stake sAVAX into the vault; Behind the scene, the vault sells option calls when the algorithm decides the predicted profits outweigh estimated risks. Various types of derivatives are expected to develop around sAVAX in the future.
- On Staking Pools and Staking Derivatives
- BENQI Liquid Staking
- Nodes and staking of Avalanche
- Yield Farming of Trader Joe
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 executions 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, 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.