Following the aAVAXb/AVAX farm going live on LydiaFinance last week, our DeFi architect Filipe Gonçalves participated in AMA on the LydiaFinance Telegram channel. He answered the community’s questions about internet bonds and the Ankr ecosystem.
For those who couldn’t attend, we summarized the most relevant questions and Filipe’s answers in the article below.
How does the Avalanche Staking & Bonds (aAVAXb) work, what are its features and functionalities?
F.G.: Ankr facilitates AVAX staking and tokenizes staked AVAX (aAVAXb) to solve the capital inefficiency of Proof-of-Stake. Ankr is building a bridge to make Internet Bonds from multiple protocols available on networks. As such, we are starting with aAVAXb on Avalanche network, and soon, it will be possible to trade aAVAXb on Ethereum: users not willing to experience Avalanche network and go through the learning curve will be able to benefit from Avalanche staking rewards on Ethereum through aAVAXb.
However, our first priority is aAVAXb adoption, and we are counting on the Avalanche community to discover first the benefits of Avalanche Internet Bonds before making it available on other networks.
What are the 3 most important advantages for Avalanche Internet Bonds users?
- Instant liquidity
- More robust price stability mechanism not too much dependent on large liquidity in DEXs because of possibility to unstake AVAX (=redeem aAVAXb at fair value)
- Enhanced yield vs. staking reward
What are the most exciting opportunities for Avalanche Internet Bonds users?
- Provide liquidity and earn trading fees
- Get liquidity from decentralized exchanges
- Borrow against Internet Bonds in DeFi (e.g. OnX Finance), but also outside DeFi
- Stablecoins backed by Internet Bonds (e.g. OnX Finance — onETH is a ETH stablecoin backed by Ankr Eth2 bonds)
- Yield Aggregators/Vaults: easily add several layers of passive income on top of Internet Bond liquidity pools (e.g. aETHc/ETH LP on OnX Finance)
- Exploit arbitrage opportunities (buy Internet Bond in the market at a discount or premium, use Ankr StakeFi to unstake/stake at fair value)
Can you give investors some advice why they should get Avalanche Internet Bonds and ANKR tokens in the long term?
F.G.: Holding Avalanche Internet Bonds instead of non-staked Avalanche tokens is a no-brainer: you can benefit from rewards with Internet Bonds (staking + liquidity mining + farming rewards + staking farmed tokens or liquidity mine farmed tokens).
For Ankr token itself, its utility will be enhanced with our upcoming multichain Internet Bond ecosystem. To exploit some trading opportunities linked to Internet Bonds (arbitrage opportunities) using Ankr tools, Ankr token will be required. More information will be revealed in Q4 2021.
What is your plan/tactics to offer low impermanent loss? What are the new arbitrage opportunities you are offering at aAVAXb?
F.G.: aAVAXb/AVAX is similar to USDC/USDT or renBTC/wBTC Liquidity Pools in terms of impermanent loss. Fundamentally, aAVAXb and AVAX are the same. Arbitrage opportunities that are specific to Internet Bonds would be:
- Buy aAVAXb at a price below AVAX
- Unstake AVAX and get the same amount of AVAX (1:1 peg). However, this is subject to the end of the next validator node period, which can be up to 28 days.
We will enable instant liquidity pools, which are available immediately to swap at fair value. The instant liquidity pool will then unstake and wait to receive AVAX back to refill it. Instant liquidity pool will be available for Ankr token holders only. Ankr token, therefore, becomes the working capital to operate as an Internet Bond trader exploiting arbitrage opportunities.
How do you plan to mitigate against high gas fees and the lack of interoperability that is typical of automated market makers (AMMs)?
F.G.: Internet Bonds enable low impermanent loss liquidity pools, which helps mitigate these effects. The inefficiency of AMMs and potential price slippage that it creates offer opportunities for trades that can buy potentially Internet Bonds at a discount in a specific DEX, and sell it for a higher price in another DEX, or simply redeem the Internet Bond (unstake) in Ankr StakeFi to recover the fair value of the Internet Bond (1 aAVAXb = 1 AVAX)