At this point, non-fungible tokens, popularly known as NFTs, need no introduction. A by-product of blockchain technology, these digital collectibles have seemingly established themselves as digital diamonds and created immense new opportunities in industries like art, entertainment, and gaming.
However, while NFT sales are skyrocketing, financial experts from across the globe are still debating whether these digital collectibles have any use-cases at all. To their satisfaction, most NFT projects too haven’t yet been able to present any use-cases for the “JPEGs”. But the SYNC Network is changing this for the better.
By combining NFTs with DeFi, the SYNC network is actively changing the way the DeFi ecosystem operates and cementing the place of NFTs in the financial markets.
CryptoBonds: The Introduction of a New Crypto Asset Class
SYNC Network is an Ethereum-based platform that recently introduced a new asset class called CryptoBonds to the DeFi space. Holding an ERC-721 contract, CryptoBonds are essentially time-locked NFTs that generate rewards for their holders. Okay! But, what are they actually used for?
In simple terms, these NFTs are used to provide liquidity to decentralized exchange protocols. Liquidity mining is probably the most popular reward system in the DeFi ecosystem today. Projects rely on it to create liquidity for users and keep their platform running while investors use it to earn yields on their digital assets.
This reward system largely contributed to the growth of DeFi but is also responsible for creating volatility in the market. Why? Because investors can withdraw funds at any given time, creating a sudden lack of liquidity, price fluctuations, and the downfall of promising projects.
This is where CryptoBonds come into the picture. This new asset class effectively maintains liquidity in DEX protocols while ensuring that long-term investors are properly rewarded for their contributions.
Let’s now take a look beyond the surface to see how CryptoBonds actually maintain liquidity and stability.
Dissecting the CryptoBond
A CryptoBond consists of three main components – the liquidity provider tokens (LPTs), SYNC tokens, and the NFT highlight artwork. The NFT highlight is what gives rarity and tradability to CryptoBonds and the artwork is generated uniquely for each new CryptoBond by an algorithm. LPTs represent the liquidity pair staked on the DEX protocol and SYNC is the native token of the platform that is locked in the CryptoBond along with LPTs.
To create a CryptoBond a user must visit a DEX protocol such as Uniswap on the Ethereum network and stake a trading pair to receive LPTs. Then, on the SYNC platform, these LPTs are combined with an equivalent amount of SYNC tokens and attached to an NFT highlight and CryptoBond ID to form a CryptoBond.
Every CryptoBond has a lock duration that can vary lasts anywhere between 90 days to three years. During this time period, investors cannot unlock their crypto assets. However, because the bond itself is a rare NFT, it can be traded as a whole on NFT marketplaces, in case the investor wishes to exit their position before expiration. This entire ordeal takes place without disturbing the liquidity on the DEX protocol.
CryptoBonds bring in revenue from liquidity provision on the DEX and also interest on the SYNC part of the bond. Upon maturation, the NFT is burned and investors get all this revenue along with locked SYNC tokens and newly mined SYNC tokens, resulting in a yield much higher than usual liquidity mining. For reference, the value of 1,800 CryptoBonds created so far has seen an average increase of over 203%, which easily covers the recent downtrend in crypto that led SYNC to drop by 75%. The longer the lock duration, the higher is the yield.
A Myriad of Use-Cases
With the invention of CryptoBonds, the debate around NFTs not being useful can finally be put to rest. Now NFTs are being used to not just create liquidity but also to maintain stability and mitigate risk in the DeFi ecosystem. Pump-and-dump episodes can now largely become a thing of the past, protecting promising projects. Apart from this, their rarity makes them unique collectibles and can be traded across NFT marketplaces for profits. CryptoBonds can also be used as collateral for acquiring loans in the DeFi space.
SYNC Network itself has a P2P lending feature where CryptoBonds serve as collateral. The duration of the loan and the rates of interest are dynamic and are agreed upon by the borrower and lender. The platform also has additional promissory note NFTs that can be sold on NFT marketplaces to allow the lender their funds back before loan expiry.
In short, this novel platform has the potential to revolutionize NFTs and forever change the way the world views them. Its ambitious visions have already brought the project significant success with $6M worth of crypto locked across 1800 bonds. The path forward for this project looks quite promising and the team believes that this project could become DeFi’s stability standard.