Hello, everyone. I am Uncle Yu. Recently, APE finally supports the staking function. This function should be great news for BAYC holders. On the one hand, it can reduce the circulation of ape coins on the market, and on the other hand, it can maintain the value of BAYC. This article will introduce the mechanism of ape staking and the series of arbitrage events caused by it.
APE pledge mechanism
It currently has four pools opened internally: APE token pool, BAYC pool, MAYC pool and BAKC matching pool.
What is the difference between these four pools?
There is no threshold or requirement for the APE pool. As long as you have APE Coin, you can stake it to get income.
The BAYC pool requires you to have at least one BAYC to stake ape coin;
The principle of MAYC pool is the same as above;
The BAKC pairing pool is relatively complicated, requiring you to have a BAKC on top of BAYC and MAYC. BAKC is a new dog NFT developed by YugaLabs.
Note that this pledge mechanism also limits the number of ape coins pledged. Each BAYC can only pledge 10,094 ape coins, each MAYC can only pledge 2,042 ape coins, and BAYC can only pledge 856 ape coins.
What is the annualized rate of ape’s pledge?
Currently, the data chart on dune shows that the annualized rate of return of BAYC pool is 188%, MAYC is 202%, BAKC is 196.6%, and APEcoin pool is 129.6%.
Of course, this data is definitely unsustainable. As more people pledge, the benefits obtained will inevitably decrease. After all, the total amount of rewards that each pool can receive is limited.
Arbitrage through mechanisms
There are several big red words at the bottom of the official website. If you sell your NFT, you will lose your pledged ape, and whoever owns this NFT can withdraw the pledged money. Simply put, your NFT is the key to opening the pledge vault.
But it may also be that some players did not see this, giving arbitrageurs room for arbitrage.
According to PAYDUN monitoring, an arbitrageur borrowed 82 ETH from dYdX through a flash loan to buy BAYC #6762, thereby obtaining the 6,400 APEs pledged. The arbitrageur sold the APE for 20 ETH, and then sold BAYC#6762for 68 ETH, making a net profit of about 6 ETH. This method was immediately imitated, causing many users to lose their pledged funds.
What do you think of this strong binding mechanism?
I personally appreciate this KYC method. It organically combines NFT and DEFI, further increasing the application scope of NFT.
Of course, this method is not the first. UNIswap has previously introduced the method of converting LP token into NFT. For users who provide liquidity, UNIswap will receive an LP certification NFT for them. They need to rely on this NFT to withdraw the pledged funds. If the NFT is lost or stolen, this part of the funds will also be lost.
Of course, compared to UNIswap's approach, YugaLabs does the opposite. It introduces defi functions into NFT and adds defi attributes to existing NFTs.
What does staking bring to BAYC?
There is a joke in the cryptocurrency circle: "Don't trust projects that pledge assets at every turn."
Why do I say that? Because the essence of staking is to use high APY to attract users to lock tokens, thereby reducing the circulation of tokens in the market, in order to achieve the purpose of raising the token price. As an aside, LUNA uses the UST pool to absorb UST on the market, thereby ensuring that it can maintain the UST price on the market with a small amount of cash.
This model is difficult for ordinary project parties to sustain, because sooner or later you have to unlock it. Usually the biggest beneficiary of the pledge mechanism is the big investors who are fast in and out.
So what will BAYC gain through this mechanism?
First of all, this is not a simple ape pledge, but is strongly bound to NFT. This means that if you want to get a high APY, you need to buy an NFT and then pledge it. This will increase the value of the NFT, and the increase in the price of the NFT will It will strengthen market confidence, and market confidence will allow ape coin to quickly raise the currency price under low liquidity conditions, which can be regarded as a win-win ending. It is even said that when a user sells BAYC, he may include the pledge value behind it in the NFT price.
Secondly, this staking mechanism also drives the sales of YugaLabs' new NFT BAKC, because its fourth pool requires a BAKC to be combined. There is a very interesting design here. For the fourth pool, BAYC or MAYC is responsible for confirming the pledge amount, while BAKC is responsible for obtaining rewards. In other words, you cannot sell BAKC after staking, you need to rely on BAKC to withdraw your rewards.
Finally, let’s talk about a negative situation. The above situations are all based on positive market confidence. If there is a huge sudden change in the market and the market price of BAYC drops sharply, and you cannot easily sell the corresponding NFT because the pledged APE coin has not been unlocked, you will suffer double losses from the NFT and ape coin at the same time.
To a certain extent, this staking mechanism is like opening a small lever for BAYC’s holders, and leverage is double-edged.
I am Uncle Yu, a rational crypto investor. Follow me and lead you to the long-term road to wealth.
