A platform says it is bringing a brand-new type of asset class to the DeFi sector: cryptobonds.
Sync Network says cryptobonds are a new type of nonfungible token that is fully tradable — encouraging decentralized liquidity pools to be strengthened.
Despite their name, they do not share anything common with traditional finance bonds, meaning that there is no debt obligation to the person who holds them. Instead, these instruments deliver proof of a long-term position in liquidity pools — and it’s hoped that this asset will make the core of DeFi more resilient as a result.
Cryptobonds are established by taking equally valued amounts of liquidity token pairs from Uniswap and SYNC — and virtually locking them into an ERC-721 token.
While periodic bonds unlock a quarterly payment of SYNC and have a fixed bond length of one, two or three years, simple bonds also offer shorter durations of 90 or 180 days.
Tackling the issues
According to Sync Network, there are a number of issues that cryptobonds help resolve. First and foremost is how there is currently a lack of long-term incentives in the decentralized finance sector, meaning that investors often remove their stakes at short notice as they continually chase the best results. The project’s whitepaper warns that this vicious cycle causes otherwise healthy projects to collapse as “the staking model is often flawed and not serving its purpose.”
Another advantage lies in how founders can prove that they are committed to a project for the long term — with cryptobonds helping to remove some of the skepticism that often surrounds new coins. That’s because of how this asset class results in liquidity being locked up in a transparent fashion for a prolonged period of time.
Sync Network’s goal is to create market certainty for investors — and to this end, cryptobonds are only listed upon receiving approval from an industry-leading smart contract auditor. The terms of these asset classes cannot be broken, but bonds can be sold on to other investors through any NFT marketplace. Once maturity is achieved, SYNC tokens that were locked up in the contract re-enters the market.
In a recent AMA underlining why its approach is needed, Sync Network team explained: “The amount of rug pulls we have seen this year alone is incredible. Projects will undergo vetting before being whitelisted. Code audits will be a must.”
They added that plenty of work has been taking place to distill this complicated idea into one that is accessible for the crypto community — and this has included a concerted push to ensure its infrastructure eliminates some of the downsides commonly seen with DeFi: “We have worked very hard on contract security. We are resilient to typical DeFi attacks like flash loans because of the long-term nature, and the gas costs that would be required.”
A maturing market
SYNC tokens are being released through a format known as a fair release schedule, with a total of 300 million tokens available to be minted on a daily basis between now and November 2021. Most of this supply has already been distributed — following the top-heavy formula that was followed by the likes of Bitcoin. The SYNC economy is dynamic, however. Making cryptobonds burns SYNC, and maturing bonds mint the original SYNC, plus additional tokens. Total supply and other economic data is available through their DApp.
Work on Sync Network began in the third quarter of 2020, when the concept was generated and its team assembled. This was followed by in-depth research, proving that the business idea can work, and polishing off the whitepaper. A security audit was subsequently performed — ahead of the fair release schedule beginning.
As the project grows, it’s hoped that much-needed long-term incentives will finally be delivered to the flourishing decentralized finance sector.