“Compound interest is the eighth wonder of the world. Those who understand it, earn it … those who don’t … pay it.” - Albert Einstein
When $ALEX staking opened on January 26 this year, the response was overwhelming; over $1M was staked within 24 hours and over 70% of our community chose to stake for the maximum number of cycles (32 cycles, or about 117 days).
In the following weeks we were frequently asked three questions in particular:
We are pleased to share that we have designed AutoALEX (atALEX) to address all of these needs. atALEX is a novel token that allows:
In this article we will discuss the utilities and advantages atALEX provides.
Staking involves locking up crypto tokens through a smart contract for a fixed period of time. Staking benefits a project by increasing the total value locked (TVL). As locking up your tokens comes at the risk of price changes, staking is incentivized.
On ALEX at the end of every reward cycle (525 stacks blocks or about 3.5 days), stakers are incentivized through protocol rewards in $ALEX as well as APower, our IDO access token. Those rewards however, are not automatically reinvested.
That is why the “Stake” page shows an Annual Percentage Rate (APR) because the return does not take compound interest into account. When compound interest is taken into account, Annual Percentage Yield (APY) is used instead.
Compound interest means that the interest you receive is continuously reinvested. The chart below illustrates a textbook example on the difference between a 10% APR and 10% APY over a thirty-year period.
The difference is initially small but grows exponentially over time.
Imagine an asset that auto-compounds and grows but all you have to do is hold it. That is the essence of atALEX: a synthetic asset backed by ALEX and its future cycle rewards.
During the gathering phase you can mint 1 atALEX with 1 ALEX. After 32 reward cycles, you’ll still have 1 atALEX in your wallet however, you can swap it on the ALEX/atALEX pool for an amount close to what you would have gained had you harvested and restaked every cycle.
This is because the intrinsic value of atALEX will only increase, with respect to ALEX, over time. We’ll use an example to illustrate:
Marie and Pierre are both ALEX stakers. During the gathering phase of atALEX, Marie takes 100 ALEX and mints 100 atALEX. Pierre prefers the manual harvesting and restaking, so he stakes 100 ALEX for 32 cycles.
The below charts makes two assumptions:
As Pierre has been consistent with harvesting and staking, the above serves as a conversion table. Marie and Pierre would have the same amount of ALEX at any time during these 32 cycles: if Marie swapped her atALEX for ALEX she would receive the same amount* as Pierre. (see footnotes 1)
At cycle 33 however, something interesting occurs. Pierre must experience a “cool down cycle” where he harvests his principle and has to wait to restake, while Marie’s AutoALEX continues passively compounding.
Marie’s return, without having to do anything at all, will be greater than Pierre’s in the long term.
The advantages of AutoALEX are:
Although full implementation of borrow/lend for all tokens will require the network scalability of the Hyperchain, the first token where this key functionality goes live will be with atALEX.
Although with atALEX you can withdraw your principal at any time ALEX/atALEX pool, the moment you do you no longer benefit from the power of compound interest.
The ability to use atALEX as collateral against which you can borrow ALEX, means that you can continue earning compound interest while you borrow.
atALEX is the ideal token to pilot our borrow/lending functionality, because the value of atALEX, measured in ALEX is deterministic, providing it several unique properties:
1) The value of atALEX, measured in ALEX, increases over time.
2) The amount of atALEX increases over time: atALEX is minted using ALEX. Exiting atALEX however, can only be done through the swap pool.
3) atALEX can be thought of as ALEX that has been staked in perpetuity*. (see footnote 2)
Around April 26th, we will announce the gathering cycle, an exclusive opportunity to mint AutoALEX at a 1:1 ratio because as soon as the reward cycle begins, AutoALEX will increase in value relative to ALEX. Those who join early will benefit significantly more over time than those who join later, so we encourage our community not to miss this singular opportunity.
To raise awareness and accelerate atALEX adoption, we will be launching a Lockdrop campaign in parallel to the launch of atALEX.
Explore ALEX Bitcoin DeFi today!