Avalanche decentralized reserve currency bows to pressure
Avalanche blockchain DeFi dapp SnowBank has announced the end of the project after overall interest in rebasing projects fell to an all-time low this year. Despite v2 plans, SnowBank states a fresh new project could better capture the opportunity. A final distribution event where investors can swap out any held SB tokens for USDC is the cause for the spike observed in the dapp’s metrics this week.
Peaking dapp metrics can often signal positive events such as launching a new marketplace, yield farm, or NFT drop. However, things are not always as they appear, as an increasing number of wallets connecting to a platform can also indicate a departure for one reason or another. In this case a general downturn in interest in rebasing projects.
What is Snowbank DAO?
Snowbank DAO is the decentralized reserve currency protocol available on Avalanche based on the SB token. Each SB token is backed by a basket of assets, e.g., MIM, SB-AVAX LP Tokens, etc, in the Snowbank DAO treasury, giving it an intrinsic value that it cannot fall below.
Where can I swap my SB for USDC?
Importantly, there is no deadline for the redistribution, and token holders can always swap SB for a fixed USDC value with no slippage. You can exchange your SB tokens for USDC here: https://dapp.snowbank.finance/#/redeem
Everyone will get the same amount of USDC per SB, regardless of when the swap is executed. The current risk free value (RFV) per SB is already available on the SnowBank dashboard here: https://dapp.snowbank.finance/#/dashboard
What is Rebasing?
The DeFi hype of 2020 brought attention to projects aiming to change the traditional finance paradigm. DeFi peaked and caught the most publicity in the summer of 2020 and triggered a shift in the way people managed their finances. One product to emerge from the hype was rebasing protocols.
A rebase or price-elastic token is designed to automatically adjust the circulating token supply according to a token’s price fluctuations. Rebase tokens are relatively similar to stablecoins because they both have price targets. However, unlike stablecoins, rebase tokens’ have an elastic supply, meaning the circulating supply adjusts accordingly to supply and demand, without changing the value of the tokens in a user’s wallet.
How it works
A rebase happens routinely. For example, Ampleforth’s AMPL has a rebase scheduled every 24 hours, with a target price of $1. If its price goes above $1, the circulating supply expands during rebase, thereby reducing the value of each AMPL token. Conversely, if the price of AMPL dips below $1, the current supply contracts during rebase, thereby increasing the value of each token.
From a users’ point of view, the number of tokens in each wallet will increase or decrease accordingly. Yet the total value of each wallet does not change, thanks to the rebasing mechanism. This method of investing can prove to be very profitable and highly risky as investors can easily make money and lose it just as quickly.
According to the SnowBank docs and Twitter, the team paused plans for Snowbank v2 and they state that another team can pick up the project in the future. Further encouraging anyone willing to develop this liquidity as a service protocol to freely use the first version of specs available in the documentation.
Rebase tokens can help provide a hedge against inflation or deflation, essentially protecting and helping store investment value. Not only can they help in regards to fiat currency value, but they will also provide you with a hedge of your cryptocurrency portfolio if you are heavily invested in digital assets.
Now, as the issue of inflation becomes more serious for almost everyone on earth, it appears platforms such as Ampleforth have some serious educational rollouts to bring those looking for inflation-beating investments closer to rebasing and better understand the way the mechanics work.
The above does not constitute investment advice. The information given here is purely for informational purposes only. Please exercise due diligence and do your research. The writer holds ETH, BTC, AGIX, HEX, LINK, GRT, CRO, OMI, IMMUTABLE X, GALA, AVASTR, GMEE, CUBE, RADAR, FLOW, FTM, BNB, SPS, WRLD, ATOM, and ADA.