bCRO, bCRO, how pleasing thou art
Going deeper into the mechanisms of our favourite CRO
Today we’d like to broach the topic on the specifics of the bCRO — and why it makes complete sense for a CRO HODLer
We’re having conversations with multiple partners to expand bCRO’s utility in the coming weeks, so it’d be appropriate to give a rundown of how it works before you guys get messy with it.
Ready? Let’s dive in
Understanding bCRO’s value
Now we know by now how bCRO works — we’ve written so much about it. It’s value comes from the fact that:
- You get to experience CRO staking yields (currently about 10–12%)
- You can exit immediately without the normal 28 days unstaking period with our bCRO-CRO pool on DEXs (VVS and MMF)
- bCRO is fungible and usable across Cronos (more news to come on this!)
As a CRO supporter, it is obvious that bCRO is the better alternative to just simply HODLing or staking via DeFi Wallet/direct validators — but don’t just listen to us, let the rest of our article convince you.
What does bCRO represent?
bCRO acts like a receipt for a user to have a claim over the CRO and staking rewards that are being held in validators. As long as you have bCRO, you can claim it for CRO and the relevant staking rewards
What this also means is that once you sell your bCRO, you no longer have that claim over your CRO. Simple enough? Let’s go one step further.
Will bCRO’s value be maintained?
Short answer — Yes
Why is that? bCRO’s price is not maintained by algorithms or mechanisms. bCRO is a representation of your staked CRO + CRO staking rewards on validators.
There is no peg, each bCRO will always be claimable for CRO at the prevailing official exchange rate. What you’re thinking off is the DEX price — if that falls, you can always simply come back to Argo and exchange it for the real value of bCRO. Simple.
Forget what you know about the other pegged tokens you’ve seen, that’s NOT how bCRO works
In other words, there is actual fungible and equivalent CRO backing bCRO. There is no token or faith based mechanism that users have to trust that collateralises bCRO. Just PURE, HARD CRO
So how does that work into bCRO’s price then? great question — read on.
“Ser, how is bCRO priced”
bCRO is priced based on the following formula:
Price of bCRO = (Total CRO staked + Total CRO staking rewards) / bCRO in circulation
bCRO in circulation = Total bCRO minted — Total bCRO burnt
Essentially, bCRO’s price is always represented by the value of staked CRO + staking rewards. No one can mint bCRO without first staking CRO, and all unstaked bCRO is always burnt before a user can receive their CRO back
bCRO’s Staking Yield
“Ser, how can I get my staking yield from bCRO?”
As seen in the section above, the staking yield is actually reflected in the price of bCRO. Everytime staking rewards are collected and compounded, the amount of CRO that each bCRO represents increases — increasing the value of the bCRO you’re holding. To realise that gain, you simply have to sell or unstake it.
“If I buy bCRO, how do you know the interest that needs to go to me?”
We don’t have to. The global exchange rate on Argo Finance takes care of that. It doesn’t matter who owns the bCRO, the overall price of bCRO always increases according to the staking yields due to the formula we discussed above.
If you bought bCRO on a DEX today at 1.1, the price rate next year would probably be around 1.23, which represents the ~12% APY you’d get for staking your CRO with us.
If you sell it halfway at 6 months, then the price increase you’re selling or unstaking bCRO at reflects only 6 months worth of accumulated staking rewards.
Let’s take a break here because the next part is really important — understanding the peg
The bCRO Peg
Now the bCRO price itself on Argo Finance is the official exchange rate based on all the staking rewards accrued by staking CRO
However, you’ll find that the price on a DEX may not reflect that — either due to panic, illiquidity premium, or simply people who wanted to exit early. Should you be worried?
No. You don’t.
Again, every bCRO that will ever exist is always backed by the correct amount of CRO based on the official exchange rate. There is no algorithmic peg, no funny math nor weird science — bCRO is simply a receipt pegged to the value of staked CRO and staking rewards. Arbitrageurs will eventually bring the peg close to the official rate.
Now what exactly is this arbitrage that will help maintain the peg? Why will people do it for free? Because there’s free money to be made
DEX price < Official Price
Let’s say bCRO on a DEX is priced at 0.9 and bCRO officially costs 1.1 — what an arbitrageur will do is this:
- Buy the cheap bCRO on the DEX for 0.9 CRO
- Short an equivalent value of CRO on an exchange (Perps or spot)
- Unstake the bCRO on Argo Finance for 1.1 CRO
- Claim the CRO at the end of the 28–32 day unstaking period and close the CRO short
This essentially results in ~0.2 CRO free per bCRO bought after unstaking — a risk free profit of ~22%. This buying from arbitrageurs will eventually push the price on the DEX back to peg.
DEX price > Official Price
Let’s say bCRO on a DEX is priced at 1.3 and bCRO officially costs 1.1— what an arbitrageur will do is this:
- Mint bCRO on Argo Finance for 1.1 CRO
- Short equivalent amount of CRO (not necessary, but just in case)
- Sell bCRO for 1.3 CRO
Again,~0.2 CRO free per bCRO bought after unstaking — a risk free profit of ~18%. This selling of bCRO from arbitrageurs will eventually push the price on the DEX back to peg.
Now that we’re clear on how bCRO works and why it maintains its value — can you now see that it is indeed simply CRO, but better?
Time to get STAKING
We’ll be exploring the concept of the bCRO-CRO pool in the next article of the series, so stay tuned!
Smooth sailing Argonauts