Using Cruize, assets like ETH can be staked to mint crETH which represents the hedged version of it. Minted crETH tokens are protected with a price floor which is the minimum value they will fall to irrespective of the price movement of the underlying. The upside exposure is still captured as crTOKENs rise with the underlying, but remain fixed at the price floor when the market crashes. Protection can be exercised using the following steps.
After staking tokens, their respective crTOKENs are minted in a 1:1 ratio. These crTOKENs are fungible, meaning that all of them have the same price floor and can be used across DeFi as price protected tokens.
Depending on the underlying hedging strategies, the fees can either be positive (meaning fees are added to your account) or negative (meaning fees are charged to your account) which are settled at the time of redemption.
It is possible to utilise these hedged positions as liquid tokens in many novel ways across DeFi. For every token that can be hedged, their corresponding crTOKEN will be fungible and usable like other ERC-20 tokens. They can be traded, transferred across wallets, and also be used for several use cases across the market. Below are some of the use cases of hedged crTOKENs.
crTOKENs never fall below their price floors. This ensures that they never liquidate when used as collateral for the below strategies
- Margin trading - Margin requirement remains unaffected by market crashes
- Borrowing - Loan to value remains unaffected by market crashes
- Synthetic assets - Collateralization ratio remains unaffected by market crashes
This means that the value of crTOKENs when used as collateral never falls below the price floor, even if the market price of the underlying asset falls below it.
Synthetic assets are tokenised derivatives that can be used to mimic the behavior of an underlying asset. A hedged exposure to synthetic markets can be traded virtually using hedged tokens of synthetic assets. Using crTOKENs for synthetic tokens of stocks like $TSLA can add a layer of price protection for your equity exposure.
Several yield farming strategies remain susceptible to market volatility and impermanent losses. crTOKENs can be used with yield farming strategies to generate yield over the base interest generated when the interest remains positive to add a boost to the earnings generated on their staked assets while ensuring permanent capital protection against downside volatility.
At the time of withdrawal, when the user burns their crTOKENs, they receive either their staked tokens or USDC depending on the market price of the token.
- When a user tries to withdraw at a market price that is below the price floor, they get USDC worth the value of the price floor.
- If the withdrawal happens at a price above the price floor, the user simply receives their staked asset.
For example, say a user stakes WBTC at price of $57,000 and the price floor is $51,000 at the time. If the user happens to withdraw their stake when WBTC trades at $55,000, they reclaim their original WBTC which now has a price of $55,000. However, if they initiate a withdrawal at $50,000, they get 51,000 USDC instead of WBTC. This ensures that the price floor is the minimum redemption price for crTOKENs.