Hourglass: What is a time-bound token?

Poopman

2023-05-25 18:38

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Original author: Poopman

Translated by: Kxp, BlockBeats

Time is money. When a token is locked, the opportunity cost of time increases. However, on Hourglass, you can "tokenize" the lock-up time of your assets and trade your time-bound tokens for liquidity whenever you need it.

Background Information:

Hourglass was created by Charlie Pyle, the founder of ZetaChain. Recently, Hourglass received a seed round investment of $4.2 million led by Electric Capital and including Coinbase Ventures and other institutions.

1. What is Time-bound Token (TBT)?

Time-bound Token (TBT) represents assets that have been staked for a period of time on Hourglass. For example, 10 frxETH/ETH LP Tokens with a lock-up period of 3 months will be converted into 10 frxETH/ETH TBT with a 3-month term.

2. What is Hourglass?

Hourglass is a platform that provides time-bound token services and facilitates user transactions of TBT. To achieve this goal, Hourglass relies on two main mechanisms:

· Hourglass Staking· Hourglass TBT Trading Market

3. Hourglass Mechanism

Hourglass Staking

Firstly, Hourglass has an intelligent contract called Hourglass Custodian, which creates a collateral pool for each type of asset. In the collateral pool, users can stake LP Tokens in proxy staking pools with different expiration dates (currently only supporting the frxETH/ETH Convex trading pair).

Every time you deposit frxETH/ETH LP Token into Hourglass, it is equivalent to staking Curve LP Token locked in Frax Finance Farm through Convex Finance. Currently, there are only 4 different staking pools with different expiration dates on Hourglass, ranging from May to December.

Users who stake LP Tokens to the proxy staking pool will receive TBT (ERC1155 Token), which will serve as the "receipt" for their staked assets. Once expired, the staked assets can be redeemed by ERC1155 holders in the expiration pool.

Reward Distribution

Users holding TBT will regularly receive rewards through Merkle airdrops, where Merkle airdrops are a reward distribution mechanism that uses Merkle trees and proofs to verify whether token holders are eligible to receive rewards.

4. Hourglass TBT Market

Hourglass adopts an order book model to enable TBT transactions with different expiration dates.

For example, suppose user A can purchase 10 frxETH/ETH LP at a very low discount (1%) that will unlock on May 30th and expire on June 30th. The size of the discount will vary depending on how close the expiration date is (assuming the APY remains constant). This is because the user will not be able to use the underlying assets for the next month, and the discount is essentially compensation for the opportunity cost of time.

Currently, there are only limited orders (with specified prices) available on the Hourglass market. Users can view the buy/sell prices, discounts, and liquidity depth for specific expiration dates. Then, users can "fill" existing orders to buy or sell TBT.

5. Synergies with stETH

Due to the availability of stETH for withdrawal, there is a high probability of congestion during periods of high traffic, and it may take several weeks to complete.

Hourglass allows users to trade Lido's withdrawal request NFTs on the market and exit their positions early if needed.

6. Poopman's Thoughts

Through Hourglass, the protocol can provide a guarantee of locked liquidity in its products, while achieving higher yields (such as the 4-year veCRV lock-up gain on Curve); on the other hand, the market also provides higher capital efficiency for locked assets.

Meanwhile, users should monitor the liquidity depth of the TBT market, as this is the most critical parameter that determines whether they can exit their positions. Otherwise, even if the underlying asset price plummets, users may have to wait until the expiration date.

In addition, Hourglass's scalability is limited by underlying revenue sources (such as Frax), just like other yield aggregators like Convex. To understand why, please read Messari's report, which analyzes the project's profitability and sustainability in detail.

Despite this, I am still very excited about the future of Hourglass and hope to see more staking pools added in the future.