Example Cases

To understand the benefits and implications of time-bound staking, we then provide example cases in different scenarios.

Long-Term Fixed-Rate Staking

Every vault is bound by a time limit or maturity date, typically set for 3-4 months. Our unique feature enables seamless migration of vault tokens from one to another, serving the needs of long-term stakers.

At some point in time, Legato has 2-3 timelock vaults available, with the last vault enabling the conversion of staked assets into derivative tokens representing future values for the next 6-8 months.

For long-term stakers seeking to lock-in staking rates for years, may simply wait for 6-8 months and then perform the migration to the new vault that will be setup. This process utilizes the current vault's maturity date to calculate the new derivative tokens to be minted at the new vault's maturity.

From the drawing, you can see that the staker may only need to have 2 interactions for time-bound staking at a fixed rate for 2 years. They're also able to sell a portion of their tokens at any time without needing to perform an unstake from the delegation pool.

Exiting the Staking Position to Gain Margin Profit

The crypto market is volatile and at the time of writing in April 2024, when Iran attacked Israel, most altcoins experienced a drop in value of 20% to 30% in a day. This is compared to staking rewards, which range from 3% to 7%, resulting in losses relative to the underlying asset.

Time-bound staking can help mitigate losses during periods of market volatility. Stakers have the option to trade their vault tokens on the DEX when the token price is relatively close to the expected future value, which remains higher than the spot market.

When the vault is setup, the AMM pool is also established, pairing vault tokens with the settlement asset (USDC or USDT) at an optimal price. As time passes, the derivative price typically moves closer to the spot price.

When the spot price sharply declines, the derivative price typically remains higher. Thus, vault token holders can take advantage of the price differential to sell their tokens for profit and exit their staking position.

Buying Tokens in the Future at Discounted Prices

As opposed to the above case, when the spot price is on the rise. Traders or existing vault token holders can buy more vault tokens at a lower price compared to the spot market.

And after the maturity date, they can redeem the underlying tokens in full amount or choose to migrate to other vault tokens.