Minting crTEZ
The process of minting crTEZ is simple and straightforward. A user submits XTZ to the crTEZ swap contract and receives back an amount of crTEZ according to the current swap ratio. This ratio starts at 1:1 and adjusts over time as baking rewards are accrued.
The XTZ deposit is equally distributed over a number of vaults, N. Each vault is delegated to a unique baker. The Crunchy DAO may propose and vote on vault delegations and changes. The crTEZ V1 protocol allows for up to 10 XTZ vaults.
A user now has an FA2 compatible version of XTZ, ready for use in dapps and protocols across the ecosystem. Over time as the vaults receive baking rewards, the swap ratio will be adjusted, and when a user redeems crTEZ for XTZ, they will receive back an amount of XTZ equal to the original amount + inflation from any accrued baking rewards.
And crTEZ is fully fungible. Unlike other collateralized/wrapped XTZ, a user does not have a personal oven or vault. Anyone who holds crTEZ can swap it back to XTZ at the current swap ratio. There is no slippage or loss of funds as there might be with trading through a DEX or AMM.
Redeeming crTEZ
Redemption is just as simple and straightforward as minting. A user submits any amount of crTEZ they hold and receives back an amount of XTZ according to the current swap ratio. An equal amount of XTZ is retrieved from each vault in order to keep them balanced, and the crTEZ the user turns in is permanently burned.
The amount of XTZ the user receives is equal to the original amount used to mint the crTEZ + inflation from any accrued baking rewards.
**Redemption Fee
There is a 0.4% redemption fee to prevent spamming the system or attempting to game rewards accrued in the vaults. The fee is split 50% to a dev fund — overseen by the Crunchy DAO — for ongoing maintenance and support, and 50% to the crTEZ Rewards Vault (The rewards vault is distributed to users staking crTEZ).
Understanding the Swap Ratio
The swap ratio starts at 1 crTEZ : 1 XTZ (1:1)and fluctuates over time as vaults accrue baking rewards.
For instance, let’s assume the ratio is 1:1. Alice submits 100 XTZ to the swap contract and receives back 100 crTEZ.
Some time passes, and the vaults accrue some baking rewards. Let’s assume all vaults have accrued rewards equal to 5% of the XTZ deposits. The new swap ratio is 1 crTEZ : 1.05 XTZ.
Bob now submits 100 XTZ to the swap contract and receives back 95.238095 crTEZ according to the current 1:1.05 ratio.
Alice also now redeems her 100 crTEZ and receives back 105 XTZ under the 1:1.05 ratio. *(In reality Alice receives back 105 XTZ minus 0.4% or 104.58 XTZ because of the redemption fee)
Oh So Rewarding
Remember, the “r” in crTEZ stands for rewarding. So far we have learned how crTEZ holders can be rewarded with accrued baking rewards. But there are other opportunities for increased yield and more rewards. Meet Asset Managers.
Asset Managers are external smart contracts that have power over the XTZ deposits in the vaults.
That sounds scary!
It is a bit scary. So we will take things slow and ensure that Asset Managers are well thought out, audited, tested, and trustworthy. Remember Asset Managers are smart contracts. Asset Managers will be nominated, voted on, and approved by the Crunchy DAO.
And Asset Managers can follow any arbitrary investment strategy. For instance an Asset Manager could lend XTZ to a lending protocol, participate in liquidity baking, or perhaps even take part in low risk farming or staking in order to increase the overall yield for crTEZ holders.
Asset Managers will deposit the XTZ back to the XTZ vaults. Any additional XTZ returned will automatically be minted as crTEZ and deposited to a Rewards Vault. Users who hold crTEZ can then stake crTEZ to earn the extra crTEZ from in the Rewards Vault.
Staking crTEZ will require a minimum time commitment, but also increases the amount of XTZ that Asset Managers are allowed to utilize.
**Asset Managers will not be utilized immediately. One will become active only if and when one is submitted that carefully reviewed and approved.
Q & A
Q. Is this a wrapped Tezos? Don’t we already have wXTZ and other proposals?
All current wrapped XTZ tokens suffer the same problem — You have to have wrapped them in order to unwrap them. Meaning if you ever accumulate more than you personally wrapped — which is highly likely if they become widely used in DeFi — you can never unwrap them or unlock the full XTZ value. You could only do so through a DEX or AMM, which does not hold peg, and you suffer price slippage.
By contrast, crTEZ is fully fungible and always swaps at full value, regardless of how much you want to swap. Unlike other collateralized/wrapped XTZ, a user does not have to have a personal oven or vault. Any user who holds crTEZ can swap it back to XTZ at the current swap ratio, with no slippage or loss of funds.
Q. What if someone makes an XTZ/crTEZ pair on Quipuswap or other DEXes? Aren’t you back to the same problem of price slippage?
While we cannot control what others do, it is our sincerest hope that the community embraces crTEZ to its full potential. To that end, we hope and would ask any DEX or AMM which allows pairs with XTZ to block and not allow XTZ/crTEZ pairs. Instead, allow it in the UI but route the swap through the crTEZ contract.
Q. There are a number of new DEXes coming out that are FA1.2/FA2 only. Do any of them plan to support crTEZ?
Yes, we have spoken to some, and they are on board to use crTEZ as the defacto “XTZ” token in their DEX. We are planning on discussing with the rest and hope that everyone comes to embrace crTEZ as the XTZ of DeFi.
Q. Why is this released under the Crunchy brand?
We have given this a lot of thought. The simple fact of the matter is the Crunchy brand is already well known, established, and trusted in the Tezos DeFi community. Launching this token under the Crunchy banner is an easy path to widespread adoption. And Crunchy is DeFi-as-a-Service, and crTEZ fits nicely within that.
However, we are also careful and wish for max adoption. We are not taking any fees in CRUNCH, and have revised the original design which had swapping fees. Swapping is now free, except for the redemption fee which serves to prevent spam and bad actors. Plus 50% of the redemption fee goes directly back to crTEZ users who are staking crTEZ.
We will also be operating crTEZ generally as a public good. For instance all contracts will be open source.
Q. Wen?
We will be deploying crTEZ contracts to testnets over the next couple of weeks and hope to be mainnet live by end of August.
