Quick Recap And Introduction: Everyone who holds XTZ can earn staking rewards in the Tezos PoS protocol. But what if you could earn staking rewards and simultaneously earn revenue in DeFi?
DAO Baker makes that possible by tokenizing your delegated XTZ, while you continue to earn staking rewards.
This means that you receive XTZ-backed tokens called dXTZ. Now you can move your dXTZ into any future DeFi application, while your XTZ remains in your wallet and continues to earn staking rewards.
That means that DAO Baker enables you to use your XTZ value and take that to earn extra yields in DeFi, without missing any of your XTZ staking yields.
You can read part one here, part two here, part three here and part four here.
SLOT Tokens
So far we have seen how people who do not run a Tezos Baker, can delegate their XTZ to a DAO Baker and tokenize their XTZ. But Bakers that activate the DAO Baker protocol also tokenize their own XTZ.
But it’s important to note there is a difference: bakers will receive two different tokens: dXTZ and sXTZ tokens.
The reason is simple: Bakers have XTZ that they need to put up as a bond. (For an explanation on these bonds, see Chapter Two under the header ‘Baker bonds’) The XTZ that is put up as a bond, is tokenized as sXTZ instead of dXTZ.
Every XTZ that is put up as a bond by a baker, and tokenized as sXTZ, only becomes a share in the active staking economy, once it becomes part of a full roll (as explained earlier in the series, a full roll is 800 XTZ as bond and 7,200 XTZ that is delegated).
Only once a roll is filled, it can start earning staking rewards. And once it is part of a full roll, sXTZ is “upgraded” to a SLOT token.
So we move from XTZ that is free to move, to XTZ that is put up as a bond, while not being part of a full roll, to XTZ that is part of a full roll.
SLOT tokens will be named after the baker that creates them. If a baker calls himself P2P, then the SLOT tokens will be named sP2P tokens.
SLOT tokens are valued differently compared to dXTZ tokens. While dXTZ tokens are valued exactly 1:1 as XTZ, the SLOT token value, mirrors the network share and performance of the underlying baker in the Tezos blockchain.
The performance data is trackable at anytime with on-chain tamper-proof historical data.
This means that SLOT tokens from different bakers are quite likely valued differently, since they perform slightly differently (more consistent, no downtime, more efficiency, overall better results).
This way bakers create their own brand: different SLOT tokens can be valued differently due to the Bakers performance.
Think of it like a publicly-traded company.
Derivatives
SLOT tokens can be traded as derivatives. Derivatives are financial products that derive their value from the performance of an underlying entity or asset.
“We expect a lot of derivative exchanges will take the lead on listing SLOT. In particular, for Perpetuals, CFD for the Tezos Staking returns of a particular tokenized Validator or for an Index of selected bakers.
This is an interesting use-case for crypto native derivatives that have no price feed dependency. Crypto derivatives markets have a daily volume of $20 billion and growing exponentially every day records more than $710 billion in August alone.” – Scott Trowbridge, co-founder of Block Swap
https://www.coindesk.com/bitcoin-price-rally-crypto-derivatives-cryptocompare
Earning additional yield
Additionally, Bakers in the DAO Baker ecosystem are expected to provide other fee based validation services (credit underwriting, non-collateralized loans etc).
Depending on the Baker, being a SLOT owner may also entitle you to a portion of the fees collected for these services.
SLOT value
These two factors indicate that SLOT tokens ‘should’ exceed the price of the underlying XTZ.
You buy the underlying XTZ (although in fixed form and not redeemable at the time), you earn staking rewards from that XTZ (which is paid out in dXTZ, which gives you redeemable XTZ), and you buy a part of the active network, a share in an active roll.
Some of the main DeFi protocols and DEXs are showing readiness to list dXTZ, and SLOT tokens.
“SLOT (sXTZ) tokens and dXTZ tokens will be on decentralized exchanges, there are already some possible candidates.” – Scott Trowbridge, co-founder of Block Swap
With the added value of SLOT tokens, bakers are incentivized to become even more professional. Optimize their communication with delegators to make sure they stick with them long- term, and increase their baking performance.
An increase in SLOT token value, means a better profit if they sell part of their SLOT tokens.
Trading SLOT tokens
SLOT tokens are sold at “Swap market”, which is a DEX for trading SLOT tokens and dXTZ. SLOT tokens can also be used in liquidity pools.
Because Bakers are the only ones that can mint and receive SLOT tokens, only they can decide to sell a portion of their SLOT tokens. Once issued on the market, anyone can buy them.
The initial price is set by the baker who wants to put them on the market. Obviously it’s then up to the market to buy them for that price.
“When we have a market of tokenized validators it can provide the opportunity to have a crypto native S&P 500 for bakers on Tezos blockchain that is trackable at the block level.
Trading markets can open numerous instruments for the staking market, predicting the return of these validators taking a funding rate on any token.
There are around ~3.2 million XTZ coming out of Tezos from inflation that belongs to participating bakers and shuffled at every cycle ~3days.
The staking process itself is a continuous prediction market analogous to a stock market in a traditional financial market but without the hierarchical organisations behind them.
Tokenized Bakers are expected to provide other fee based validation services (credit underwriting, non collateralized loans etc).
Spot Market for SLOT will skyrocket if there is sufficient demand for SLOT based instruments on the Derivatives Markets using it as an efficient discovery for its market performance.” – Scott Trowbridge, co-founder of Block Swap
Retiring baker
What if a baker plans to quit baking? Once a baker has built a brand and wants to stop baking, he can now sell his baker.
This could be an interesting concept. Not only does he already have a ton of delegators, his brand is also worth paying for: his SLOT tokens have value that is built on the history of that baker.
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