Rebasing and AQTIS

As part of AQTIS’ mission to create a self-sustaining ecosystem, we have built several features that set us apart from other projects in the space.
One of those is our hybrid approach to rebasing and its relationship with our quant tech and how we manage yield. It’s a unique approach to ensuring consistent linear yield can be achieved throughout the year.
In this document, we explain what it is and how it works.

What is rebasing?

Rebasing tokens are a type of cryptocurrency whose supply is adjusted algorithmically (i.e., by burning or minting) in order to maintain a certain value.
It helps ensure yield is consistently aligned with rewards based on the features we hard code into our LSTs. For example, in qETH, the yield APY is 10%, split between ETH (7.5%) and AQTIS tokens (2.5%).
To ensure that yield is consistent, every 24 hours, the relationship between the LST and the yield is rebased. This means that once per day, yield is credited into the yield smart contract or YDSC.
This means that as the holder of a rebasing token (our LST), your yield is accumulating and held in a smart contract. If you choose to claim that yield, you receive it in ETH, USDC or AQTIS. But while it is in the smart contract it is held as LSTs. This gives a number of unique advantages, which we’ll explain below.
When users claim, the rebased tokens get sold into the Liquidity Pool and we buy it back from the same liquidity pool with the performance of our quant tech. In essence, we convert the LST token back into the native asset, and those native assets are automatically distributed to the LST holder through smart contracts.
It’s important to note here that the yield is based on a year-long period. During that time there will be fluctuations in performance, which could mean small discrepancies between the rewards and the amount withdrawn. But we will almost try to ensure those two numbers are as close together as possible.

How does AQTIS create consistency with rebasing?

This relationship is made secure by the addition of the Ecosystem Liquidity Aggregator (ELA) and an additional backstop in the ELIF, or Ecosystem Liquidity Insurance Fund.
This is for security reasons - which we explain below - and to ensure the quant tech is free to continue making trades.
Some projects, however, choose a different approach. Non-rebased tokens do not allocate more tokens as yield, instead they increase the value of the existing token. Other projects use a dual token model: one that is pegged to the underlying assets as a derivative, and another that varies in price depending on the yield.
We believe that a single rebased token with additional liquidity provisions is more efficient and easier to manage than the alternative.
For ease of understanding, below is a chart that explains the different approaches to yield management in DeFi:
  • Rebase only - Provides Consistent yield as more LST as rewards, but requires extra steps for users to convert rebase tokens into native assets.
  • Native assets - Treasury management rules mean lower liquidity utilisation and have no means of generating extra liquidity when needed creating liquidity bottlenecks. It also increases slippage and creates greater risk from a security perspective.
  • Dual-token model - Derivative of the underlying asset, yield is delivered in native assets with higher volatility.
  • The AQTIS Hybrid Model - Rebase back-end, native assets to users. Consistent yield, frictionless yield claiming, lower systemic risk.

How does it affect AQTIS LSTs?

The simple answer is, for users of AQTIS LSTs, it doesn’t. The rebasing happens in the backend. But it does help create a more secure system with lower risks for exploits and systemic failure than other systems.
If, for example, we held the yield and liquidity together in the same pool, an exploit can access both and drain the protocol of all its liquidity. Because we separate the assets used in the quant tech from the rewards system via vetted smart contracts, we ensure there is consistent yield for the AQTIS community.
So for users, when tokens are rebased, they are automatically converted into native assets and distributed to the user. If users wish to compound, they receive rewards in the form of more LSTs, increasing their overall LST holding and thus their yield/rewards.

How Liquidity and Rebasing combine

The LSTs that are converted into native assets are then repurchased by AQTIS, using the yield generated through our advanced Quant Tech.
This setup enables users to enjoy daily rewards, while AQTIS handles the management of liquidity pools and ensures appropriate price ranges for individual LSTs.

Why Rebasing Matters

Without the rebasing mechanism, the yield would exhibit erratic behavior. For example, if one month the yield was 10%, but another month the yield was 5%, between the two months we would only average a 7.5% yield. And in some months performance might be negative, meaning we would be unable to cover the yield. By rebasing, we always make sure there is a linear stream of yield for users.
If we didn’t do that, users would have to wait for yield to catch up with demand. This rebasing mechanism, coupled with substantial liquidity in the LST liquidity pools, establishes a crucial liquidity buffer between the yield and our Quant Tech.
Even if the ELIF is empty at first, we have sufficient liquidity in the LP pool, and the ELA covers slippage and manages the pools actively.
That means if there is a sudden surge of exit liquidity required, we don’t have to close trading positions to cover the liquidity, which would cause performance deterioration and liquidity issues, which would lead to delays to users.
In summary, AQTIS utilizes a combination of liquidity pools and rebasing mechanisms to provide a stable and predictable yield to LST token holders, with a focus on risk mitigation and liquidity management.

In summary

AQTIS takes a novel approach to rebasing by combining it with a number of distinct features that allow us to ensure yield is consistent, liquidity is always available and the security of the project is improved.
While projects may use rebasing in their token structure, AQTIS goes one step further by introducing features that allow the ecosystem to run more efficiently while ensuring security is upheld.
Have questions? Head to our Discord.
Last modified 19d ago