How to Delegate Tez at 185% APY: Synthetic Assets Explained With Ctez

How to Delegate Tez at 185% APY: Synthetic Assets Explained With Ctez

Ctez is a synthetic tez (XTZ) issued by the developers of Wrap Protocol and the DeFi project Plenty. Users block tez on a smart contract and get an equal amount of ctez. But what for? Where’s the profit? And what does delegating have to do with this?

In this article, we explain what synthetic assets are, why DeFi ecosystems need them, and how to earn with ctez.

Disclaimer: This article is not investment advice or trading guidelines. Tezos Ukraine cannot be held liable for your investment decisions. Never invest more than you can afford to lose.

Who’s Baking That Tez?

Tezos works on LPoS: anyone can delegate their funds to a public baker at 5-6% APY. Staking, farming, and other passive income options on DeFi are based on blocking users’ coins in a smart contract and getting a reward in exchange. It’s alright for project tokens, but in the case of tez blocking, there is the question of why keep them passive if they can be delegated?

The community has been wondering who’s baking that tez ever since the inception of the Tezos DeFi ecosystem. It’s not about profits only: the more funds bakers have, the harder it is to pull a 51% attack. In January 2021, Tezos creator Arthur Breitman offered a solution: make a synthetic tez the issuance of which would make the contract delegate funds to bakers.

In late October, Bender Labs (the developer of Wrap Protocol) and Plenty implemented Breitman’s idea in the form of ctez. Its issuance is somewhat similar to releasing kUSD or uUSD: you create an oven, deposit tez, and take ctez. What’s important is that you can specify the baker the oven has to delegate the locked tez to. Thus, overall Tezos safety grows and the user gets up to 6% APY.

What Synthetic Assets Are For

The simplest analogy would be LP tokens on DEXs. A user deposits funds in the liquidity pool and gets LP tokens that represent their share in the pool. It’s the same for synthetic assets: they represent original tokens and retain their value. Users issue them to get additional profits or use certain projects. Thus, SpicySwap doesn’t support tez but accepts its synthetic version, WTEZ.

So What About the 185% APY?

Conservative investors buy a lot of tez and delegate them to bakers at 5-6% APY. By issuing ctez they can delegate the funds the same way but get synthetic assets to earn on DeFi instead. For instance, they could exchange half of their ctez for PLENTY and deposit them in the liquidity pool, then block the LPs they get in a farm on Plenty DeFi and get an additional 179% APY. As a result, they get a 185% APY plus what they make from the fees in the PLENTY/ctez pool.

It’s been less than a month since the launch of ctez and it’s not widespread yet. We hope more projects on Tezos will support ctez to expand on the options to earn for their users.

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