Defi Kingdoms Value Pockets — Crystalvale Preparation
A Safe Journey
I need to preface this article by making it common knowledge that I have no idea what I’m talking about. I don’t own a crystal ball, can’t predict the future, no mind-reading abilities OR time travel. When I was 13 I thought I was kinda special, but by 18 reality had kicked in and since then I’m confident I’m a human being like the rest of you beautiful people. So with that in mind; this is not financial advice, I have no idea how the world works and I certainly don’t know the intricacies of life and especially your financial situation.
Now that we’re all on the same page, let’s delve into the intricate value pockets created by the launch of Crystalvale (CV) and understand how and why they all relate to one another.
Single-Sided Staking
CV will be launching with a bang! The XJewel-Jewel Liquidity Pool (LP) will initially be the only LP available on the new Defi Kingdoms (DFK) blockchain launch. Based on the CV emissions schedule, this pool should see absurd APRs which will fluctuate based on the amount of Total Value Locked (TVL) in the XJewel-Jewel pool.
The CV Emission schedule can be found in the DFK docs below: https://docs.defikingdoms.com/how-defi-kingdoms-works/the-gardens/ice-gardens
So with this information, let’s take a deep dive into the APRs and how TVL will affect them:
960 Crystal (Per Min Rewards) x60 (Hour) x 24 (Day) = 1,382,400 Crystal Per Day.
For the sake of this calculation, we need to assume the Jewel and Crystal price will be similar to each other, as the DFK team have stated many times should be the case as arbitrage opportunities will exist for hero summoning, renting or other in-game payment methods when prices vary. At the time of writing this article, Jewel price was $7.
1,382,400 (Crystal Rewards Per Day) x 7 ($Price) = $9,676,800 rewards per day.
The Jewel/Crystal price will move drastically over CV launch, but as long as they’re pegged in value the reward APR will stay constant.
Currently, there is $550m of TVL in Serendale. Let’s compare if $110m of this moves over and if $250m moves over for the initial APRs on CV:
$9,676,800 (Daily $Rewards Crystal at $7) / $110,000,000 (TVL on CV, Jewel at $7 Price) x100 (To get a %) = 8.797% Daily APR
$9,676,800 (Daily $Rewards Crystal at $7) / $250,000,000 (TVL on CV Jewel at $7 Price) x100 (To get a %) = 3.87% Daily APR
We can expect the size of XJewel-Jewel LP to grow starting from the initial time of launch until the next pools of Jewel-Crystal and Jewel-Avax are added, and then eventually other Crystal pairs.
Now, let’s break down what this means and formulate a theory on the game-wide ramifications of this event and how we can think dynamically to make sure we’re in the best spots for our own unique sets of circumstances.
The rest of this article will be written on the completely outrageous assumption that people would like absurdly high APRs in a project as established and respected as DFK. Assuming this is true, they’ll need Jewel to access these, leading to the price of Jewel rising.
Assuming this wild assumption is true, the following ripple effects are likely to occur:
Impermanent Loss In Serendale Gardens
For those of you that haven’t heard of Impermanent Loss (IL):
https://academy.binance.com/en/articles/impermanent-loss-explained
If Jewel price starts to increase at a faster rate than the interest you’re earning can match it, you’d be better off not being in the liquidity pairs with Jewel. If you wanted to prepare for this wild situation, you would unbond your LP token pairs shortly before CV gardens open and be fully prepared to deposit into the XJewel-Jewel LP that will be immune from IL, as XJewel and Jewel are effectively pegged to one another outside of the bank’s small interest rate paid to XJewel Holders.
True CV APR
Now it’s very important to realize that although CV’s first week of APRs will be large, 95% of the rewards are locked. Luckily, we can do an approximate calculation on what Locked Crystal (LC) will be worth based on the current market rates for locked Jewel (LJ). Let’s be conservative and price LC at 20% of Crystal value and use our $110m and $250m TVL examples.
Example 1.
Based on $110m locked liquidity on CV at a daily rate of 8.797%, the yearly APR will be 3167%. We can then work out the true APR through the following formula:
3167(%APR)x.05(%Unlocked) = 158.35% (UnlockedAPR)
3167(%APR)x.95(LockedAPR)x0.20 (Selling LC at 20%) = 601.7% (TrueLockedAPR)
158.35(UnlockedAPR)+601.7(TrueLockedAPR) = 760.05% True APR
Example 2.
Based on $250m locked liquidity on CV at a daily rate of 3.87%, the yearly APR will be 1412.55%. We can then work out the true APR through the following formula:
1412.55(%APR)x.05(%Unlocked) = 70.63% (UnlockedAPR)
1412.55(%APR)x.95(LockedAPR)x0.20 (Selling LC at 20%) = 268.38% (TrueLockedAPR)
70.63(UnlockedAPR)+268.38(TrueLockedAPR) = 339.01% True APR
APRs of this size appear to be quite absurd given the size and stability of the DFK project.
Hero Prices Drop
As players start to realize that holding heroes doesn’t provide return quite to the standard of the CV gardens, a mass fire sale will occur in a rush to accumulate Jewel to participate in the new LPs. This effect will be snowball as players sell their heroes to:
- Accumulate Jewel for CV Gardens
- Take profits in USD value on their hero purchases.
- Protect themselves from further drops in Hero prices.
As heroes become cheaper, an opportunity fork is created where Jewel demand is spread between two value pockets:
- Cheap hero prices
- Absurdly high APRs
It’s great to have options, and we’ll touch on cheap hero prices later in the article.
Rental prices dropping
As hero prices fall and Jewel prices rise, it will become much more expensive to summon new heroes. This will create a ripple effect driving rental prices down. The cheaper heroes become, the less incentivised people are to summon as the cost starts to far outweigh the current returns.
For long term players who are not intending to sell their Jewel, this can create a unique opportunity to summon while prices are cheap and sell later when they recover. This is an extremely risky strategy as there is no guarantee hero prices will recover, but this could be logical for several fundamental reasons:
- Hero base summoning costs have not changed
- Questing rewards are relatively constant
- The requirements and value in levelling up a hero have remained the same
- APRs will slowly reduce
Long term players will be paying less in Jewel to summon a hero (this assumes you have no intention of selling). The USD value of this summon will fluctuate though, so let’s use two examples below to illustrate this.
Example 1: As of Today
Jewel at $7. Floor Rental Price 7 Jewel, Gen1 Full Summon Floor Price 67 Jewel:
Gen0 (30 Jewel) + Gen0 (30 Jewel) + 7 Jewel Hire Cost = 67 Jewel to Summon
67 (Total Jewel Cost) x 7 (Jewel Price) = $469 (Per Summon)
Gen1 10/10 Summon Hero Floor Price = 67 Jewel ($469)
Example 2: 1 Week Ago
Jewel at $4.50. Floor Rental Price 13 Jewel, Gen1 Full Summon Floor Price 80 Jewel:
Gen0 (30 Jewel) + Gen0 (30 Jewel) + 13 Jewel Hire Cost = 73 Jewel to Summon
73 (Total Jewel Cost) x 4.5 (Jewel Price) = $328.5 (Per Summon)
Gen1 10/10 Summon Hero Floor Price = 80 Jewel ($360)
From this we can see that even though rental prices in Jewel are cheaper, they’re actually more expensive in USD, and not only that, they’re also less profitable in both USD and Jewel values. These are the reasons why this can only become a value pocket for long term players who intend to summon now, quest for rewards, and sell during more favourable market conditions.
Cheap Hero Prices
We touched on the reduction in hero prices above, but let’s dive deeper into how we can use these to our advantage. For the sake of this article we’ll use Gen0 heroes as an example:
Gen0 floor prices have fluctuated between 1800 and 7500 Jewel since November 2021. A lot of this is due to Jewel price action, and the sharpest tavern moves reflect this. In the last week, the Gen0 floor price has fallen from 4500 Jewel to 2800 Jewel. There is never a guarantee that hero prices will return to higher levels, but we want to use our best judgment to assess what we should (and shouldn’t) be buying and seize the opportunities in front of us.
We want to focus on two things;
- Not all Heroes are born equal:
Example 1 (Above) shows a Mythic Knight with Mining, Strength and Endurance — Making it an optimal miner and exemplary hero for its class with a high chance to pass on these stats to its summons.
Example 2 (Above) also shows a Mythic Knight, except this time with Fishing, Intelligence and Agility — which are suboptimal in all categories and would be passed on to all its subsequent summons, reducing their value as well.
These differences will compound over time in questing, PVP and summoning; hence giving the heroes different intrinsic price valuations.
2. Not all Heroes are valued equally.
A good example of heroes not being valued equally is Miners. The demand for them is extremely high because of LJ mining and the need for teams of 6, or teams of 24 for around-the-clock mining. The floor price for a basic hero in the tavern with mining is on average 40% higher than other professions.
With this in mind, we want to look for the heroes that appear on the market that meet the high end of these two criteria. In a normal market, these heroes are few and far between, but when a higher volume of heroes are being listed it means that value heroes will inevitably appear, and it’s up to your judgment to assess what is a purchase that would be profitable.
A Conclusion of Opportunities
With so many extreme changes happening in DFK over the next few weeks, the financial impact on players is spread to all corners of the game. We’ll be treading the dangers of euphoria, crazy APRs, price fluctuations and the roller coaster of hype. It’s important to be dynamic in your thought process, have a plan and stay rational.
Article Critiques
I’ll be hanging out at ‘The Trading Guild’ discord, where there’ll be dedicated sections to each article if you fall into any of the following categories:
Berserker — You can’t stand my math, inarticulate use of the English language, or overly incompetent article writing skills. Oh, and also that my theories are flawed and absurd.
Sage — You’re curious and want more detail about strategies, have questions, want to add your theories, or want me to cover certain topics
Priest — Simply joining because you appreciate the article, want to say nice things or have a snoop and hang out!
Ninja — CV launch is over and nothing played out as I said, so you’ve got some memes and witty comments ready to hurl!
The Trading Guild Discord:
Twitter:
@edmundwolfson
