Volatility in the crypto-industry has been one of the main reasons for slow adoption of cryptocurrencies for business uses such as cash flow management. However, not all crypto-assets are created equal, Cryptium utilizes an elastic supply mechanism to protect stakers against potential loss of value due to price volatility.
Value Protection Mechanism through Elastic Supply
ASSET VALUE = QUANTITY * PRICE
Remember that the value of your asset can be decomposed into quantity times price to equal the value of your asset, and in normal circumstances the quantity of your asset is fixed. For example, if you own 100 shares of Tesla and the price of the share is $850, then the value of your Tesla’s asset is $8500. In the case of the stock market, a decrease in price inherently leads to a decrease of the value of your asset, since the quantity is fixed.
However, in the case of Cryptium, quantity is not fixed for stakers. In the event there is a decrease the staking mechanism of Cryptium enforces the quantity of Cryptium you own to duplicate, ensuring the total value of your asset remains the same or greater than what you previously owned over the previous 7 days. This functionality is only available to stakers, and essentially requires the users to lock their token for a certain period of time. This prevents them from participating and creating market volatility.
Price Becomes Irrelevant with an Elastic Supply
With an elastic supply mechanism like the one used by Cryptium, price becomes a completely irrelevant number. One should consider a fixed rate mortgage as a comparison. In such a mortgage, what matters is the interest rate and the length of time this rate is applicable. Cryptium functions in a similar fashion, regardless of the current price of the token, the smart contract enables participants to lock a fixed rate of growth over the next 12 months. Supply and demand will influence the price of the token, but also the rate. Every day this rate will change, so the main decision you need to worry about is whether or not the rate will be better or worse tomorrow, at which point you choose to stake and lock your tokens. While your tokens are locked, price volatility will have no impact on the value of your asset since you have locked yourself into a specific rate of return. Once the term has completed, you can choose to wait and lock again at a new rate of return.
As shown in this hypothetical scenario, in black we have the price of Cryptium over time which fluctuates up and down with high volatility. However, the first stake in red benefits from a fixed annual percentage yield (APY) of 60%.
Upon completion of the term, and given the current market condition, the APY is then higher for the next period in green. Total assets of $160,000 are then restaked for the green period. Therefore, whether or not the price of Cryptium is higher or lower than at the beginning of the red period is meaningless, because the quantity of your asset varies to guarantee and lock you into a fixed APY. This means that if the price of Cryptium is low, you’ll get more token to ensure the value of your asset is protected, and if the price of Cryptium is high, you’ll get less token. Regardless, you will still have $160,000.
Finally, in yellow the APY turns out to be less then previous terms, yet still positive. In all three cases, the stakers know exactly what to expect, and even though the price of Cryptium may have dropped from time to time, there are no implications to the stakers.
In this hypothetical scenario, when you combine the return of all three staking periods, stakers obtained a higher return overall than someone who held Cryptium from the beginning to the end (line in blue), although this may not be always the case. In reality, staking enables participants to take less risk (not have to worry about volatility), at the cost of sacrificing potential upside if the price of the token increases faster than the agreed upon APY at staking.
Staking at an agreed upon APY is ideal for businesses and risk-averse investors
Appetite for risks varies between investors, but businesses that want to utilize crypto-assets as part of their cash flow, simply cannot absorb the volatility risks of conventional crypto-currencies (such as Bitcoin). This is due to their need for assets to be available to pay employees, suppliers, and operational expenses month over month. In such a case, Cryptium and its crypto-annuity staking mechanism becomes a perfect candidate to benefit from high growth potential of crypto-assets without absorbing the high volatility.
Where does the upside go?
At this point you are probably wondering where does the upside go when the price of Cryptium grows faster than what the stakers receive? Comparatively, where is the money coming from to ensure stakers get their return when the price of the token is falling? Both questions will be answered in our next blog post. Join us on Discord to keep up to date with news about Cryptium.